As per the Income Tax Act 1961, certain categories of taxpayers are required to get their accounts audited for income tax purposes.
An audit of books of accounts may also be required under other laws such as the Companies Act, 2013, etc. Despite similarities between the two types of audits, an income tax audit is different in many ways. Hence, an income tax audit has to be done separately by those who are required to get it conducted.
Who is required to get income tax audit done
“India tax laws mandate a certain class of taxpayers to get their accounts audited by a chartered accountant (CA). This is commonly known as the tax audit, as per Section 44AB. It aims to ascertain the compliance of (the accounts with) various provisions of the Income Tax Law and the fulfilment of other requirements of the Income Tax Law,” says Vijay Bharech, Director, Deloitte Haskins & Sells LLP, a business consultancy company.
Taxpayers who are mandatorily required to get their accounts audited must get the audit report uploaded on the income tax portal by September 30 every year. Further, the income tax return (ITR) filing deadline for these taxpayers is October 31 annually.
Here’s who is required to get an income tax audit conducted:
Business Income: “A businessman is required to have his accounts audited if the total sales, turnover, or gross receipts from the business during the previous year (i.e. the financial year for which ITR has to be filed) exceeds Rs 1 crore. However, this limit of Rs 1 crore shall be increased to Rs 10 crore if cash receipts and cash payments during the year do not exceed 5% of the total receipts or payments, as the case may be,” says Naveen Wadhwa, vice president, Taxmann, a Delhi-based company that publishes tax books.
“Even if the turnover of a person is below the audit threshold limit, he may still be liable for an audit if he is eligible for the presumptive tax scheme under Section 44AD. This requirement applies if his income exceeds the basic exemption limit and he has opted for the presumptive scheme in any of the previous five years but chooses not to opt for the same in the current year (the year for which ITR is being filed),” said Wadhwa.
Professional Income: A professional, such as a doctor or a Chartered Accountant, is required to have his accounts audited if his gross receipts from the profession for the financial year for which ITR is being filed exceeds Rs 50 lakh.
However, “If a professional, as defined in section 44AA reports his income as less than 50 per cent of his/her gross receipts, then they need to get their accounts audited under section 44AB, even if their gross receipts are below the audit threshold limits, i.e., Rs 50 lakh,” says Chartered Accountant Astha Gupta, Partner, S.K. Gulati and Associates, a Delhi-based CA firm.
What happens if tax audit is not done
Do note that if a tax audit was required to be done mandatorily by an individual and it is still not done, then the ITR submitted will be deemed defective. Further, a penalty may also be imposed on the individual at fault.