Why Tax Audits Are Essential for Your Business and How They Work

Tax audit, a crucial aspect of ensuring compliance with the Income Tax Act, 1961, plays a vital role in verifying the financial records of businesses and professionals. It is especially important for those whose turnover exceeds certain limits, as prescribed under Section 44AB of the Income Tax Act. In this blog, we'll dive into the details of income tax audit, penalties for non-filing or delay, the income tax audit filing due date, and much more. Whether you’re a business owner or a professional, understanding income tax audit is essential to make sure you're not caught off guard.

What is a Tax Audit?

A tax audit is a comprehensive review of a taxpayer's accounts to assess compliance with the Income Tax Act. The audit ensures that the books of accounts are accurate and that the income tax returns filed reflect the true financial situation of the taxpayer. Businesses or professionals with a turnover exceeding specified limits are required to undergo an income tax audit.

According to Section 44AB, if your business or profession meets certain criteria (such as exceeding the income tax audit turnover limit), you must submit a tax audit report. This audit helps the authorities verify if the taxpayer has declared the correct income, claimed proper deductions, and adhered to all other income tax provisions.

Objectives of a Tax Audit

The primary purpose of an income tax audit is to ensure that:

• Books of accounts are maintained properly.
• The taxpayer’s income tax returns are accurate and true.
• Observations or discrepancies noted during the audit are reported.
• The income tax audit filing due date is met to avoid penalties.
• Accurate tax computation becomes easier, which in turn ensures the correct tax is paid.

Income Tax Audit Turnover Limit

Under Section 44AB, the income tax audit turnover limit is determined based on the nature of your business. If your sales, turnover, or gross receipts exceed the prescribed limits, you are required to undergo an income tax audit.

• For businesses: If your turnover exceeds Rs 1 crore in a financial year, or Rs 10 crore if cash transactions do not exceed 5% of total transactions (effective from FY 2020-21), an income tax audit is mandatory.
• For professions: A tax audit is required if gross receipts exceed Rs 50 lakhs in the financial year.

However, certain taxpayers, especially those opting for presumptive taxation schemes under sections 44AE, 44BB, or 44ADA, may face different criteria. If these businesses earn less than the prescribed limit under the scheme, they may still be required to undergo the audit.

Income Tax Audit Filing Due Date

One of the most critical aspects of income tax audit compliance is meeting the income tax audit filing due date. The government has extended the last date for completing income tax audits for the FY 2023-24 to 7th October 2024, as opposed to the previous 30th September 2024 deadline.

• For assessees covered under transfer pricing audit, the income tax audit last date is 31st October 2024.
• It’s essential to file the tax audit report on or before the due date to avoid any penalties or legal consequences.

Penalties for Non-filing or Delay in Filing Tax Audit Report

Failure to conduct a tax audit or delay in submitting the income tax audit report can result in significant penalties. According to Section 271B of the Income Tax Act, if the audit is not conducted, the penalty levied could be the lesser of:

• 0.5% of total sales, turnover, or gross receipts
• Rs. 1,50,000

However, if there is a reasonable cause for the delay, such as natural calamities, loss of accounts, or the resignation of key personnel, the penalty may be waived. Tribunals and courts have accepted such reasons in the past.

How and When to Furnish the Tax Audit Report

The tax audit report must be furnished online through the Chartered Accountant’s login. Taxpayers should ensure that their CA details are updated in their login portal for proper submission. Once the report is uploaded, it will either be accepted or rejected by the taxpayer. If rejected, the process needs to be repeated until the report is accepted.

The income tax audit filing due date is 31st October of the subsequent year for taxpayers with international transactions and 30th September for others. Therefore, timely submission is crucial to avoid penalties.

In conclusion, as per Section 44AB of the Income Tax Act, tax audit is a critical requirement for businesses and professionals with a turnover exceeding specified limits. Staying on top of the income tax audit limit and ensuring that the income tax audit last date is met will not only keep you compliant with the law but also help avoid unnecessary penalties. Remember, tax audit is not just a statutory requirement, but also an opportunity to ensure the accuracy of your income tax returns and improve overall financial management.

By staying updated on the income tax audit filing due date, the tax audit turnover limit, and the importance of filing within the specified timelines, you can safeguard your business from potential complications and penalties. Always ensure that your accounts are in order and your tax audit is filed on time for smooth financial operations.