What is an Income Tax Audit? Tax Audit Limit for AY 2024-25

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What is an Income Tax Audit? Tax Audit Limit for AY 2024-25

Tax Audit Limit for AY 2024-25 Under Section 44AB of the Income Tax Act, individuals engaged in specific professions or exceeding a certain threshold in business are required to undergo an audit of their account books conducted by a chartered accountant. This process is known as Tax Audit. Section 44AB mandates that specific groups of individuals or businesses must undergo tax audits conducted by a chartered accountant to ensure adherence to tax laws and prevent fraudulent tax practices. An audit entails the examination or review of accounts to verify compliance with the Income Tax Act and other relevant laws, aiming to detect and prevent fraudulent activities.

Income Tax Audit Limits for FY 2023-24 (AY 2024-25)

A businessperson whose gross receipts/turnover/sales for the previous financial year exceed Rs. 1 crore will now find it irrelevant if they opt for the presumptive taxation scheme under Tax Audit Limit for AY 2024-25 section 44AD, provided their total income or turnover does not surpass Rs. 2 crores.
Similarly, a professional whose gross receipts for the previous financial year exceed Rs. 50 lakh falls under this category.
Individuals covered under Sections 44AD, 44AE, 44AF, 44BB, and 44BBB, who declare lower profits from business than what is estimated, are also affected.
According to the latest announcement, individuals conducting the majority of their transactions (95% in this case) online, i.e., Tax Audit Limit for AY 2024-25 through digital transactions, will qualify for an increase in the threshold for tax audit.

Different Types of Tax Audits

There are three types of auditing processes:

Field audit: This audit is conducted at your office premises. You are required to provide all necessary documents to facilitate a successful audit.
Office audit: In this type of audit, the examination takes place at the IRS office. Ensure you bring all required documents. Typically, you will receive a letter specifying the documents you need to bring.
Correspondence audit: You will receive a letter outlining the documents needed for the audit. Ensure you mail all required documents to the address provided in the letter.

What are The Main Objectives of Tax Audit?

Tax audit serves several important purposes:

Ensuring proper maintenance of books of accounts, certified by a tax auditor.
Providing reports on recommended information such as tax depreciation, compliance with income tax law, and more.
Tax Audit Limit for AY 2024-25 Methodically scrutinising books of accounts and reports based on observations or discrepancies identified by a tax auditor.
Verifying the accuracy of income tax returns filed with the IT department.
Simplifying the calculation and verification of total income, deductions claimed, and other related tasks.

For whom is it Mandatory to be Subjected to Tax Auditing

Tax Audit Limit for AY 2024-25 As of April 1, 2021, according to the Finance Act 2021, it is mandatory to undergo tax auditing if the turnover exceeds Rs.10 crore, provided that transactions do not exceed 5% of the total transaction amount.

The various categories of taxpayers who will be subjected to tax auditing are given below:

Category of Person	Threshold	Description
Business
Businesses not opting for presumptive taxation scheme	Rs.1 crore	Tax audit required if total sales/turnover exceeds Rs.1 crore in the financial year. If cash transactions are up to 5% of total gross payments, the threshold increases to Rs.10 crore.
Businesses eligible for presumptive taxation under Section 44AE, 44BB, or 44BBB	–	Tax audit required if profits claimed are lower than prescribed limits under the presumptive taxation scheme.
Businesses eligible for presumptive taxation under Section 44AD	–	Tax audit required if taxable income declared is below prescribed limits under the presumptive tax scheme but exceeds the basic threshold limit.
Businesses not eligible for presumptive taxation under Section 44AD	–	Tax audit required if income exceeds the maximum amount not taxable for five consecutive years after opting out of presumptive taxation.
Businesses declaring profits as per presumptive taxation scheme under Section 44AD	–	Tax audit required if income exceeds the maximum amount not taxable for five consecutive years after opting out of presumptive taxation.
Businesses declaring profits as per presumptive taxation scheme under Section 44AD	Rs.2 crore	Tax audit not applicable if total sales do not exceed Rs.2 crore in the financial year.
Profession
Professionals carrying on a profession	Rs.50 lakh	Tax audit required if total gross receipts exceed Rs.50 lakh in the financial year.
Professionals eligible for presumptive taxation under Section 44ADA	–	Tax audit required if profits claimed are below prescribed limits under the presumptive taxation scheme or if income exceeds the maximum amount not taxable.
Business Loss
Businesses incurring loss and not opting for presumptive taxation	Rs.1 crore	Tax audit required if total sales exceed Rs.1 crore and taxpayer’s total income is above the basic threshold limit.
Businesses incurring loss when total sales, turnover, or gross receipts exceed Rs.1 crore	–	Tax audit required under Section 44AB.
Businesses opting for presumptive taxation under Section 44AD incurring a loss, but income below threshold	–	No tax audit required.
Businesses opting for presumptive taxation under Section 44AD incurring a loss, but income above threshold	–	Tax audit required if taxable income declared is below prescribed limits under the presumptive tax scheme and income exceeds the basic threshold limit.

How and when the tax audit reports will be furnished:

The tax audit report will be prepared online by the auditor using their login credentials, with the presence of a chartered accountant.
After the auditor uploads the report, it is up to the Tax Audit Limit for AY 2024-25 taxpayer to accept or reject it. If rejected, the auditing process must start anew.
Tax Audit Limit for AY 2024-25 Make sure to file the tax audit report before the due date to avoid any penalties or non-compliance issues.

Forms Required for Tax Audit

Rule 6G of the Income Tax Act outlines the forms required for submitting income tax audits under Section 44AB. The Income Tax (7th Amendment) Rules 2014 introduced changes to Forms 3CA, 3CB, and 3CD, requiring income tax auditors to include observations or qualifications/remarks in these forms.

If a businessperson or professional must audit their accounts under laws other than the Income Tax Act, they must fill and submit Form 3CA (Audit Form) and Form 3CD (Statement of Particulars).
If a businessperson or professional’s accounts are audited solely under the Income Tax Act, they should use Form 3CB (Audit Form) and Form 3CD.
If a taxpayer is required to undergo audits under multiple laws, such as both the Companies Act and Income Tax Act, they do not need to conduct separate audits in the same year. They also can submit the same audit report for relevant scrutiny. However, if audits are conducted for different Acts in different Accounting Years, a tax audit must be performed again for the applicable year under the Income Tax Act.

Taxpayers mandated to audit their account books have until September 30 to file their Income Tax Returns (ITRs). Tax Audit Limit for AY 2024-25 The audit report must be attached while e-filing the I-T Return.

Rules for Governing Tax Audit

The following points are of note with regard to Tax Audit:

Tax Audit Limit for AY 2024-25 If you are involved in more than one business, you are required to audit your accounts if the total turnover of all your businesses exceeds Rs. Tax Audit Limit for AY 2024-25 Tax Audit Limit for AY 2024-25 1 crore. Similarly, if you operate more than one profession, you must audit your account books if the gross receipts from all professions combined surpass Rs. 50 lakh.
Tax Audit Limit for AY 2024-25 In the case where you run both a business and a profession, tax audit is not based on the total turnover from both. Instead, an audit is required for the business accounts if the turnover exceeds Rs. 1 crore, and for the professional accounts if the gross receipts exceed Rs. 50 lakh. However, if the business turnover is Rs. 90 lakh and the professional receipts are Rs. 40 lakh, no audit is required for either account.
If the turnover of your business or profession is below a certain threshold, Rs. 1 crore or Rs. 50 lakh respectively, but you have sold any fixed asset (such as a vehicle or immovable property), the gains from the sale will not be considered as part of your business or professional profits. Tax Audit Limit for AY 2024-25 The sale of certain items, such as assets held as investment, fixed assets, rental income, interest income not related to business, and client-reimbursed expenses, are excluded from the calculation of total turnover/gross receipts.
Tax Audit Limit for AY 2024-25 Once the tax audit report is submitted online, it cannot be amended or revised. Tax Audit Limit for AY 2024-25 However, if the accounts have been revised due to reasons such as a company account revision after acceptance at the Annual General Meeting, changes in law, or changes in interpretation of law, then the audit report Tax Audit Limit for AY 2024-25 can be modified accordingly. Reasons for the change in the audit report must be explicitly stated while filing the revised report.

Penalty for Not Auditing

https://cleartax.in/s/tax-audit-section-44ab If the account books of a business or profession are not audited as per Section 44AB of the Income Tax Act, the assessee is liable to pay a penalty under Section 271B.
A delay in completing the audit and submitting the report on time (before or on September 30) incurs a penalty of 0.5% of the turnover, up to a maximum of Rs. 1.5 lakh.
Tax Audit Limit for AY 2024-25 However, if there is a genuine reason for the delay or non-filing of the audit report, no penalty will be applicable under Section 273B. Permissible reasons include delays caused by factors such as the resignation of the tax auditor, death or physical incapacity of the partner Tax Audit Limit for AY 2024-25 responsible for accounts, labour issues such as strikes or lock-outs, loss of accounts due to theft or fire, or incidents beyond the assessee’s control, and natural calamities.

It’s important to note that tax audits are conducted solely on business or profession, Tax Audit Limit for AY 2024-25 not on individual income. Auditing of accounts is a best practice that ensures compliance with laws and prevents tax fraud or evasion. Tax Audit Limit for AY 2024-25 The chartered accountant conducting the audit is responsible for ensuring the client’s accounts are accurate and for providing precise observations and reports to the government.

SOURCES: https://cleartax.in/s/tax-audit-section-44ab

FOR MORE INFORMATION: https://taxgyany.com/