Tax Audit: Know About Types, Objectives And Procedures

The word “audit” describes a check, review, verification, or examination of a record, transaction, account, etc. A tax audit is the process of examining and verifying a taxpayer’s financial records to ensure they comply with an income Tax audit.

The Audit of the Accounts of a Specific Category of Persons Carrying On a Business or Engaging in a Profession is covered by Section 44AB of the Income Tax Act, 1961. The group of taxpayers described in this section are required by law to have a Charter Accountant audit their financial records. Also, the CA will check and confirm that these accounts adhere to the various Income Tax legislation restrictions. The audit that is required by Section 44AB of the Income tax act is known as a Tax audit.

What is the objective of a tax audit?

The following goals are intended to be attained by a tax audit:

  • Maintain and check the accuracy of your books of accounts, and get a tax auditor to certify them.
  • To make sure you abide by the numerous terms of income tax legislation, you must report prescribed information.
  • Tax audits also make sure that the claimed deductions are valid and that the records accurately reflect the taxpayer’s real income.

Who is subject to an audit for taxes?

If a taxpayer has sales, turnover, or gross earnings of more than 1 crore in a particular fiscal year, an audit of their taxes is necessary. Moreover, in several additional situations, a taxpayer might be obliged to have their finances audited.

Types of Tax Audit

Various types of tax audits are listed below:

  1. Field Exam

This particular audit happens at the taxpayer’s workplace. The auditor must receive the papers from the taxpayer.

2. The office audit

The IRS office is the location of this tax audit. The necessary paperwork must be carried on by the taxpayer. The IRS Office will send a letter to the taxpayer informing them of the required papers.

3. Audit of Correspondence

Here, the IRS write to the taxpayer and asks them to supply any missing documents or other records that can shed light on their tax returns. Additionally, the taxpayer merely needs to mail the required documentation.

Procedure for Filing Audit Reports

The process for submitting the report is outlined in the steps below:

  • Using his or her login information, the chartered accountant will submit the report online. A chartered accountant must be the person in charge of carrying out the tax audit of the person or business.
  • The taxpayer’s platform must include a description of the chartered accountant.
  • When the chartered accountant uploads the audit report. The report is open for the taxpayer to approve or reject. Moreover, the entire process will restart if the taxpayer rejects the report.

Advice on avoiding a tax audit

Any business or professional activity is undertaken to make a profit. Additionally, it’s important to keep in mind that profit should only be obtained ethically and legally. The following actions should be taken to ensure a successful tax audit:

  • According to the Income Tax Act of 1961, maintaining books of accounts is required.
  • It is required to determine whether a loss is permitted or taxable under Chapter IV.
  • Mention your taxable income and allowed losses in your tax return.

What Makes Up a Tax Audit Report?

The tax auditor submits his report in the designated format, which may be Form 3CA or Form 3CB, and includes the following information:

  • When a person engaging in business or profession is already required to have his accounts audited under any other law, Form No. 3CA is presented.
  • When a person is engaged in business or profession and is not required to have his accounts audited by any other law, Form No. 3CB is presented.

Date of Tax Audit Due

Anyone who is/is covered by section 44AB must have their accounts audited and acquire the audit reports on or before September 30 of that specific year, which is the deadline for filing the ]reports’ return.

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