Tax Audit for Companies in India: Frequently Asked Questions

• A tax audit is mandated on all companies, limited liability partnerships (LLPs), and individuals whose turnover crosses a particular threshold limit.
• Taxpayers who get their accounts audited under any other law do not have to get their accounts audited again for a tax audit.
• The last date for filing the tax audit report with the income tax department is September 30 of the relevant assessment year.

A tax audit ensures that the taxpayers have maintained the books of accounts and other records of their business or profession, and that it reflects the taxable income of the individual accurately.

It also verifies if the individual has complied with various requirements of income tax law, such as filing income tax returns, and income tax deductions among others. The tax audit report is submitted with the income tax filing.

The provisions for tax audits in India are covered under Section 44AB of the Income Tax Act, 1961.

Who needs a tax audit?

A tax audit is mandated on all companies, limited liability partnerships (LLPs), and individuals whose turnover crosses a particular threshold limit.

Here is the mandatory tax audit limit for different categories of taxpayers:

• Any individual carrying on a business whose sales, turnover, or gross receipts of the business exceeds INR 10 million (US$140,120); or
• Any individual carrying on a professional whose gross receipts exceeds INR 5 million (US$70,060); or
• Any person carrying on a business where the profits and gains from the business are determined on a presumptive basis under section 44AE, 44BB, or 44BBB, and who has claimed their income to be lower than the profits or gains of his business; and,
• Any person carrying on a business whose income is determined on a presumptive basis under section 44AD and who has claimed such income to be lower than the profit of their business, yet exceeds the maximum amount which is not chargeable as income tax.

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WHICH AREA OF AUDIT AND RISK ADVISORY DO YOU NEED HELP WITH?

Under the union budget it was proposed that medium, small, and micro enterprises (MSME) whose turnover is less than INR 50 million (US$700,600) will not be required to undergo a tax audit.

However, this exception will be applicable for those MSMEs that carry out less than five percent of their business transactions in cash.

Taxpayers who get their accounts audited under any law other than Section 44AB of the Income Tax Act do not have to get their accounts audited again for the purpose of a tax audit. In such cases, accounts audited under other laws can be presented as a tax audit report for income tax filing, provided it is submitted before the due date.

What constitutes a tax audit report?

The audit must be conducted by a practicing chartered accountant (CA). The auditor must submit the tax audit report in the following format:

• Form 3CA: When a company is already mandated to get their accounts audited under any law. This is applicable to companies that get their accounts compulsorily audited under the Companies Act, 2013; or
• Form 3CB: When a company or individual gets their accounts audited under the Section 44AB of the Income Tax Act.

Further, the tax auditor must submit form 3CD along with either of the above-mentioned forms, as it is a part of the audit report.

Is there a penalty for non-compliance?

If a company or an individual is found not in compliance with the tax audit provisions, or fails to conduct a tax audit, then a penalty of 0.5 percent of total sales not exceeding INR 150,000 (US$2,101) can be levied.

The due date for completing tax audit and filing of tax audit report with the income tax department is September 30 of the relevant assessment year.

(This article was first published in March, 2013 and was last updated on February 14, 2020 to include the latest developments)

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