There are various kinds of company audit being conducted under different company laws such as company audit/statutory audit conducted under company law provisions, cost audit, stock audit etc. Similarly, Income tax law also mandates an audit called ‘Tax Audit’. As the name itself suggests, a company Tax audit is an examination/review of accounts of any business company /profession carried out by the taxpayer from an indian income tax viewpoint. A Tax audit makes the process of income computation for filing of return of income(ITR), much easier.
Objectives of tax audit
Tax audit is conducted for company to achieve the following objectives:
Ensure proper maintenance and correctness of books of company accounts and certification of the same by tax auditor
Reporting of observations/discrepancies noted by tax auditor after a methodical examination of books of company account
Reporting prescribed company information such as tax depreciation, compliance of various provisions of income tax law etc. This in turn enables and also saves time of tax authorities in verifying the correctness of income tax return filed by the taxpayer such as total income, claim for deductions etc.
Following categories of taxpayers are required to get a tax audit done:
Category of person
Carrying on business (not opting for presumptive taxation scheme*)
Total sales, turnover or gross receipts exceed Rs 1 crore
Carrying on business (opting presumptive taxation scheme under section 44AD)
Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit
Carrying on profession
Gross receipts exceed Rs 50 lakhs
Carrying on the profession eligible for presumptive taxation under Section 44ADA
Claims profits or gains lower than the prescribed limit under presumptive taxation scheme and income exceeds the maximum amount not chargeable to tax
Carrying on the business and is not eligible to claim presumptive taxation under Section 44AD due to opting for presumptive taxation in one tax year and not opting for presumptive tax for any of the subsequent 5 consecutive years
If income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the tax year where presumptive taxation is not opted for
Tax audit can be conducted by a Chartered Accountant who holds the certificate of practice and is in full-time practice. However certain classes have been defined who cannot conduct tax audit under section 44AB. The tax auditor (CA) carries out a systematic examination of books of account as per the formats prescribed by the department.
Tax auditor shall furnish his report in a prescribed form which could be either Form 3CA or Form 3CB where:
Form No. 3CA is furnished when a person carrying on business or profession is already mandated to get his accounts audited under any other law.
Form No. 3CB is furnished when a person carrying on business or profession is not required to get his accounts audited under any other law
In case of either of the audit reports mentioned above, tax auditor is also required to furnish the prescribed particulars in Form No. 3CD which forms part of audit report.
The due date for completing and filing a tax audit report under section 44AB of Income Tax Act is 30th September of the assessment year. Hence, if a taxpayer is required to obtain a tax audit, then he or she would be required to file an income tax return on or before 30th September along with the tax audit report. In case the taxpayer is also liable for transfer pricing audit, then the due date for filing tax audit is 30th November of the assessment year.
1. Main benefit of tax audits is to help the government to avoid tax theft by companies.
2. Tax audit ensures that total estimated tax is achieved by the tax department.
1. It incurs more cost and revenue to conduct.
2. Bring complications within management on power sharing.
Ans. It may be pointed out that report under section 44AB should not normally be revised. However, sometimes a member may be required to revise his tax audit report on grounds such as: revision of accounts of a company after its adoption in annual general meeting.
Ans. The due date for completing and filling tax audit report under section 44AB of income tax act is 30th September of the assessment year. Hence if taxpayer is required to obtain tax audit, then he or she would be required to file income tax return on or before 30th September along with tax audit report.
Ans. It is mandatory for an individual, firm, LLP (if their accounts are required to be audited under the provisions of section 44AB), political parties and companies to file the ITR using the DSC. Before verifying the ITR using the DSC, it is mandatory to register the DSC on the income-tax e-filling website.
Ans. The Act does not prohibit a relative or an employee of the assesses to being appointed as a tax auditor. A Chartered accountant who is responsible of writing or maintenance of books of accounts should not conduct tax audit for the same assesses. The same applies to a partner of such member as well as the firm.
Ans. Section 44AB does not specify that only the statutory auditor appointed under the Companies Act should perform the tax audit. Therefore, the tax audit can, be conducted either by the statutory auditor or by any other CA in practice.