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An income tax audit assesses whether a natural or legal person has filed tax returns for the year of assessment. Section 44AB of the Income Tax Act 1961 sets out the rules for income tax audits. Taxpayers must have their accounts audited under any legislation other than Section 44AB of the Income Tax Act of 1961 are not required to have their accounts audited for an income tax audit. Let’s see eligibility, income tax audit last date, and penalty.

What is a Tax Audit?

A tax audit is a procedure to ensure that the accounts prepared by the taxpayer comply with generally accepted accounting principles and the provisions of income tax law. It is to ensure that business books and other records are maintained and that the taxpayer’s actual income is calculated correctly. A tax audit does not release an assessed person from cost assessment notices. Such audits also help check for fraud.

What is the Tax audit Section 44AB?

Report audited financial statements in prescribed forms. The audit report should include findings, observations, etc. Audit reports relating to audits under Section 44AB must be in Form No. 3CB and must file audit details in Form 3CD.

 Section 44AB contains provisions regarding classes of taxpayers who must have their accounts audited by a chartered accountant. The purpose of the Section 44AB audit is to determine compliance with various provisions of the Income Tax Act and other requirements of the Income Tax Act.

Who is eligible for an income tax audit?

Anyone who earns income from a business or occupation must keep their books up to date and be subject to tax audits except for those who have opted for presumptive taxation under Sections 44AD, 44ADA, or 44AE of the Income Tax Act or whose sales are below a certain threshold.

What are the Objectives of the Tax Audit?

The objective of the tax audit is as follows:

  • Analyze the accuracy of tax returns filed by corporations and individuals for the year of assessment and the record-keeping of the Chartered Accountant (CA).
  • Report the findings of the tax auditor after a thorough analysis of the accuracy or inaccuracy of the submitted tax return.
  • Tax audits look for any frauds or malpractices in the filing of income tax returns.
  • To report important details related to compliance, tax deductions, etc., under income tax laws. They simplify the process for income tax authorities in calculating and evaluating the accuracy of income tax returns filed by individuals or businesses.

What is the due date for the tax audit AY 2022-23?

The due date for tax audit for the assessment year 2022-2023 is:

Type of assesseeDue date u/s 44AB for furnishing tax audit report
If the assessee is required to file reports of CA u/s 92E in connection with international transactions or certain domestic transactions (transfer pricing cases).31st October of the relevant assessment year
Any other case30th September of the relevant assessment year
Due Date for the TaxAaudit AY 2022-23

What is the penalty for a tax audit?

If a person who is required to comply with section 44AB has not had an audit under section 44AB for more than one year or fails to file a report under section 44AB, the assessor will impose a penalty.

0.5% of the total sales, turnover, or gross receipts in business, 

or of the Gross receipts in the profession, in such years or years or,

Rs. 1,50,000.

Whichever is lower of the above will be imposed as a penalty for failure to file an audit report under Section 44AB.

But, if the justification for such failure is given, no penalty will be imposed.

What are the types of tax audits?

The three types of tax audits are 

 Field audit: This type of audit is usually done in an office.

Office Audit: This kind of audit is done at the government office. The people involved need to go to the government office in turn with the necessary documents.

Corresponding Audit: Under this type, the Income Tax Department will send you a letter requesting documents that provide clear or missing information about your tax return.

 Financial audit: This type of audit analyzes the veracity of the information mentioned in the company’s financial statements

Who does not need to conduct an audit?

The following persons do not need to undergo a tax audit:

  • Any assessee who receives income under Section 44B.
  • Any assessee receiving income under Section 44BBA.
  • If the assessee has its books audited under other laws, it is not required to undergo a Section 44AB tax audit. 
  • Where the assessee declares profit under Section 44AD(1) ​​and its gross turnover/turnover/gross income is Rs. 2 crores or less.

How to do a tax audit in India?

The four commonly required forms are

3CA: This is for companies or professionals who need to conduct tax audits mandatorily.

3CB: This is for businesses or professions that are not otherwise required by law to conduct tax audits.

3CD: This form is best suited for a detailed statement of particulars. It comprises various details of the business and its transactions.

Form 3CE: NRIs and foreign businesses should fill out this form. You must submit the form if you are receiving fees/royalties from an Indian company or government in exchange for providing technical services.

Frequently Asked Questions (FAQs)

Is tax audit mandatory for 5 years?

If his taxable income exceeds this five-year basic tax exemption limit, you are obliged to maintain books of accounts and do an audit for the relevant financial year.

Can tax audits be done voluntarily?

No, tax audits cannot be carried out voluntarily.

What is the maximum number of tax audit reports that a CA can sign?

The maximum number of tax audits that a Chartered Accountant (CA) can sign is 60. In the case of a partnership, the tax audit limit applies to all partners.

What happens if you are audited and a mistake is discovered?

Errors in accounting books are usually corrected by the Chartered Accountant.  If you make an error, you may be penalized to pay more tax.

Wrapping Up

If you are a taxpayer, you must follow Section 44AB of the Income Tax Act of 1961. This section states that all taxpayers must receive an audit report after an audit of their books of accounts. It intends to accurately reflect the taxpayer’s income-related activities, deductions, and taxes.

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