A tax is a government-imposed contribution to a state’s revenue that is levied on employees’ wages and business profits or added to the cost of certain goods, services, and transactions. Taxation is a mechanism for governments to recoup their costs by levying fees on citizens and businesses. The Internal Revenue Service (IRS) or a state tax body audits an individual’s tax return. The phrases audit, examination, review, and notices are used by the IRS and other state revenue departments to denote various parts of tax law enforcement and administration. Let us continue reading to learn more about the significance of tax audits and The Appointment of Tax auditors.
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What do you mean by Tax Audit?
The term “audit” refers to an examination of a company’s financial records, usually by an independent third party. The provision of Income Tax Audit is provided by Section 44 AB of the Income Tax Act, 1961. An income tax audit is a technique for any independent agency to review an individual’s business tax returns. An income tax audit aims to verify all income, obtain deduction information, and determine expenditures. The stipulations of the Income Tax Act make it mandatory to conduct a tax audit. This act mandates that all taxpayers conduct an audit of all of their business or organization’s accounts.
All findings and remarks must submit in the form of an audit report by the Chartered Accountant conducting the tax audit. The audit report provides in the forms 3CA/3CB and 3CD, which are both available in the form numbers 3CA/3CB and 3CD.
What are the Main Objectives of Tax Audit?
- If a proper system for conducting tax audits is in place, all businesses will be able to correctly maintain their books of accounts and other revenue or cost records.
- To report the necessary information on compliance, tax depreciation, and other income tax rules. These simplify the processes for income tax authorities in calculating and analysing the accuracy of an individual’s or company’s income tax return.
- A tax audit looks at all of the frauds and mistakes that people make when filing their tax returns.
- A proper tax audit guarantees that the businessman’s overall income and deduction claims are finish completely and accurately.
Who is required to have their Tax Audit Done?
The eligibility for a tax audit is determined under section 44 AB. The following kinds of taxpayers are necessary to receive a tax audit report, according to this clause.
- Businesses: If a company’s total sales turnover or gross receipts surpass Rs.1crore in any prior year, a tax audit is necessary. “Business” is defined as any economic activity carried out for the purpose of profit under the Income Tax Act.
- Professionals; Professionals with gross annual receipts of more than 50 lakh in any of the previous year must have their business activities audited for tax purposes. The examples of professions or professionals stated below;
- Architect
- Accountants
- a duly appointed representative
- Actor, cameraman, director, music director, and editor are all examples of film artists.
- Designer of Interiors
- Advocate or Lawyer or any a legal professional.
- Doctors, physiotherapists, and nursing and paramedical staff or any medical professionals.
- Any Technical Consultant
The Appointment of Tax Auditors on Income Tax Portal
When a taxpayer calculates his or her taxable income, it’s critical to hire a third-party auditor who doesn’t have a personal stake in the individual. This aims to verify that the tax calculations’ outcomes are fair. Here is the procedure for the Appointment of Auditor on the Income Tax Portal:
Who is ineligible to be an Auditor?
The appointment of tax auditors is subject to a number of restrictions, as listed below:
- Any member who practises part-time is ineligible to conduct a tax audit.
- A chartered accountant cannot audit the accounts of someone he owes more than Rs.10, 000.
- If a statutory auditor accepts the appointment of a Public Sector Undertaking/Government Company/Listed Company or other Public Company with a turnover of Rs 50crores or more in a year and accepts any other work, assignment, or service in relation to the same undertaking/company for a remuneration that in total exceeds the fee payable for carrying out the statutory audit of the same undertaking/company, he or she will deemed guilty of professional misconduct.
- In any given financial year, an auditor cannot take more than 45 tax audit tasks.
- The Chartered Accountant who is in charge of writing and maintaining the assessee’s books of account should not audit the accounts.
- An assessee’s internal auditor cannot appoint as a tax auditor.
- Any partner or employee of a professional firm of Chartered Accountants is prohibit from auditing the firm’s accounts.
Auditing limit of Chartered Accountants
A Chartered Accountant can embark on a maximum of 60 tax audit assignments under Section 44AB. As a result, if a firm has four partners, the maximum number of tax audits the firm can conduct in a given year is 60*4=240.
If the firm completes all 240 projects, the partners will be unable to accept any tax audit work. Further, the tax audit must prepare in an electronic format by the Chartered Accountant conducting it.
Penal Provisions for Non- Performance of Tax Audit
If a person who is not able to comply with Section 44AB is unable to have their accounts audited, a penalty will be levied on that person under Section 271B:
- A fine of Rs 150,000 will impose on a company.
- Further, in the case of a corporate organisation, 0.5 percent of total sales
- Also, in the case of a profession, 0.5 percent of total receipts for the current financial year.
- On the other hand, Section 273B, states that if a valid basis for the failure occurs, no penalty will charge
As a result, failure to follow the income tax requirements will result in a penalty.
Removal of Tax Auditor
The management has the authority to fire a tax auditor if the auditor has delayed the filing of the report to the point where it is no longer possible to upload the audit report before the deadline. Also, the Ethical Standards Board, which was established by the Institute of Chartered Accountants of India (ICAI), has the authority to intervene if a Chartered Accountant is removed on unfair grounds. Furthermore, if a Chartered Accountant is removed for incompetence, no other Chartered Accountant will have permission to take his or her place.
Conclusion
The goal of the Tax Audit is to guarantee the maintaining of books of accounts in accordance with the provisions of the Income Tax Act, therefore we can now conclude the importance of Tax Audit and the necessity of selecting Tax Auditors. Furthermore, appointing tax auditors helps to safeguard organizations from fraud and to draw attention to any inconsistencies in accounting systems, among other things.
