Tax Audit Under Income Tax Act

Tax audit is a mandatory requirement for taxpayers who fall under certain categories as specified by the Income Tax Act, of 1961. The purpose of a tax audit is to ensure that taxpayers have correctly computed their income and have paid the correct amount of tax.

Who is required to get a tax audit?

The following taxpayers are required to get a tax audit:
  • Businesses with a turnover of Rs. 1 crore or more in the financial year.
  • Professionals with gross receipts of Rs. 50 lakh or more in the financial year.
  • Individuals who have claimed a loss under the presumptive taxation scheme but whose total income exceeds the basic exemption limit.
  • Individuals who have claimed depreciation under the straight-line method on assets costing more than Rs. 20 lacs.
  • Individuals who have claimed capital gains on the sale of immovable property.
  • Individuals who have claimed any other deduction or exemption under the Income Tax Act that is subject to conditions.

What is the process of a tax audit?

The tax audit is conducted by a chartered accountant who is registered with the Institute of Chartered Accountants of India (ICAI). The chartered accountant will examine the taxpayer’s books of account and other relevant documents to verify the correctness of the income and expenses. The chartered accountant will then prepare a tax audit report, which will be submitted to the taxpayer and the Income Tax Department.

The tax audit report must contain the following information:
  • The name and address of the taxpayer.
  • The financial year for which the audit is being conducted.
  • The taxpayer’s income and expenses.
  • The amount of tax payable.
  • Any other information that the chartered accountant considers relevant.

The tax audit report must be submitted to the Income Tax Department by the due date, which is usually 30 September of the assessment year.

Failure to get a tax audit or to submit the tax audit report on time can result in penalties.

The penalties for non-compliance with the tax audit requirements can be significant. The taxpayer may be liable to pay a penalty of up to Rs. 25,000. In addition, the taxpayer may be denied certain tax benefits, such as the deduction for business expenses or the exemption for capital gains.

It is important for taxpayers to understand the tax audit requirements and to comply with them. By getting a tax audit conducted and submitting the tax audit report on time, taxpayers can ensure that they are complying with the law and that they are not exposed to penalties.