Category Archives: Tax Audit

Who is Responsible for Tax Audit Report

Submitting the Tax Audit Report is the final step which requires to be performed in an orderly manner.   After the audit is thoroughly done, the auditor submits a detailed audit report with opinions and inferences of the financial statements in a format prescribed by the Institute of Chartered Accountants of India. The report must not contain any misstatements, ambiguous or misleading statements.

The audit report first mentions the legal name of organization/individual and the details of the financial statements being audited. Every tax audit report along with other headings as per format, must have these three heads: ‘Management’s Responsibility for the Standalone Financial Statements’, ‘Auditor’s Responsibility’ and ‘Report on Other Legal and Regulatory Requirements’. The auditor, in case of any negligence brought forward, may be held accountable. Thus, the auditor must be coherent in his opinions and must act independent of any factors.

Objectives of Tax Audit

Tax audit is being conducted to achieve the following:

  1. A proper system ensures maintenance of its record of income, revenue, expense etc in a correct and verified manner.
  2. Tax audits minimize the risk of frauds and other illegal practices
  • In case of discrepancies, there is an ease of methodical examination of the well-maintained record.
  1. It also facilitates the implementation of tax laws during routine verification since proper presentation of accounts saves time of the assessing officer
  2. Also, be noted that failure to comply with the Income Tax rules attracts penalty, thus tax audits for compliance are a wise choice

Penalty for Non-Compliance

According to section 271B of the Act, if any person who is required to comply with section 44AB, does not do so, as per the prescribed manner, a penalty may be imposed by the Assessing Officer which may be:

(a) 0.5% of the total turnover, sales or gross receipts, in business, or of the gross receipts in profession of an individual, in such year or years as under scrutiny, OR

(b) Rs. 1,50,000.

Whichever is lower

Though, there may not be penalty imposed a reasonable and bonafide cause for such failure is brought forward.

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Detail Explanation about Tax Audit

TAX AUDIT is review of accounts of the business organization or an individual in respect of income and deductions. Section 44AB under Income tax contains the provision for conducting the TAX AUDIT which aims to ascertain the compliance of various provisions of the Income-tax Law and the fulfillment of other requirements of the Income-tax Law. The audit is conducted by the chartered accountant and his observations are recorded in tax audit report.

Who are Entitled to Get Tax Audited

AUDIT FOR BUSINESSES

Any person carrying on a business whose total sales, turnover or gross receipts exceeds

Rs.1 crore in previous year

AUDIT FOR PROFESSION

Any person carrying on whose gross receipts exceeds

Rs. 50 lakhs in previous year

Objectives of Tax Audit

Tax audit is being conducted to achieve the following:

  1. A proper system ensures maintenance of its record of income, revenue, expense etc in a correct and verified manner.
  2. Tax audits minimize the risk of frauds and other illegal practices
  • In case of discrepancies, there is an ease of methodical examination of the well-maintained record.
  1. It also facilitates the implementation of tax laws during routine verification since proper presentation of accounts saves time of the assessing officer

 Tax on Presumptive Basis (w.e.f., a.y. 2017-18)

To give relief to small taxpayers from this tedious work of maintenance of books of accounts and also from getting the accounts audited, the Income-tax Act has framed the ‘presumptive taxation scheme’ for person engaged in business or profession which we will discuss below.

PRESUMPTIVE TAXATION SCHEME FOR BUSINESSES

Eligible person whose turnover is upto 2 crores can opt for presumptive taxation scheme where income is computed on presumptive basis at the rate of 8% of the turnover of the eligible business for the year.

However, in order to promote digital transactions, if turnover is received through digital payments income shall be computed at the rate of 6% instead of 8%w.e.f., the A.Y. 2017-18

Note:

The presumptive taxation scheme can be adopted by following persons :

1) Resident Individual

2) Resident Hindu Undivided Family

3) Resident Partnership Firm (not Limited Liability Partnership Firm)

Except the following

  • Person engaged in Business of plying, hiring or leasing of goods carriages
  • Person carrying agency business.
  • Person who is earning income in nature of commission or brokerage 
PRESUMPTIVE TAXATION SCHEME FOR PROFESSION

Eligible person whose turnover is upto 50 lakhs crores can opt for presumptive taxation scheme where income is computed on presumptive basis at the rate of 50% of the turnover of the profession for the year.

Note:

A person resident in India who is engaged in following professions can opt for presumptive taxation scheme

1) Legal

2) Medical

3) Engineering or architectural

4) Accountancy

5) Technical consultancy

6) Interior decoration

7) Any other profession as notified by CBDT

CONSEQUENCE OF VOILATING PRESUMPTIVE TAXATION SCHEME OF SECTION 44AD

If a person opts for presumptive taxation scheme then he is also require to follow the same scheme for next 5 years. If he failed to do so, then he will not be eligible to claim benefit of presumptive taxation scheme for him for next 5 years.

Further, he is required to keep and maintain books of account and he is also liable for tax audit if income exceeds the exemption limits as per section 44AB from the AY in which he violates th4e provison of presumptive taxation scheme

Due Date for Getting Account Audited

A person required to get audited should get its account audited on or before 30th September of relevant assessment year by submitting tax audit report to the Income-tax Department prepared by chartered accountant

Penalty for Non-Compliance

If any person who is required to comply with section 44AB, does not do so, as per the prescribed manner, a penalty may be imposed by the Assessing Officer which may be:

(a) 0.5% of the total turnover, sales or gross receipts, in business, or of the gross receipts in profession of an individual, in such year or years as under scrutiny, OR

(b) Rs. 1,50,000.

Whichever is lower

However, Income tax also contains the provision that if there is a reasonable and bonafide cause penalty may not be imposed.

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