The Indian tax system has various rules to ensure that individuals and businesses report their income correctly and pay taxes on time. One such important requirement is the Tax Audit, which is mandatory for certain taxpayers based on their turnover, profession, and other criteria.
What is a Tax Audit?
Tax audit is a different kind of audit from the one conducted under the Companies Act. The only emphasis in a tax audit lies in verifying whether the assessee has properly reported his income and complied with the various provisions concerning tax liabilities.
It is thus ensured that the taxpayers keep the required accounting records and do not indulge in the under-assessment or evasion of taxes. Tax Audit should be done by a Practicing Chartered Accounts in India in u/s 44AB of Income tax Tax 1961.
Tax audit needs to complete by businesses before its due date at every year. All Assesses, who fall under the turnover based criteria of previous financial year, will required to submit a Tax audit report with CA’s- UDIN to Tax authorities.
Who Needs to Get a Tax Audit u/s 44AB?
1. For Business:
If the person opts for Presumptive Taxation under Section 44AD, and their turnover is less than ₹2 crore, they are exempt from tax audit. But if they opt out of the presumptive scheme in any year and declare lower income than prescribed (8% or 6%), then tax audit becomes mandatory.
3. For Presumptive Taxation Cases:
In the case where a taxpayer declares profits lower than the usual presumption under sections 44AD, 44ADA, or 44AE and his or her total income exceeds the basic exemption limit, then the taxpayer must get their accounts audited.
So essentially, if your income is significant and you’re not following the presumptive taxation scheme, chances are you need a tax audit.
Importance of Tax Audit
For the government, it is a tool to ensure compliance with tax laws and to enforce actions against tax evasion. For the taxpayer, it gives assurance that the financial records kept are proper and are not subject to question.
Faster processing of ITR, easier availability of loans, greater financial discipline, and lesser chances of receiving a tax notice are benefits commonly derived.
Forms Involved in Tax Audit
Once the audit is completed by a Chartered Accountant, the findings have to be reported using specific audit forms u/s 44AB of Income Tax Act. These forms are:
1. Form 3CA:
This set of accounts is used when the taxpayer is supposed to get their accounts audited under any other law (e.g. Companies Act).
2. Form 3CB:
Used when the taxpayer is not required to get their accounts audited under any other law, and the audit is done only for income tax purposes.
3. Form 3CD:
This is a detailed statement of particulars. It contains about 40+ clauses where information related to the business, tax payments, compliance with TDS, expenses, and other details are furnished.
These forms are to be filed online on the Income Tax e-Filing portal using the Digital Signature of the Chartered Accountant.
Due Date for Tax Audit Filing
The Original due date for submitting the tax audit report is 30th September (now extended to 31st October 2025) following the end of the financial year.
For example, for the Financial Year 2024–25 (Assessment Year 2025–26), the audit report must be filed by 31st October 2025.
Failing to submit the report on time can lead to penalties under Section 271B of the Income Tax Act. For the FY 2024-25 (relevant AY 2025-26) Central Board of Direct Taxes (CBDT) has extended due date of tax audit till 31st Oct 2025 due to citing difficulties.
Who Can Conduct a Tax Audit?
A tax audit must be conducted by a Chartered Accountant (CA) who holds a valid Certificate of Practice (COP).
Tax Audit and TDS Compliance
During the tax audit process, the CA also checks whether the taxpayer has properly deducted tax at source (TDS) wherever applicable.
If TDS is not deducted or deducted but not deposited within a prescribed time, expenses may be disallowed under Section 40(a)(ia) of the Income Tax Act, thereby increasing tax liability for the assesses.
In this manner, a tax audit also acts as a safeguard against noncompliance with TDS provisions and is one of the critical elements of business tax laws.
Tax Audit vs Statutory Audit
Many people confuse a tax audit with a statutory audit. Here’s a simple difference:
- Statutory Audit is required under laws like the Companies Act and applies mainly to companies.
- Tax audit is conducted in pursuance of the Income Tax Act where the business or profession achieves the turnover limit specified below.
A company may have to get both audits done separately.
Role of Technology and Online Filing
In recent years, the Income Tax Department has made several reforms to simplify the audit process. Now, everything is done digitally.
The audit reports (Forms 3CA/3CB and 3CD) are prepared and uploaded by the Chartered Accountant on the income tax portal. The taxpayer has to approve them using their login credentials.
Once submitted, these reports become part of the taxpayer’s file and are used to cross-verify the Income Tax Return.
Common Mistakes in Tax Audit
While going through tax audits, many businesses and professionals tend to make the following mistakes:
- Not deducting or depositing TDS on time.
- Misreporting or under-reporting income.
- Claiming ineligible deductions.
Conclusion
To sum up, Tax Audit is a crucial compliance requirement under Indian tax laws for businesses and professionals. It helps both the taxpayer and the government ensure proper tax collection, accurate reporting of income, and avoidance of fraud.
If your turnover or receipts are crossing the thresholds mentioned, you must check whether tax audit applies to you. Consult a qualified Chartered Accountant to help with your books, audit process, and filing of required forms like 3CA, 3CB, and 3CD.
Timely tax audit not only ensures compliance before online ITR filing but also builds financial credibility and prevents potential legal complications. In today’s digital era, where income tax systems are becoming more automated and stricter, being transparent and compliant is not just smart—it’s essential.
FAQs
1. What is a tax audit under the Income Tax Act?
A tax audit is the examination of the books of accounts of a taxpayer to ensure compliance with the Income Tax laws. It is mandatory for certain individuals and businesses based on turnover and income thresholds.
2. Who is required to get a tax audit done?
Individuals or businesses with turnover above ₹1 crore (or ₹10 crore if cash transactions are less than 5%) must undergo a tax audit. Professionals must get audited if gross receipts exceed ₹50 lakh.
3. What is the due date for tax audit submission for AY 2025–26?
The due date is 30th September 2025 (unless extended). The tax audit report must be filed before filing the income tax return for the assessment year.
4. Which form is used to file a tax audit report?
Form 3CA/3CB and 3CD are used for filing tax audit reports. Form 3CA is used when audit is under other laws (like Companies Act), and Form 3CB when no such audit is applicable.
5. What is Form 3CD?
Form 3CD is a detailed statement of particulars that accompany the audit report. It includes 44 clauses about income, expenses, deductions, and tax compliance status of the assessee.
6. Can the tax audit report be revised?
Yes, a tax audit report can be revised if any mistake or omission is found later. However, reasons for revision must be clearly mentioned in the revised report.
7. What are the penalties for not getting a tax audit done?
If tax audit is not done when applicable, the penalty under Section 271B can be up to 0.5% of turnover or ₹1.5 lakh, whichever is lower, unless a reasonable cause is shown.
8. Who can conduct a tax audit?
Only a Chartered Accountant (CA) in practice can conduct a tax audit. An internal or in-house CA working in a company cannot do this audit.
9. Is tax audit applicable to presumptive taxation scheme users?
Yes, if a person under presumptive taxation (Section 44AD or 44ADA) declares income less than the presumed rate and income exceeds the basic exemption limit, a tax audit becomes mandatory.
10. How is the audit report filed with the Income Tax Department?
The Chartered Accountants must upload the audit report on the income tax e-filing portal, and the assessed must accept it digitally using their login credentials.
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