“Audit” may mean anything from “check,” “review,” “verify,” or “inspect” when applied to a document, “transaction,” “account,” etc. A tax audit is an investigation of a taxpayer’s books to ensure they are by the requirements of the Income Tax Act.
Certain categories of company owners and professionals are subject to an audit under Section 44AB of the Income Tax Act, 1961. By this subsection, the following categories of taxpayers are required to have their books audited by a Chartered Accountant: It is the responsibility of the CA to ensure that these financial records adhere to all applicable requirements set out by the Income Tax Act. In layman’s terms, a tax audit is an examination of a taxpayer’s books and records as mandated by Section 44AB of the Income Tax Act, 1961. One must also be aware of how much are IRS tax penalties.
An audit report details the findings of the examination. The Chartered Accountant will compile this report to outline his or her findings and opinions on the auditee’s compliance.
Why do they do tax audits, exactly?
There are a few goals that should be accomplished by a tax audit:
Keep accurate records of financial transactions and get them attested to by a tax auditor.
Prescribed information is reported to check for compliance with the many aspects of income tax legislation.
Audits of tax returns further guarantee that the taxpayer’s income and claimed deductions are correct.
If you think you could be audited, check here.
Any taxpayer with annual sales, turnover, or gross profits over 1 Crore will be subject to an audit. However, there are additional scenarios in which an audit of a taxpayer’s books is necessary. These types of taxpayers are required to take part in an audit:
Amendments to the Above Section of the Finance Act of 2020
With effect from AY 2020-21 (FY 2019-20), it is proposed to increase the current 1 Crore turnover threshold to 5 Crore if the taxpayer’s cash receipts are restricted to 5% of the gross profits or turnover.
Monetary payments made by the taxpayer cannot exceed 5% of the total amount paid.