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Section 44AB specifies that specific categories of individuals or businesses require tax audit by a chartered accountant to ensure compliance with the laws and keep fraudulent tax practices in check.
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Section 44AB of the Income Tax Act of 1961, persons involved in certain professions or exceeding a certain amount in business must get their account books audited by a chartered accountant.
Audit refers to inspecting or scrutinising book accounts to ensure they comply with the Income Tax Act and other related laws and check fraudulent practices.
There are three types of audit of the auditing process. They are given below:
Field audit: The audit is conducted at the office of a company. All the necessary documents are to ensure that the auditing is done successfully.
Office audit: The auditing takes place in the office of the IRS. All the necessary documents are required for the audit, and one must receive a letter mentioned in the documents.
Correspondence audit: Here, a person received a letter mentioning the documents required for the auditing process and ensured to mail all the required documents to the mentioned address.
The objectives of a tax audit can be summed up as follows:
From April 1, 2021, as per Finance Act 2021, the threshold limit of Rs 5 crore has been increased to Rs.10 crore if the transactions exceed 5% of the total transaction amount.
For FY 2023-24, an income tax audit is applicable based on the turnover of business or receipts from the profession. All the mandatory provisions related to audits are given in section 44AB.
For businesses opting for presumptive taxation under section 44AD, the general turnover limit is increased to Rs.2 crore for a financial year. Also, for entities covered under sections 44AD, 44AE, 44AF, 44BB, and 44BBB who declared their profits as a particular percentage of turnover, which is below the prescribed limit and income exceeds the basic exemption limit, then tax audit becomes applicable to them.
A threshold of Rs.10 crore is applicable if a person carries most of the transaction digitally. In that case, an audit applies to those business entities.
The total sales and turnover exceed the amount of Rs.1 crore in the financial year. If the cash transactions are up to 5% of total gross payments, the threshold limit of turnover for an audit is increased to Rs.10 crore.
Profits claimed are lower than the prescribed limit under the presumptive taxation scheme.
Taxable income is declared below the prescribed limits per the presumptive tax scheme but exceeds the basic threshold limit.
If income goes beyond the maximum amount not taxable for the subsequent five consecutive years from the date when the presumptive taxation was not availed
The presumptive taxation scheme is only availed if the income is within the maximum amount not taxable in the subsequent five consecutive years from the date.
The audit is not applicable if the total sales are at most Rs.2 crore in the financial year.
Total gross receipts are above Rs.50 lakh in the Financial year
1. Claims profits below the prescribed limit as per the presumptive taxation scheme
2. Income is above the maximum amount, not taxable.
Total sales above Rs.1 crore
For businesses incurring a loss when sales, turnover, or gross receipts are above Rs.11 crore, the taxpayer is prescribed for taxing audit under Section 44AB.
No tax audit required
Taxable income declared below the limits prescribed under the presumptive tax scheme and income above the basic threshold limit.
If there is a sufficient reason for delay or non-filing of the audit report, then as per Section 273B, no penalty is applicable. Reasons allowed as per section 273B are:
A tax audit is conducted only on business or profession, not individual income. Auditing of accounts is a best practice that will ensure that the laws are adhered to and that there is no tax fraud or evasion. The chartered accountant in charge of audits has to ensure that the client’s accounts are in order and is also responsible for making accurate observations and reports to the government.
Also Read: All you need to know about Tax Audit Report
Minakshi Bindhani has completed LL.M. with a specialization in Criminal Law from Madhusudan Law University, Cuttack, Odisha. She is more inclined toward legal research and writing and have prior experience in Civil and Criminal litigation and content writing.
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