For the Assessment Year 2024-25, the Income Tax Department has extended the deadline to submit a company’s tax audit report to October 7, 2024, moving from the initial deadline of 30th September 2024.
Below is the breakdown of every detail of tax audits and how you can ensure compliance 👇
Simply put, a tax audit entails an examination and assessment of the books of accounts of an organization carrying business or profession. This is done to ensure that the said company is complying with our nation’s tax code. It provides a dimension of transparency and accountability for companies, while also simplifying income calculation through this process. Today we shall bring to light every intricacy regarding company tax audits and how they file for returns in India.
Section 44AB of the Income Tax Act, 1961 provides very specific criteria for who is liable to be audited for taxes. Businesses are subject to tax audits if their total sales, turnover, or gross receipts, for the previous financial year, exceed the prescribed threshold of ₹ 1 Crore. Moreover, the Finance Act 2021, after amendments, has raised the turnover threshold to ₹ 10 Crore if the total cash transactions are under 5% of the total transactions.
Additionally, in the case of professionals, the threshold is set at ₹ 50 Lakh.
Specific conditions apply to businesses eligible for presumptive taxation, including declaring profits that are below prescribed limits or an opt out of such schemes.
Practicing Chartered Accountants (CAs) or CA firms have been authorized to conduct tax audits for companies in India. These professionals hold the expertise and qualifications required to examine finances and prepare audit reports; a task that requires a high degree of competence and attention to detail. However, a CA is limited to conduct not more than 60 audits per year. For a firm, the limits apply to each of the partners.
The three main types of tax audits conducted in India are elucidated below:
Field Audit: A Field Audit takes place at the premises of the taxpayer. A thorough scrutiny of the company’s accounts and records is conducted.
Office Audit: For an office audit, a taxpayer visits the tax office and provides their financial particulars that are to be inspected.
Correspondence Audit: As the name suggests, a correspondence audit is conducted by the provision of documents or records from the taxpayer through letters or emails.
The process of auditing can be long and laborious. We have condensed it into a list of simple steps down below:
Appointment of Auditor: The company appoints a qualified CA or CA firm to conduct the audit.
Examination of Records: The auditor examines the company's financial records, including books of accounts, vouchers, invoices, and bank statements.
Verification of Income and Expenses: The auditor verifies the accuracy of the company's income and expense calculations.
Assessment of Compliance: The auditor assesses the company's compliance with income tax laws and regulations.
Preparation of Audit Report: A detailed audit report summarizing their findings and recommendations is prepared by the auditor.
Approval of the Report: The auditor submits the tax audit report to the company for review and approval. Once approved, the company is required to file the report with the tax authorities within the specified due date.
The knowledge of what goes on in a tax audit is extremely valuable for companies and professionals alike. A thorough approach to the whole process will help you take advantage of deductions and exemptions while also avoiding any penalties. From the point of view of a shareholder, a company that complies with audits and provides all relevant information to the authorities, is a company worth investing in. And if you require any assistance in the process of tax auditing, set your worries to rest!
With the help of the JJ Tax App, you can get in touch with our roster of brilliant professionals who will help make this whole process a walk in the park.
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