Section 44AB of the Income Tax Act, 1961 deals with the Audit of the Accounts of a particular category of persons carrying on a business or a profession.
Tax Payers listed under this section compulsorily have to get their accounts audited by a Chartered Accountant. The CA will check and verify your accounts based on the provisions of the law. Simply put, the audit under Section 44AB of the Income Tax Act, 1961, is called a tax audit.
The outcome of the audit is an audit report. A Chartered Account draws the audit report and gives audit observations.
Once you complete the audit, you should file the ITR before the ITR filing’s last date.
Why do you need a Tax Audit?
The important purposes of a Tax Audit are
- Tax Audit ensures that your accounts are maintained and certified.
- It provides information regarding tax depreciation, income tax law, compliance, etc.
- It helps to verify the correctness of income tax returns.
- It eases the calculation and verification of total income and deductions.
- It helps to file your ITR before the ITR filing last date without delay.
What are the types of Tax Audits?
There are three types of audits. They are,
- Field audit: Audit performed at your office. You will have to provide all the documents for the successful audit.
- Office audit: The audit takes place in the office of the IRS. You will receive a letter which mentions the documents you must carry.
- Correspondence audit: You will receive a letter that mentions the required documents to mail.
Who needs to do a Tax Audit?
You need to audit your revenue if your sales, turnover, or gross earnings are more than ₹ 1 Crore in a given financial year and file the ITR before the ITR filing last date.
What is tax audit limit for AY 2022-23?
- Businessmen with gross income/turnover/turnover of more than INR 1 crore in the previous financial year. It ceases to apply to persons electing an estimated tax schedule under Section 44AD if their gross income or turnover does not exceed Rs. 2 crore.
- Professionals whose gross income in the previous financial year exceeded 50,00,00 rupees.
- Individuals who claim less business interest than expected and fall under Sections 44AD, 44AE, 44AF, 44BB, and 44BBB.
- According to a recent statement, anyone who processes the majority (in this case, 95%) of their transactions digitally, i.e. online, will be subject to increased tax inspection limits.
What is the cost of a Tax Audit?
The Price of Audits varies depending on your accounts.
Commonly, Audit fees would be RS. 5,000. ITR fees would be Rs. 2,000.
This fee may be the basic one which varies depending on your Accounts.
What is the time limit for an audit?
The Audit performed at your place or office will complete within three months from the commencement date.
If the audit is not completed within three months, the commissioner extends the audit further for six months, stating the reasons.
The date of commencement of the audit is the date on which you provide the required documents to the Tax Authorities.
As you complete your audit in the given time, you can file your ITR without delay before the ITR filing last date.
Frequently Asked Questions (FAQ)
What is the due date for the tax audit ay 2022-23?
At the end of each financial year, you need to file an Income Tax Return with the Income Tax Department.
To guarantee that you file the returns on time, the tax department has set a deadline by which you can file a return without paying late fees. This last date is the Income Tax Return Due Date
The deadline for filing an Income Tax Return varies based on the type of taxpayer; for example – Individual, HUF, firm, LLP, company, trust, and AOP/BOI; and whether or not an audit is required.
If you file your return beyond the due date you will be subject to interest under Section 234A and a penalty under Section 234F.
The due date for the tax audit ay 2022-23 is 31 October 2022.
Is the Due date Extended for the tax audit?
The Central Board of Direct Taxes (CBDT) has extended the due date for filing income tax returns (ITRs) by corporate and individuals to November 7, 2022.
The extended due date applies to all taxpayers who require an audit.
What is the penalty for a late audit?
If your account is not audited, as per Section 44AB, you pay a penalty as per Section 271B of the Income Tax Act.
If you delay completing the audit and submitting the report on time (before or on September 30), you will pay 0.5% of the turnover, a maximum of Rs. 1.5 lakh, as a penalty.
However, if there is a valid reason for such delay, no fine shall be levied under section 271B.
So far, the reasonable causes are:
- Natural Misfortunes
- Resignation of the appointed Tax Auditor
- Labor problems such as strikes, lock-outs for a comprehensive term
- Loss of Accounts because of circumstances exceeding the control
- Physical inability or death of the member in charge of the accounts
Is tax audit mandatory for 5 years under section 44AD?
Small taxpayers get relief from the newly introduced presumptive taxation scheme under section 44AD.
Features of the presumptive scheme –
a. Your revenue must be less than Rs 2 crores.
b. Your minimum net income should be 8% of your turnover (the minimum net income should be considered 6% in the case of digital receipts).
c. You don’t have to maintain accounting records.
d. Assessee opting for presumptive taxation has to pay 100% advance tax by 15th March of that particular financial year Before FY 2016-17 you don’t have to pay advance tax.
e. You don’t have to audit your accounting records.
f. You can file your tax return in ITR-4 in a simpler form than ITR-3.
In these five years, if your taxable income exceeds the basic exemption limit, maintain your books of accounts and do a tax audit for the relevant financial year.
How can I submit my tax audit report ay 2022 23?
The Chartered Accountant shall file the audit report electronically directly at https://www.incometax.gov.in. However, you authorize and appoint the Chartered Accountant from your e-filing account to furnish the report.
What happens if I do not do a tax audit?
If you are liable to get a tax audit, but you fail a penalty is charged to you. Your penalty is 0.5% of the total sales or gross receipts or turnover. Rs 1,50,000.
Can I file ITR without an audit report?
If your income is liable for tax audit you must file ITR with the Audit Report.
You are responsible for a penalty if you file ITR without an audit report.
What is ITR filing last date for tax audit?
ITR filing last date for tax audit is 31st October 2023.
Can you go to jail if you fail in a tax audit?
Your answer is no. If you fail to audit, the result is a large tax bill. Not only will you have to pay more taxes than you thought — you also owe interest on those taxes.
This can make the bill quite high but, you will not be sent to prison for being unable to pay your additional taxes. If you can’t afford to pay it all, you can work out a payment plan with the department, or even try to get a Proposal In Compromise.
Bottomline
A tax Audit means checking and reviewing your account before filing your ITR. You should do a proper audit of your accounts for the transparency of your source of income to the Income Tax department. Once you complete your audit you can file your ITR within the ITR filing due date to avoid penalties. Happy Taxing.