Introduction

An audit is simply a formal examination. By the Income Tax audit under section 44AB, certain individuals and businesses are required to maintain their financial records. Rreviewed and checked the accounts. A tax audit is essential for both businesses and individuals when conducting business beyond a certain threshold. A tax audit is conducted to verify that the taxpayer keeps accurate financial records and follows the rules outlined in the Income-tax Act. The Chartered Accountant must present his discoveries, observations, and other information in an audit report while performing the tax audit. The mandatory audit report according to Section 44AB must be submitted digitally on the e-filing portal in Form No. 3CA/3CB-3CD.

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Primary Objective of a Tax Audit

The goals of a tax audit can be outlined in the following manner:

• It guarantees that the financial records are kept in good order and approved by a tax accountant.
• It assists in generating reports regarding suggested information such as tax depreciation, compliance with income tax law, and other related matters.
• It guarantees that a tax auditor examines the books of accounts and reports closely for any observations or discrepancies related to the method used.
• It assists in confirming the accuracy of the income tax returns submitted to the IT department.
• It simplifies the process of calculating and confirming total income, deduction claims, and other related tasks.

Different Types of Tax Audit

There exist three varieties of auditing procedures. Here are the following:

• Field Audit: This audit is carried out at your place of work. You must submit all required documents to ensure the audit is completed successfully.
• Office audit: This is where the auditing occurs in the IRS office. Ensure that you have all the required papers with you. You will probably be sent a letter stating the documents you need to bring.
• Audit by mail: You will be sent a letter detailing the necessary documents for the audit. Make sure to send all necessary paperwork to the address listed in the email.

Read Our Blog: Income Tax Slabs FY 2023-24 & AY 2024-25 (New & Old Regime Tax Rates)

AY 2023-24 Income Tax Audit Limits

• A business person who had gross receipts/turnover/sales exceeding Rs. in the last fiscal year ten million. Choosing a presumptive taxation scheme under section 44AD is no longer important for the individual. The individual's overall earnings or revenue would not surpass Rs. 20 million.
• An expert with gross earnings exceeding Rs. in the past fiscal year. 5 million.
• Individuals listed in Sections 44AD, 44AE, 44AF, 44BB, and 44BBB reported reduced business profits higher than originally predicted.
• As per the most recent update, individuals who conduct the majority of their transactions online Transactions may qualify for a limit increase in audits.

Who is required to undergo tax auditing?

As per the Finance Act 2021, starting from April 1, 2021, taxpayers must undergo a tax audit for the assessment year 2024-25 if their turnover is over Rs. 10 crore, as long as their transactions do not go over 5% of the total transaction amount.

Tax Audit Requirement for Financial Year 2023-24

In FY 2023-24, a business will be subject to an income tax audit depending on its turnover or receipts for the occupation. Section 44AB contains all the required rules and regulations regarding audits.

Businesses

• If a business's gross receipts or turnover is more than Rs. If the amount reaches 1 crore, a tax audit is mandatory.
• If a business's total revenue surpasses Rs. 1 million but is below Rs. If the amount is 10 crores and the percentage of cash transactions is below 5%, a tax audit is unnecessary.
• If a business's total sales surpass Rs. If the total amount reaches 10 crores, a tax audit is necessary, regardless of the proportion of cash transactions.

Professionals

• If a professional's total income goes over Rs. If the income exceeds 50 lakhs, a tax audit will be necessary.
• If a professional qualifies for the presumptive taxation scheme according to Section 44ADA and declares a profit lower than the specified threshold, a tax audit must be conducted.

Forms Required For Audit

• Rule 6G of the Income Tax Act enlists the forms to submit an audit of a business/profession under Section 44AB.
• The forms needed for audit submission have been altered by the Income Tax Act (7th Amendment) Rules 2014. The Central Board of Direct Taxes has altered Forms 3CA, 3CB, and 3CD so that the auditor has to produce the audit report's observations or qualifications when filling out the forms.
• When a businessperson or professional is required to examine their accounts for compliance with a law other than the Income Tax Act, they must complete and submit Form 3CA (Audit Form) and Form 3CD (Statement of Particulars) as appropriate.
• Moreover, in the case where a businessman or a professional is required to examine their financial records according to the provisions of the Income Tax Act, they would utilize Form 3CB (Audit Form) and Form 3CD.
• Imagine a situation where a taxpayer is required to conduct an audit of his business in compliance with multiple laws. They have the option to present an identical audit report for thorough examination. The audit report is required to be attached while e-filing the IT Return.

Penalty for non-filing tax audit report

• If a business or profession does not get its account books audited as per section 44AB, then the taxpayer is required to suffer the consequences outlined in Section 271B of the Income Tax Act
• If the audit is incomplete and the report is not submitted by September 30, there will be a 0.5% delay penalty revenue or up to Rs. A penalty of 1.5 lakh must be paid and an audit report must be submitted penalty will be enforced. The grounds permitted under section 273B include:
• The delay was caused by the auditor's resignation.
•  The account partner's death or physical disability is causing a delay Labor disputes like strikes or lock-outs are responsible for the delays.
• The postponement results from account loss from theft fire, or events beyond the control of the assesses

Guidelines for Conducting Tax Audits

Important aspects to consider about Tax Audit include the following:

• Tax Audit Limit for AY 2024-25 If you are engaged in multiple businesses, you must conduct an audit of your accounts if the combined turnover of all your businesses surpasses Rs. The tax audit threshold for the assessment year 2024-25 is set at 1 crore. Likewise, if you have multiple occupations, you are required to review your financial records if the total earnings from all professions exceed Rs. 5 million.
• For AY 2024-25, the tax audit limit does not depend on the combined turnover of a business and a profession. If the business accounts have a turnover that is higher than Rs., an audit is necessary. 1 crore, then professional accounts will be applicable if the total income exceeds Rs. Five million. Nevertheless, if the business revenue reaches Rs. 90 lakhs and the earnings from the professional work amount to Rs. 40 lakh, audit is not needed for any account.
• If the revenue from your business or profession does not exceed a specific threshold, Rs. 1 crore or Rs. refers to a sum equivalent to 10 million rupees. If you have sold any fixed asset, like a vehicle or property, for 50 lakh rupees, the profits from the sale will not be considered as part of your business or professional earnings. Tax Audit Limit for AY 2024-25 exempts the sale of particular items, like investment assets, fixed assets, rental income, non-business related interest income, and client-reimbursed expenses, from the total turnover/gross receipts calculation.
• The tax audit limit for AY 2024-25 is that once the tax audit report is filed online, it cannot be altered or changed. The tax audit threshold for Assessment Year 2024-25 remains unchanged unless the financial records have been amended for specific causes.

Conclusion

As a taxpayer, you are required to adhere to the guidelines outlined in section 44AB of the Income Tax Act of 1961. This section specifies that all taxpayers must obtain an audit report after completing an audit of their financial records. This is intended to accurately represent the taxpayers' income-related actions, deductions, and taxes.