Tax Audit in India

As scary it might sound, tax audit is not that big of a monster; in fact it is quite the opposite. Tax audit is just a scrutiny of tax returns by an outside agency to verify that the income and deductions are filed correctly. Section 44AB of Income tax Act defines Tax Audit in India. It ensures that the books of accounts are maintained properly and they reflect a true and fair picture of income of the taxpayer and the claims of deductions are correctly made by them. Also the time saved by assessing officers could be used utilized for attending more important and investigational cases. But not everyone is required to get their accounts audited; according to the Indian Income Tax Act, 1961, any person carrying on a business must get his book of accounts audited by a Chartered Accountant if he/she fulfills certain conditions:

If his/her turnover is more than 1 crore;

A professional whose gross receipts are more than 50 Lakhs
A person engaged in the following business or profession that his/her income is lower than the deemed profit

A person engaged in retail trade of goods and merchandise, if he assumes 5% of his turn over as his net profit and his /her turnover is less than 50 Lakhs (Section 44AD)

If a professional whose net turnover is less 50 Lakhs, and he/she assumes 50% of Sale from Profession as his/her profits (Section 44ADA)

If a person engaged in transport business presumes that his/her profit from each truck is Rs. 7500/month from each truck irrespective of the size (Section 44AE)

An assessee engaged in the business of service provision in connection with the supply in plant and machinery on hire used in the process of extraction or production of mineral oil states that 10% of the amount paid or payable to or received or receivable of such service provision is deemed as the taxable income of such foreign assessee (Section 44BB).

Foreign companies which are engaged in the business of civil construction or erection related to the turnkey power project shall deem that 10% of amount paid for such project as income (Section 44BBB).

In case an person is required to get his/her books of accounts audited as per any other law; then he /she is not required to get his /her accounts audited again. The taxpayer is required to submit the tax audit report by 30th September of every financial year.

There is also penalty for non compliance of the law by an assessee. If an assessee who is applicable to get his accounts audited and fails to do so in that case a penalty of 0.5% of turnover; under section 271B of Income Tax Act 1961 is imposed over him/her. However the maximum penalty that could be imposed over an assessee cannot exceed Rs. 150000. However section 273B states that no penalty under section 271B will be imposed if there is a reasonable cause for failure.

The causes that are accepted by the assessing officers are as follows:

If the tax auditor resigns and that causes delay
If the partner in charge of the accounts dies or is physically in capable of getting the accounts audited
If there is a strike or a lock out for a long period
If there is a loss of accounts because of fire /theft etc
If there are any natural calamities.

The reports of tax audit are to be furnished in form no. 3CB and form no. 3CD. If a person is supposed to get his account audited under any other law then he or she should furnish return in form no. 3CA and 3CD.

Tax Audits in India is actually an effort to keep things smooth and running, it is not just an help to the assessing officer but it also help the taxpayers with all the legal compliances, so that they don’t end up confused, with the help of professional’s all the hassle is turned into a smooth run.

Shekhar Gupta has been actively blogging for over six years on a myriad number of topics including accounts, finance, financial technology, insurance, taxation, corporate taxations, Tax Audit in India and business & economy among others.

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