Tax audit is a process of verifying the cash flow, total income and deductions of businesses or individuals. It ensures that: 

  • Your financial records reflect your actual income
  • Claims made for income tax deductions are accurate

It also verifies if the business or individual has complied with various income tax law requirements, such as deductions and filing income tax returns. Finally, the tax audit report is submitted with the income tax filing.

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What is a tax audit report?

A practising Chartered Accountant (CA) conducts the audit. The CA submits the report in the following format:

  • Form 3CA: When a company is mandated to get their accounts audited under any law. This applies to businesses that get their accounts audited compulsorily under the Companies Act, 2013
  • Form 3CB: When a company gets its accounts audited under Section 44AB of the Income Tax Act

Furthermore, the CA must submit form 3CD, along with either of the forms applicable to a business mentioned above, as part of the audit report.

Who undergoes a tax audit?

The Income Tax (IT) department conducts an audit on any business with:

  • A turnover of more than INR 1 crore
  • Gross receipts exceeding INR 50 lakh
  • Profits lower than their actual income under section 44AE, 44BB or 44BBB
  • Income determined on a presumptive basis under section 44AD

    In 2020, the Union Budget proposed that Micro, Small, and Medium Enterprises (MSME) whose turnover is less than INR 5 crore will not undergo a tax audit. However, this rule applies to MSMEs that carry out less than 5% of their business transactions in cash.

Process to file a tax audit report

The procedure for filing a tax audit report is as follows: 

  • The auditor is required to create an account on the e-filing site by clicking on ‘Register’
  • Once the account is created, the auditor has to present the tax audit report online, using their official login credentials
  • After filling in all the information, such as PAN of the assessee, assessment year, etc., the auditor uploads the report
  • Once the report is uploaded, it is reflected in the worklist of the auditee
  • The auditee then would be required to log in to the e-filing portal, go to their worklist and Accept/Reject’ the report
  • If the report is rejected by the auditee, the entire process has to be repeated until the auditee accepts the tax audit report
  • If the report is accepted by the auditee, it would be successfully submitted and the auditee will get an acknowledgement number
  • The procedure for filing a tax audit report ends here and no further action is required to be taken

    What is the due date for filing the tax audit report?

    The audit report has to be filed on or before the 30th of November of the subsequent assessment year. This is for taxpayers who have engaged in an international transaction.  For other taxpayers, the due date is the 30th of September of the subsequent assessment year.

    What happens if you fail to follow tax audit provisions?

    If you fail to follow tax audit provisions, a penalty of 0.5% of total sales not exceeding INR 150,000 can be levied.

    Over to you

    We hope this article has helped you understand audits better.  If you have ever been audited before, share with your fellow business leaders the lessons you’ve learnt in the comments below.

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Ashmita Roy is an Assistant Marketing Manager at Razorpay. When she’s not working, you can find her strumming her guitar or writing poetry. Dislikes writing about herself in third person, but can be convinced to do so via pizza or cheesecakes.

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