[subscribe]
Tax Audit

Income Tax Audit – Meaning, Applicability, Objective, Due date of filing tax audit, Penalties for not filing

In this article, we will discuss in detail about Tax Audit & its applicability under Section 44AB of the Income Tax Act, 1961. Tax Audit meaning:   Section 44AB of the Income Tax Act, 1961 specifies that every person who earns income by any business or profession has to maintain his books of accounts & get a tax audit done except those who opted for presumptive taxation under section 44AD, 44ADA, 44AE of the income tax act, 1961 or if their turnover exceeds the specified threshold limit of Rs 1 Crore. Tax Audit refers to the activity in which an auditor examines or reviews the accounts of a business to check for tax compliance. Some companies are legally required to carry out regular audits under Section 44AB of the Income Tax Act, 1961 & for them performing periodic tax audits is mandatory. The main goal of a tax audit is ensuring that the details related to the income, expenditure & tax-deductible expenditure information are filed correctly by the business undergoing audit.   Who need to get tax audit done?   1.  Any self-employed individual who is engaged in a business with an annual turnover of Rs. 1 crore & above. 2.  A self-employed professional whose income receipts aggregate Rs. 50 lakhs or more in a financial year. 3.  An individual who qualifies for the presumptive taxation scheme under Section 44AD & Section 44ADA but claims that the specified profits (8%/6%, as the case may be) are lower than those calculated in accordance with the presumptive taxation scheme for the financial year. Provided, if: a) Aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed 5% of the said amount and b) Aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed 5% of the said payment. Threshold limit would be 10 crores instead of 1 crore. Note – i) Payment/receipt by a cheque/draft, which is not account payee, shall be deemed to be payment/receipt in cash. ii) Professionals are not entitled to claim an enhanced turnover limit of Rs. 10 crores u/s 44ADA. In other words, more than 95% of the business transactions should be done through banking channels.   4.  An individual who qualifies for the presumptive taxation scheme under Section 44AE (Plying, hiring or leasing goods carriages having not more than ten goods carriage vehicles), Section 44B (Non-Resident Shipping Business), Section 44BBA (Non-Resident Aircraft Business), Section 44BB (Non-resident assessee engaged in exploration of mineral oil) & Section 44BBB (Foreign Company engaged in Civil Construction) but claims that the profits are lower than those calculated in accordance with the presumptive taxation scheme.   5.  If an assessee, who has qualified for taxation under the presumptive taxation scheme opts out of it after a specified period. After opting out of the presumptive taxation scheme, the assessee is not allowed to opt into the presumptive taxation scheme for a continuous period of 5 assessment years.   Exception of Tax Audit for Individual having turnover exceeding Rs 1 crore but up to Rs 2 crores:   – If an Individual whose gross receipts or turnover from business exceeds Rs 1 crore but is up to Rs 2 crores, then he can opt for Presumptive Taxation under section 44AD of Income Tax Act, 1961 then he will not be liable to maintain books of accounts u/s 44AA & also will not be liable for tax audit u/s 44AB of Income Tax Act, 1961 if he discloses the required percentage of profit as required u/s 44AD of Income Tax Act, 1961. – This Section is applicable only for Resident Individual, HUF or Resident Partnership Firm (not Limited Liability Partnership) – The required percentage of profit as required to be disclosed u/s 44AD of Income Tax Act, 1961 is as follows: a) 6% of Gross receipt or total turnover if the amount is received through any mode other than cash. b) 8% of Gross receipt or total turnover if the amount is received through cash mode. c) No further deduction of business expenditure will be allowed from section 28 to Section 43 of Income Tax Act, 1961 under the head business income & it will be deemed to have been allowed.   Goals & Objectives of a Tax Audit:   – To make sure that even medium and small business owners maintain book of accounts, ledgers as well as receipts for revenue and expenses properly. – To report observations or discrepancies after a methodical examination of the books of account of the business. – To report prescribed information including compliance of different provisions of the Income Tax laws such as tax liability, tax paid, eligible refund amount, etc. – To enable the tax authorities to verify the correctness of income tax returns filed by the business owner. – To make it easy for the tax assessing authorities engaged in carrying out routine verifications to calculate and verify information such as total income, claim for deductions, etc. furnished by the taxpayer. – To identify and restrict any fraudulent practice by businesses.   Forms for Submission of a Tax Audit:   Form 3CA: This form is required to be furnished by a person who is carrying on a business or profession that requires that accounts are audited under any rule other than Section 44 and its subsections. Form 3CB: This form is required to be furnished by a person who is carrying on business or profession which does not require that his accounts are audited under any rule except Section 44 and any of its subsections. Form 3CD: If either of the aforementioned audit reports is prepared, the tax auditor must furnish the required particulars using Form 3CD. In India, Tax audit reports under various subsections of 44 can only be prepared by qualified chartered accountants. Currently tax audit reports from chartered accountants are filed electronically with the Income Tax Department. Once the chartered accountant has filed

Share It . .
Read More »
Presumptive Taxation

Presumptive Taxation Scheme under sections 44AD, 44ADA & 44AE

In this article, we will discuss about presumptive taxation scheme under sections 44AD, 44ADA & 44AE of the Income Tax Act,1961 What is Presumptive Taxation Scheme?   As per the Income Tax Act, 1961 a person engaged in business or profession is required to maintain regular books of account & also he has to get his accounts audited. To give relief to small taxpayers from this tedious work, the Income-tax Act has provided the presumptive taxation scheme under sections 44AD, 44ADA & 44AE. A person adopting the presumptive taxation scheme can declare income at a prescribed rate & is not required to maintenance his books of account & to get its accounts audited. Section 44AD: For Small Businesses. Section 44ADA: For professionals. Section 44AE: For GTA Businesses Presumptive Taxation Scheme under sections 44AD Applicability i.     It is designed to give relief to small taxpayers engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE) ii.    Presumptive taxation scheme under section 44AD can be adopted by following persons: a) Resident Individual b) Resident Hindu Undivided Family (HUF) c) Resident Partnership Firm (not Limited Liability Partnership Firm) iii.    In other words, the scheme cannot be adopted by a non-resident & by any person other than an individual, a HUF or a partnership firm (not Limited Liability Partnership Firm. iv.    This scheme cannot be adopted by a person who has made any claim for deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant financial year Not Applicable to   i.     Business of plying, hiring or leasing of goods carriages referred to in section 44AE2.A person who is carrying on any agency business. ii.    A person who is earning income in the nature of commission or brokerage iii.   A person carrying on profession referred to in section 44AA (1) is not eligible for presumptive taxation scheme iv.   An insurance agent cannot adopt the presumptive taxation scheme. Insurance agents earn income by way of commission & hence, they cannot adopt the presumptive taxation scheme of section 44AD v.    A person whose total turnover or gross receipts for the year exceed Rs. 2 crores cannot adopt the presumptive taxation scheme. It can be opted by the eligible persons, if the total turnover or gross receipts from the business do not exceed Rs. 2 crores. Manner of computation   (i) In case of a eligible person adopting the provisions of section 44AD, income is computed on presumptive basis at the rate of 8% of the turnover or gross receipts of the eligible business for the year. (ii) In order to promote digital transactions and to encourage small unorganized business to accept digital payments, section 44AD is amended with effect from the assessment year 2017-18 to provide that income shall be computed at the rate of 6% instead of 8% if turnover/gross receipt is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed during the previous year or before the due date of filing of return under section 139(1) (iii)  However, a person may voluntarily disclose his business income at more than 8% (in case of cash transitions) or 6% (other than cash), as the case may be, of turnover or gross receipt. (iv)   Presumptive income computed as per the prescribed rate is the final income and no further expenses will be allowed or disallowed. i.e. In case of a person who is opting for the presumptive taxation scheme of section 44AD, the provisions of allowance/disallowances as provided for under the Income-tax Act will not apply and income computed at the presumptive rate of 6% or 8% will be the final taxable income of the business covered under the presumptive taxation scheme. Separate deduction on account of depreciation is also not available. (v)    No need to maintain books of account as prescribed under section 44AA   Payment of Advance tax   In respect of income from business covered under section 44AD: a.   Any person opting for presumptive taxation scheme is liable to pay whole amount of advance tax on or before 15thMarch of the previous year. b.   If he fails to pay the advance tax by 15th March of previous year, he shall be liable to pay interest as per section 234C.Note: Any amount paid by way of advance tax on or before 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.   Provisions applied if a person declares income at a lower rate, i.e., at less than 6% or 8%.  A person can declare income at lower rate (i.e., at less than 6% or 8%), if he does so, & his income exceeds the maximum amount which is not chargeable to tax, then: He is required to maintain the books of account as per the provisions of section 44AA and has to get his accounts audited as per section 44AB. Consequences if a person opts out from the presumptive taxation scheme of section 44AD   1   If a person opts for presumptive taxation scheme, then he is also requiring to follow the same scheme for next 5 years. 2.  If he failed to do so, then presumptive taxation scheme will not be available for him for next 5 years. For example – An assessee opts presumptive taxation scheme under Section 44AD for AY 2021-22. However, for AY 2022-23, if he did not opt for presumptive taxation Scheme. In this case, he will not be eligible to claim benefit of presumptive taxation scheme for next five AYs, i.e. from AY 2023-24 to 2027-28. 3.   Further, he is required to keep and maintain books of account and he is also liable for tax audit as per section 44AB from the AY in which he opts out from the presumptive taxation scheme. [If

Share It . .
Read More »

Recent Post