Simple understanding of Tax audit for AY 2018-19

Posted by Reena More on June 19th, 2019

The idea of any kind of audit of your business activities is to record the process and documentation, and correct the course if you are in the wrong direction. On a similar note; Tax Audit is an official inspection conducted of the accounts and books of your organization or business to help you make the income calculation process for ITR far simpler to make you prepare well in advance to file your income tax returns. A tax audit can really help you understand your financial position and highlight places where you can save taxes.

The key focus or rather objectives to perform a tax audit activity is:

➔   To help the tax authorities conduct a routine verification by facilitating the administration of tax laws by a proper presentation of accounts before.

➔   Ensuring that the maintenance of the book of accounts and other records of the assesse is strictly adhered

➔   Ensuring that the book of accounts accurately reflect the income and deductions of the taxpayers

➔   Ensuring that the calculation of the income for filing the returns is more efficient

➔   Ensuring that Form 3CA/3CB and 3CD is ready to show. These are audit reports prepared by your CA on your behalf

➔   Reporting of any discrepancies or observations noted by tax auditor after a examination

➔   Reporting depreciation of tax, compliance of various provisions and so on, to save the time of verification for tax authorities and detailing of income tax returns including the total income, claim for deductions etc., that is filed by the taxpayer.

The due date to file the tax audit with the Income Tax department is before 30th September of every year. If you fail to submit the tax audit report on or before the given due date, without proving any reasonable cause for such failure -- then according to section 271B, you will be imposed with a penalty by the assessing officer under section 44AB. This could either be:

➔   0.5% of your total sales, turnover or gross receipts

➔   0.5% of the gross receipts in profession

➔   ₹. 1,50,000

The tax audit report constitutes either Form 3CA or Form 3CB where:

➔   If you are performing a business or profession that already mandates you to get your accounts audited under any other law then you need to attach Form 3CA in your Tax Audit Report. Some of the major components of form 3CA include:

◆    Your ( taxpayer ) Details: Full Name, Permanent Address and Permanent Account Number (PAN), etc.,

◆    Date of the audit report.

◆    Details of the Annexure: Balance sheet, P&L A/c, Form 3CD, other documents

◆    A declaration by the auditor for verification of the details that have been filled in the form and the annexure ( subject to eligibility/ observations if any )

◆    Full Name, Permanent address, membership number, FRN no. and signature with stamp/seal of the Auditor

➔   If you are in the business that does not require you to audit your accounts and business, then you must attach Form 3CB to the tax audit report.

◆    Your ( Taxpayer ) Details: Full Name, Permanent Address and Permanent Account Number (PAN)

◆    Date of the audit report

◆    Details of the Annexure: Balance sheet, P&L A/c, Form 3CD, and other documents

◆    Declarations from the following people :

• By the auditor - verifying the details that have been filled in the form and the annexure ( subject to eligibility/ observations if any ), and that they have obtained all necessary information and explanations for the purpose of the audit
• By the auditor verifying that the books of accounts have been duly maintained
• By the Chartered Accountants verifying that all the details mentioned in the form and annexure are true ( subject to qualifications/observations )

◆    Submitting a detailed report of the detailed observations, comments, discrepancies, and inconsistencies ( if any )

◆    And finally, please make sure to fill the form that specifies the full name, permanent address, membership number, FRN No. and signature of the auditor with stamp/seal.

Besides the two forms mentioned above, you will also have to attach duly filled Form 4CD as well.

Is Tax Audit Applicable to your business

In any of the following cases, it is mandatory for you to get your business accounts audited by a by a Chartered Accountant in practice before the specified due date:

➔   If you are performing a business that is doing a total sales, turnover or gross receipts of more than ₹. 1 crore

➔   If you have earned more than ₹. 50 lacs in gross receipts in any of the previous year

➔   If you ( as a taxpayer ) are covered under Section (44AE, 44BB and 44BBB) and are claiming that your profits or gains that you have earned from the business are less than the what had been presumed during calculations

➔   If you ( as a taxpayer ) are a part of a profession notified under Section 44AA, and claim that the profits and gains in your profession are lower than what has been calculated on a presumptive basis under section 44ADA.

➔   If you are declaring taxable income that is lower than what has been prescribed under the presumptive taxation scheme, while your income is exceeding the basic limit, under section 44AD(4).

When is Tax Audit not applicable to your business

➔   The minimum requirement of total sales, turnover or gross receipts is ₹. 2 crores, on a  presumptive basis under section 44AD. If your business does not comply to that, then you are not eligible for a tax audit

If you derive your income from a nature of business that has not been mentioned in the sections 44B and 44BBA, then you are not eligible for a tax audit.