Tax Audit

Tax Audit has been done in order to comply with the income tax law. Examination or verification of the accounts of the businesses or professions with the help of the auditors is known as Tax Audit. This makes the income computation process easy which is useful while filing Income Tax Returns. According to Section 44AB of the Income Tax Act, businesses with a turnover exceeding Rs. 1 crore and professionals with gross receipts exceeding Rs. 50 lakhs in a financial year (FY) are needed in order to undergo a tax audit compulsorily. It is mandatory that auditing of books of accounts must be done by a certified Chartered Accountant. You can also take help from accounting firms like BizFfoc in order to complete your Tax Audit smoothly.

What is Tax Audit?

Tax Audit refers to the examination of the accounts of any business that is carried on by a taxpayer with respect to income tax. Different laws have different types of audits, such as company audits/statutory audits, which need to be done in compliance with the provisions of the law. There are cost and stock audits as well and towards taxpayers referred to as "Tax Audit". These assist the authorities in further verifications with respect to the correction of tax returns, which makes the calculation and the verification of the overall income tax easier.

Who Requires to do a tax audit under Section 44AB of the Income Tax Act?

The below-mentioned are the taxpayers who are required to conduct an audit for tax of their records under Section 44AB of the Income Tax Act 1961:

Stock and Fixed Asset Audit Reporting Requirement

The auditor needs to confirm on the following aspects related to the stock audit under CARO, 2020:

• Whether management has conducted the stock verification during the financial year
• Whether any discrepancies of 10% or more in the aggregate for each class of inventory were observed and any measures which were undertaken to deal with
• Whether management of the company has maintained and conducted physical verification of fixed assets like plant, property, equipment, etc. at reasonable intervals
• Whether any material discrepancies were noticed and how management has dealt with or reported the same.

Stock Audit Report Format

There is no standard format prescribed for the stock audit report. Every company can have their own format depending on the purpose of the audit. The auditor's report is usually accompanied by an Excel sheet for conducting any further analysis by the company. The report typically contains the following information:

• Location code and name
• Date of stock audit
• Details of SKU
• Count of physical stock for each SKU
• Count of stock as per books of accounts for each SKU
• Variance between physical stock and books of account for each SKU
• Any remarks for the variation
• Signature of manufacturing unit incharge
• Signature of Stock auditor

Important Tax Audit Due Dates for AY 2024-2025

Documents Required for Tax Audit in India

Some of the basic documents required for the auditing of the tax by the auditor are mentioned below:

• Business income records (invoices, sales receipts, etc.)
• Receipts for business expenses (office supplies, travel, etc.)
• Receipts for charitable donations if any
• Mortgage interest statements if any
• Receipts or invoices for medical expenses if any
• Property tax records
• Retirement account contributions
• Receipts or invoices for major purchases (real estate, vehicles, etc.) if any
• Statements for investment accounts
• Depreciation schedules for business assets
• Profit and loss statements
• Balance sheets
• Payroll records

Step by Step Process of Tax Audit in India

Basic process to complete the audit for tax in India under the Income Tax Act is mentioned below:

1. Tax authorities choose returns based on discrepancies or random selection.
2. Taxpayers are informed via mail about the audit scope.
3. Gather all supporting documents like receipts and statements.
4. Audit can be done by mail, phone, or in-person.
5. Auditor checks documentation against reported information.
6. Adjustments may be proposed for discrepancies found.
7. Taxpayers can appeal audit findings they disagree with.
8. Once issues are settled, the audit concludes.
9. Keep records of all audit-related communications and outcomes.

Tax Audit Report: Forms, Process, and Penalties

Forms for Tax Audit Report

The audit report shall be made in compliance with Form 3CA or Form 3CB. Form 3CA is applicable when a person carrying business is mandated for the audits for tax by other laws. Form 3CB is applicable when a person carrying business is not mandated for audit for tax by other laws. Form 3CE is made towards the non-residents and the foreign companies who receive payment for technical services from the government.

Process to Furnish Tax Audit Reports

The reports for the audit for tax shall be furnished online with the login details under the guidance of a “Chartered Accountant”. Once the audit for tax is uploaded, it must be accepted/rejected in the login portal itself. In case of rejection, the same procedure is to be followed again until it is accepted. The reports for the audit for tax must be filed prior to the due date which is 31st October of the said subsequent year applicable towards the international transaction and 30th September in the subsequent year for other taxpayers.

Penalty for Non-filing of Tax Audit Reports

If a taxpayer who is required to get their accounts audited under section 44AB fails to furnish a Tax audit report by the due date, they shall be liable to pay a penalty equal to 0.5% of the turnover or gross receipts, subject to a maximum of ₹1,50,000.

Benefits of Stock Audit

• Financial report development: Improving the existing inventory management, which leads to accurate financial reporting. Maintaining well stock ledger means presenting a correct financial condition in the business, and also helps to take better decision.
• Identifying and preventing fraudulent affairs: It helps to identify fraudulent affairs like misappropriation or theft of stock, and any discrepancies, which may affect business severely. It helps companies take necessary actions and prevent future occurrences or financial losses.
• Streamlining stock processes: The stock management must be efficient; thus, it leads to streamlining business operations. It shows the inefficiencies in the stock handling procedure and allows companies to optimize their process for better efficiency.
• Recognizing Overstock and Understock Situations: Overstocking ties up capital, while understocking can result in missed sales opportunities. Stock audits help in recognizing optimal stock levels, minimizing financial losses, and improving cash flow.

Why Choose Bizfoc?

Bizfoc is an accounting firm which is the best for auditing for tax because they have a team of experienced professionals who not only have experience in auditing for tax but also have expertise in various other business domains. They will make your work easy as well as smooth. Hence, in order to ensure that your work has been done properly, choose the services of Bizfoc who have been reliable in the market since last 10 years.

Conclusion

Tax audit is a critical compliance requirement for organizations and professions who meet certain income criteria as mentioned above. It ensures that income tax returns are accurate by having a professional Chartered Accountant review the accounts and financial statements. The audit procedure includes a thorough examination of financial data, which culminates in the filing of a full Tax Audit Report within the stated deadlines.

FAQs related to Tax Audit