Section 44AB of the Income-tax Act, 1961 contains the provisions for the tax audit of an entity. As per these provisions, tax audit shall be conducted by a Chartered Accountant who ensures that the taxpayers has maintained proper books of account and complied with the provisions of the Income-tax Act.
Tax Audit conducted by a Chartered Accountant is reported to the Income-tax department in Form no. 3CA/3CB and Form no. 3CD along with the income tax return.
Tax Audit refers to the independent verification of the books of accounts of the assessee to form an opinion on the matters related to taxation compliances carried out by the assessee. While preparing the books of accounts of the business or profession for the purpose of income tax filing, the assessee has to comply with the provisions of Income-tax Act, 1961 particularly from section 28 to section 44DB. The provisions in these sections deal with the income from business or profession which is chargeable to tax, how such incomes are computed, chargeability, various allowances or disallowances and the rate of depreciation on the various assets held by the assessee, deduction for making investments, deductions for making donations, treatment and tax compliances on borrowed capital, treatment and tax incidence on bad debts, statutory funds, accounting methods etc.
Tax audit can be conducted by a Chartered Accountant who holds the certificate of practice and is in full-time practice. However certain classes have been defined who cannot conduct tax audit under section 44AB. The tax auditor (CA) carries out a systematical examination of books of account as per the formats prescribed by the department.
Every person who derives income by way of Business or profession and maintains books of accounts and has not opted for computation of income on presumptive basis under section 44AD, 44ADA or 44AE of the Income-tax Act, 1961 has to get tax audit done provided his income exceeds the prescribed threshold limit.The following person are required to get tax audit done in the given cases.
- A person carrying on business if the total sales/ turnover exceeds Rs. 1 crore during the previous year relevant to assessment year.
- A person carrying on profession if the Gross receipts exceeds Rs. 50 lakhs during the previous year relevant to assessment year.
Also, the person who has opted for computing profits and gains of business on presumptive basis under section 44AD earlier and 5 years have not lapsed since then but the assessee has opted out of such presumptive income and his income exceeds the ceiling for charge ability of income tax, is also required to get tax audit done.
Further where a person has opted for presumptive scheme under section 44ADA and he claims his income lower than the deemed profits and his income exceeds the ceiling for charge ability of income tax, is also required to get tax audit done.
Tax audit is also mandatory for the assessees opting for presumptive scheme under section 44AE, 44BB and 44BBB and claiming income lower than the deemed profits.
However, if the assessee is liable/ required to get his books of accounts audited under any other law (let’s say Statutory audit as per the provisions of Companies Act, 2013), in such a case, he is also required to get tax audit done because When an Act requires a person to get his accounts audited, it does so with an objective. The audit carried out under any Act (e.g., a statutory audit under Companies Act) does not provide the confirmation if provisions of the Income-tax Act have been properly complied with. The Income-tax Authorities need confirmation whether the tax provisions have been properly applied by an assessee, and it can be done only through a tax audit.