Income Tax

Why hire Income Tax Audit services for the Company?

Many rules and regulations exist in the country relating to Income Tax Audits. Generally, a tax Audit is the process of verification and inspection of the accounts of taxpayers to adhere to the provision of law. Section 44AB of the Income Tax Act, 1961^[1] deals with the Audit of the accounts of specific categories of persons or businesses to mandatorily have to get their accounts audited by the Charted Accountant (CA). The CA is authorized to evaluate ITRs filed, deductions and outlays, and other guidelines as stated by the Income Tax Act. The procedure of Income Tax Audit makes the calculation of ITRs easier. The CA of the concerned organization carrying out the Audit must provide Form 3CB or 3CA, and Form 3CD, as an audit report having the remarks.

However, there are types of audits, including counting cost audits, stock audits, company audits, tax audits, secretarial audit reports, etc. As the name suggests, an income tax audit intends to estimate if a person or enterprise has correctly filed the ITRs (Income Tax Returns) of a taxation year.

What Are the purposes Of Tax Audit?

An income tax audit is vital due to a lot of reasons. Some of them are mentioned below:

• The income Tax report contains essential information about compliance, tax depreciation, etc. It simplifies the procedures for income tax establishments to estimate the accuracy of the ITR filed by the enterprise or person.
• It even helps to keep an eye on the frauds and malpractices in filing Income Tax Returns.
• There is a reporting of findings by the auditor to make a thorough examination of correctness or imprecisions in the ITRs filed.
• It is also essential for analyzing the correctness of ITRs filed in a taxation year by enterprises or persons, plus the preservation of accounts by the CA.

What Is a Presumptive Taxation Scheme?

When an individual is registered under the presumptive Income Tax Filing scheme, and the person must have an overall revenue or income of more than ₹2 crores, it is necessary to go through a tax audit. For any individual registered under this scheme claiming that the profits of the business are below the profits estimated according to the presumptive taxation scheme, a tax audit, in this case, is necessary.

Why Is a Tax Audit Necessary?

These are the classes of taxpayers for whom an income tax audit is necessary:

• A business holder cannot claim presumptive taxation under Section 44 AD as he has pursued it in a specific taxation year and not for any of the five succeeding years later. It applies while his yearly revenue is over the maximum sum not chargeable to tax in the next 5 succeeding taxation years from the tax year.
• An employee of a company whose gross income is over ₹50 lakh.
• A business holder who hasn’t elected a presumptive taxation scheme and has a gross revenue/turnover of over ₹1 crores.
• An employee in a company can opt for presumptive taxation and claim revenues lower than the set limit under presumptive taxation. Also, the annual salary of this worker is over the maximum sum that isn’t tax chargeable.

The Process of Income Tax Audit Report Filing

Here is everything to know about the audit filing process:

• The CA is appointed to carry out an income tax audit of a company, or a person must show the audit report online with his valid login details.
• The taxpayer, too, needs to mention the relevant details related to their CA within their capacity.
• As soon as the tax auditor uploads the report, it must be approved or declined by the taxpayer on their login platform. In denying the report, the whole procedure should be performed again until the taxpayer approves the report.
• After verifying the report, the ITR filed on or before the due date, November 30 of the following taxation year for taxpayers involved in an overseas transaction and September 30 for other taxpayers.

Income Tax Audit Limitation

According to Income Tax Act, Section 44AB, the audit limitation for businesses, professionals, and presumptive taxation schemes are as follows.

Professionals

Income Tax audit for professionals applies when the gross income in the dedicated occupation is over ₹50 lakhs in any prior taxation year. According to Rule 6F PF of the Income Tax Rules, this occupation can be engineer, legal professional, accountant, technical consultant, interior designer, architect, doctor, etc.

Business

For businesses, tax audit applies to people with a gross revenue or overall turnover of more than ₹1Cr, within the preceding taxation year. As per the Income Tax Act, the word business means any financial act that gains revenues and profits. Section 2(3) states that business is anything associated with trade and manufacturing.

Presumptive Taxation Scheme

While a person is registered under this scheme, under Section 44AD, and has a turnover of over ₹2 Cr., then he must undergo an audit.

Other Types of Tax Audits for Companies

Construction audit

Construction audit evaluates the outlays for construction ventures and other essential specifics like payments done, changes in orders, contractors allotted, etc. The key objective of the construction audit is to keep track of whether the expenses acquired for the ventures are realistic.

Investigative Audit

An investigative audit analyses a particular person or region when there is a doubt of wrong or deceitful activity. The objective of this Audit is to discover and cure control infringements and gather pieces of evidence.

Compliance Audit

A compliance audit assesses the policies and procedures of a department or body. These are generally educational institutes or diligence and see if it accommodates the regulatory principles.

Financial Audit

It is one of the most common audit types. A financial audit generally assesses the legitimacy of the info mentioned within the fiscal reports of organizations. This Audit must be carried out by a CPA agency that works self-sufficiently for the organization being inspected.

Information Systems Audit

An information systems audit analyses the controls of various technologies. These include software development, data processing, and much more. The fundamental purpose of this Audit is to guarantee data preservation, control the working of the IT systems, and get access to the accuracy of outcomes being generated.

How to reduce tax liability for the Company

Here are some ways to reduce tax liability for the Company

To file taxes on or before the due date and ensure that as a law-abiding citizen, filing taxes before the due date also provides other advantages. However, it can carry forward the due payment of taxes for up to eight consecutive years.

The changes instated by the government revise the policies from time to time to help businesses and small and medium scales. Every deduction is required to reduce the taxable slab.

Invest in most of the start-up expenses. Also known as preliminary expenses, these give the tax benefits under Section 35D of the Income Tax Act. Typically comprising expenses you incur before your business’s commencement, these can be written off over five consecutive years as per the provisions of the law.

So, keep pointers in mind to reduce tax liability and to carry out the tax audit on time. Due to non-compliance, the Company will have a penalty of up to Rs 1,50,000 to pay.

Conclusion

Penalties are put aside only when taxpayers present a sufficient reason for non-compliance. The Company account records are not reviewed as per Section 44 AB of the Income Tax Act, and the assessee is deemed to be in charge of a penalty according to Section 271B. In case of a postponement report, overall turnover (0.5 per cent), about ₹1.5 lacks, must be paid as a penalty.

Read our Article: All you need to know about Tax Audit Report