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Who is required to have Tax Audit as per Income Tax Act, 1961?
As a evident truth, every individual who is engaged in some or the other form of economic activity in India; a business, a profession or a job; and generates a certain income from it, exceeding the threshold limit or the slab rate is subject to payment of the income tax to the government and filing of income tax return.
As per the section 139(1) of Income Tax Act, 1961 all taxpayers whose income in the previous year is beyond the minimum slab rate, are subject to income tax return filing.
Now, there is a very interesting scenario that arises during the process of ITR filing known as Tax Audit. Before we go into the crux of this concept we must understand the meaning of audit. Basically, audit refers to the official inspection of financial records and statements of an organisation and to check the suppression and misstatements.
#1. What is Tax audit?
The tax audit is an essential aspect defined under the Income Tax Act, 1961. Tax audit is a thorough inspection or review of financial accounts of a business or profession with regard to essential aspects of income tax viz. Check on tax evasion, tax deductions, compliance with the provisions on income tax law, etc.
The process of tax audit prepares the computation of income simple and transparent for efiling of income tax return.
#2. Why conduct a Tax Audit?
The main objectives behind conducting Tax audit are:
- Ensuring proper compliance and precision of books of accounts.
- Tracing and Reporting mismatches after a methodical inspection of books of account.
- Reporting of relevant details such as depreciation, TDS deduction, 26 AS reconciliation, various compliances under income tax law etc. This saves much time for the tax authorities in verification of income tax return filed by the tax assessee.
#3. Who conducts Tax audit?
Under income tax act, 1961, Qualified Chartered Accountant in practice is authorized and eligible to conduct tax audit of any business entity under the Income Tax Act,1961.
#4. Which law or provision is applicable for the Tax audit?
The requirement for the Tax audit is laid down under 2 provisions of sections of Income Tax Act, 1961:
- Section 44AB: Tax audit of individuals involved in business or profession.
- Section 44AD: Provisions for computation of business income under the presumptive income scheme.
#5. Who is mandatory liable for a Tax Audit?
The different categories of the taxpayers who mandatorily require the tax audit as per Income Tax Act are discussed below in detail-
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Category of individuals |
Threshold limit |
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Business |
Annual sales, turnover or gross receipts > ₹ 1 crore |
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Business |
If business declares profit or gain less than 8% of annual turnover for any of the last five assessment years AND Current Year Business Income > Non-Taxable slab rate. *However Tax Audit not required who declares profit under presumptive taxation scheme as per section 44AD(1) of the Income Tax Act and annual turnover does not exceed INR 2 crores. |
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Profession |
Annual gross receipts > ₹ 50 lakhs |
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Profession |
If profession declare, profits or gains less than 50% of gross receipts under the presumptive taxation scheme AND Current Year Business income > Non-Taxable slab rate. |
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A business eligible for presumptive scheme u/s 44AE*, 44BB* & 44BBB* |
If Business claims, profits or gains less than the prescribed limit under presumptive taxation scheme |
Reference to Sections of the Income Tax Act,1961-
- 44BB (non-resident taxpayer doing business in the exploration of mineral oils etc.)
- 44BBB (foreign companies engaged in the civil engineering and certain turnkey power projects)
- 44ADA (Eligible professionals)
- 44AE (a business of hiring or leasing of goods carriages)
In case you need other guidance regarding Income Tax Return filing, feel free to contact us at 8881-069-069.
