An audit is like an investigation. As per the Income Tax Act, 1961, specific categories of individuals and businesses must have their books audited. Here is all that you need to know about Tax Audits in Bharat.
What is a Tax Audit?
A Tax Audit is a process to verify whether the book of accounts prepared by a taxpayer complies with the generally accepted Accounting Principles and the provisions of the Income Tax Act. It is intended to ensure that the books of accounts and other records are properly maintained and correctly compute the taxpayer’s actual income. The tax audit does not give the assessee immunity from scrutiny assessment or disallowance of expenses.
Who is required to get their books audited?
Refer to the table below.
The provisions for tax audit under Section 44AB are not applicable in the case of assesses who come within the purview of Section 44B or Section 44BBA.
Enhanced limit and its availment
Up to the assessment year 2019-202, every person carrying on business was required to get his books of account audited from a Chartered Accountant if it’s total sales, turnover or gross receipt from the business exceeds Rs. 1 crore during the previous year.
To reduce the compliance burden on small and medium enterprises, the Finance Act 2020, effective from the A.Y. 2020-21, has increased the threshold limit under Section 44AB for mandatory audit for a person carrying on business from Rs. 1 crime to Rs. 5 crores. The Finance Act 2021 has increased the threshold limit from Rs. 5 crores to Rs. 10 crores, effective from the A.Y. 2021-22 onwards.
However, the increased threshold limit of Rs. 10 crores shall be applicable only if cash receipts and cash payments during the year do not exceed 5% of the total receipt or payment, as the case may be. In other words, more than 95% of business transactions should be done through banking channels. Any payment or receipt by cheque or bank draft should be considered a cash transaction if such cheque or draft is not an account payee.
Forms of Tax Audit Report
Refer the table below.
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