Income tax audit is a thorough examination of the books, statements, and records of a taxpayer to ensure that the income reported, expenses claimed, and deductions utilised meet the statutory provisions. The goal is to validate the authenticity of the filed income tax return and identify any errors or non-compliance. Audit ensures transparency and honesty in tax collection, benefiting both the tax authority and the taxpayer.
Who has to Get Audited?
According to Section 44AB of the Income Tax Act, audit is compulsory for the following taxpayer categories:
- Companies with a turnover of over ₹1 crore during a financial year. But if cash transactions do not exceed 5% or less of all receipts/payments, the limit goes up to ₹10 crores.
- Professionals with gross receipts of over ₹50 lakh in the financial year.
- Business or professionals who are opting for presumptive taxation under specific sections but reporting profits less than set limits, and income over the basic exemption limit.
- Some other specific situations dealing with losses or exclusion from presumptive schemes need audit.
Process and Compliance Requirements
The tax audit should be done by a Chartered Accountant possessing a valid certificate of practice. The auditor examines all the financial documents such as cash books, ledgers, bank statements, invoices, and stock registers. Following the audit, the Chartered Accountant prepares and submits the report of tax audit in pre-specified forms- Form 3CA or 3CB supported by detailed particulars in Form 3CD. The report should be submitted online on the income tax e-filing portal.
For the year 2024-25 (Assessment Year 2025-26), the date for filing the income tax audit report has been extended to 31st October 2025 from the previous date of 30th September 2025. Taxpayers should get the report prepared in time to save penalties.
Penalties for Non-compliance
Default in obtaining accounts audited or in the timely submission of the audit report incurs a penalty under Section 271B of the Income Tax Act. The penalty is lower of ₹1.5 lakh or 0.5% of the turnover/gross receipts. Courts can remit penalties if the default has been caused by reasonable cause. Default can result in additional scrutiny and added complications in tax assessment.
Importance of Income Tax Audit
Income tax audit is a key tool of compliance that verifies the accuracy of tax returns and ensures compliance with tax legislations. It shields taxpayers from the exposure of legal risk and penalties as well as improves the reliability of financial reports. For companies and professionals going beyond the turnover or receipt benchmarks, knowledge of audit requirements and compliance with timelines is essential to ensure trouble-free tax compliance.
In short, income tax audit ensures the integrity of the tax system and assists taxpayers in making correct returns, hence enhancing transparency and accountability in financial transactions.
