Tax Audit

What is Tax Audit?   

A Tax Audit is an examination and verification of the accounts of a business or profession carried out by a Chartered Accountant (CA) to ensure compliance with the provisions of the Income Tax Act, 1961.

It is mandatory for certain businesses and professionals whose turnover or gross receipts exceed specified limits.

Benefits of a Tax Audit:

·        Ensures accuracy and correctness of books of accounts.

·        Helps in detecting and preventing tax evasion.

·        Mandatory for smooth filing of income tax returns in specified  cases.

·        Increases transparency in financial reporting.

·        Provides credibility to financial statements when presented to  banks, investors, or government authorities

Process of Tax Audit

·        Appoint a Chartered Accountant (CA) registered with ICAI.

·        Preparation of financial statements: Profit & Loss Account, Balance Sheet, Ledgers.

·        CA will verify and audit books of accounts, bills, vouchers, and financial transactions.

·        Filing of Form 3CA/3CB (Audit Report) and Form 3CD (Statement of particulars) online on Income Tax Portal.

·        Submit final audited financial statements and income tax return.

Tax Audit Criteria (As per Section 44AB of Income Tax Act, 1961)

A tax audit is a process where a Chartered Accountant reviews and certifies the accounts of a taxpayer to ensure compliance with the Income Tax Act.

Who is Required to Get a Tax Audit?

·       Business:-

If total sales/turnover/gross receipts exceed ₹1 crore in a financial year.

(Limit increased to ₹10 crores if cash transactions are up to 5% of total transactions.)

·        Profession:-

If gross receipts exceed ₹50 lakhs in a financial year.

·        Presumptive Taxation (Section 44AD):-

If taxpayer declares income less than 8%/6% of turnover and total income exceeds the basic exemption limit.

·        Presumptive Taxation (Section 44ADA/44AE):-

If income declared is less than the prescribed limit under   the respective sections and total income exceeds exemption limit.

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