What is Income Tax Audit - Know About Types and Rules

Written by TaxHelpdesk » Updated on: November 25th, 2024

Income Tax Audit is examining or reviewing accounts of the business or profession of the assessee as per the Income Tax laws. Having said this, the process of Income Tax Audit makes the filing of ITR easy and flawless.

Different Types of Audits:

The different types of audits are as follows:

Internal Audit: Internal Audit, as the name suggests, is an examination of the compliances and structures within the company. This type of audit ensures internal controls, and risk management as complying with the compliances.

External Audit: External Audit, again as the name suggests, is an examination of the organisation by the outsider auditors. They review the financial records of the company.

Forensic Audit: Forensic audit is the reviewing of financial transactions wrt., a particular subject matter. Having said this, these investigations can be used as evidence in a court of law or in case of conflict among the shareholders.

Statutory Audit: Statutory audit is the reviewing of financial statements of certain specific types of entities required by law or local authority. These organisations can be banks, government organisations, etc.

Financial Audit: A financial audit is an audit of the organisation’s financial statements by an independent auditor. The auditor, through a financial audit, provides his opinions on the financial statements of the organisation.

Compliance Audit: Compliance audit is the audit that checks all the internal policies as well as the laws and regulations that the organisation is following.

Income Tax Audit: Income Tax Audit is the audit that is to be performed as per the laws and standards set by the government. This audit is to review the books of accounts of the business or profession of the assessee.

Objectives of the Audit:

The objectives of the audit are as follows:

True, transparent and fair view of the financial statements
Detection as well as prevention of fraud and errors
Compliance with laws, rules and regulations
Financial reporting accuracy
Accuracy in taxation compliances

Cases where Income Tax Audit is not Compulsory:

THRESHOLD LIMIT	TAX AUDIT IS NOT APPLICABLE IF
₹50 Lacs	Assessee has opted for Section 44ADA.
₹1 Crore	Assessee has opted for Section 44AD or has shown profit below the basic exemption limit.
₹75 Lacs	Assessee has opted for Section 44ADA & cash receipts are up to 5%.
₹2 Crores	Assessee has opted for Section 44AD.
₹3 Crores	Assessee has opted for Section 44AD and has cash receipts of up to 5%.
₹10 crores	Cash receipts and cash payments are up to 5%.

Rules of Income Tax Audit

Category of person	Limit for Income Tax Audit
Business
Carrying on business (not opting for presumptive taxation scheme*)	Total sales, turnover or gross receipts exceed Rs.1 crore in the FY (or)If cash transactions are up to 5% of total gross receipts and payments, the threshold limit of turnover for a tax audit is Rs.10 crores (w.e.f. FY 2020-21)
Carrying on business eligible for presumptive taxation under Section 44AE, 44BB or 44BBB and opted for the same in the previous year	Claims profits or gains lower than the prescribed limit under the presumptive taxation scheme
Carrying on business eligible for presumptive taxation under Section 44AD and opted for the same as the previous year	Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic exemption limit (i.e., Rs. 2.5 lakhs).
Carrying on the business and is not eligible to claim presumptive taxation under Section 44AD due to opting out of presumptive taxation in any one financial year of the lock-in period i.e. 5 consecutive years from when the presumptive tax scheme opted	If income exceeds the basic exemption limit in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for
Profession
Carrying on profession	Total gross receipts exceed Rs 50 lakh in a year
Carrying on the profession eligible for presumptive taxation under Section 44ADA	1. Claims profits or gains lower than 50% of the total receipts from such professions and 2. Income exceeds the basic exemption limit
Business loss
In case of loss from carrying on business and not opting for a presumptive taxation scheme	Total sales, turnover or gross receipts exceed Rs 1 crore
If the taxpayer’s total income exceeds the basic exemption limit but he has incurred a loss from carrying on a business (not opting for a presumptive taxation scheme)	In case of loss from business when sales, turnover or gross receipts exceed 1 crore, the taxpayer is subject to tax audit under 44AB

The due date for Income Tax Audit:

The due date for filing the Income Tax Audit is 30th September during each financial year. However, for the current Financial Year 2023-24, this due date has been extended by 7 days. Accordingly, the new date for filing an Income Tax Audit for the Financial Year 2023-24 is 7th October 2024.

Conclusion

In conclusion, an income tax audit is a crucial process that ensures individuals and businesses comply with tax regulations by verifying the accuracy of financial records and tax returns. There are various types of audits, including correspondence audits, office audits, and field audits, each differing in scope and depth. A correspondence audit is typically conducted via mail and focuses on specific issues, while an office audit requires the taxpayer to visit the tax office for a more detailed examination. Field audits are the most comprehensive, involving an in-depth review of the taxpayer's premises.

Understanding the rules governing these audits is essential for compliance and preparation. Taxpayers must keep meticulous records and promptly address any discrepancies to avoid penalties. Engaging in regular income tax consultation can help individuals and businesses navigate the complexities of tax laws, ensuring that they meet all legal obligations and optimize their tax positions.

If you require assistance with an income tax audit or need expert advice on tax-related matters, professional income tax consultation services are invaluable. These services offer guidance on maintaining accurate records, understanding audit procedures, and effectively communicating with tax authorities.

If you want our services or have any queries regarding any tax issue, please contact TaxHelpdesk. Our team of experienced professionals is ready to assist you with all your tax needs, ensuring compliance and peace of mind.

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