The term audit stands for inspection, review or check, so tax audit means when the filled tax is under inspection. There is a tax audit when the Indian Revenue Service (IRS) decides that your tax should be examined and income deduction verified. Tax return comes under audit only when there is something out of the ordinary in your filings.
Who needs a Tax Audit?
When the annual turnover of company is over Rs100 lakh in a financial year
When the annual income of an individual is over Rs25 lakh
Accounts under Tax Audit-
Hindu undivided family(HUF)
Sale/purchase of fixed asset
Duty received on sale of exports
Sale of assets held as investments
Interest income from money lenders
Foreign fluctuation income
Excise duty included in turnover
How to be safe from a tax audit?
The final goal of any business is to make financial profits but it should be done appropriately without any suspicious profits. One must always remember the following points to be on the safer side:
Maintenance of accounts book is mandatory by law
Income is taxable or Loss allowable
Taxable income and allowable loss must be shown while ITR filing
Profit must be computed
Types of Tax Audit-
Correspondence Audit: It is the simplest type of audit where IRS asks questions regarding some expenses via a letter and might ask for a few receipts
Office Audit: Here the auditor will ask way more questions than just a letter and the information they will ask for will be detailed
Field Audit: It is more comprehensive than office audit and the IRS visits the house or work place and they will not be limited to particular area
Tax Payer Compliance Measurement Program (TPCMP): The main purpose of this tax audit is to get an update of data for IRS DIF scores which are developed from the analysis of a larger group involving up to fifty thousand randomly picked returns conducted every few years
“At Starters’ CFO our team of experts manages accounts and taxes in the most appropriate way and eliminates any chance of consequences during a tax audit.”
A Tax Audit is an examination of one’s Tax Return to verify that one’s declaration of income and deductions are accurate. In India, Tax Audit is compulsory under the Income Tax Act (if only the total turnover exceeds the prescribed limits).
Tax audit ensures that the books of account and other records are properly maintained, that they truly reflect the income of the taxpayer and claims for deduction are correctly made.
The main objective of tax audit is to ascertain/derive/report the requirements of Form Nos. 3CA/3CB and 3CD.
The form prescribed for audit report in respect of audit conducted under section 44AB is Form No. 3CB and the prescribed particulars are to be reported in Form No. 3CD. The persons who are required to get their accounts audited by or under any other law, the form prescribed for audit report is Form No. 3CA/3CB and the prescribed particulars are to be reported in Form No. 3CD.
Category of taxpayer
Form for audit report
Annexure to audit report
If books of account of assesse are required to be audited under any other law
In any other case
A person covered by section 44AB should get his accounts audited and should obtain the audit report on or before the due date of filing of the return of income of the relevant assessment year, i.e. on or before 30th September.
a. 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such year or years.