About Us
C P C & Company (hereinafter referred to as ‘CPC’) was established in 2009 and has grown to meet the challenges of the complex world of business and emerging technologies. We cater to the evolving needs of the industry and our clients.
What is an Income Tax Audit?
An Income Tax Audit is an examination of the books of accounts of a taxpayer by a Chartered Accountant (CA) to verify whether the taxpayer has properly maintained the accounts and complied with the provisions of the Income-tax Act.
The audit is conducted under Section 44AB of the Income-tax Act, 1961.
The CA examines matters such as:
After completing the audit, the CA furnishes the prescribed Tax Audit Report, generally in Form 3CA/3CB along with Form 3CD, depending on the nature of the assessee and whether accounts are required to be audited under another law.
When is Income Tax Audit Applicable?
The major situations under Section 44AB are:
Tax audit is generally applicable when the total sales, turnover or gross receipts from business exceed ₹1 Crore during the financial year.
The threshold can increase to ₹10 Crore where:
Important: Non-account-payee cheques/drafts are generally treated as cash for this purpose.
Therefore, a business with turnover of ₹8 Crore may not require a tax audit under the turnover criterion if the prescribed 5% cash conditions are satisfied.
For a person carrying on a specified profession, tax audit is generally applicable where gross receipts exceed ₹50 Lakhs in the financial year.
Examples include:
Tax audit can also become applicable where a taxpayer opts for or is subject to presumptive taxation provisions but declares income below the prescribed presumptive income and the applicable conditions under Section 44AB are satisfied.
For example, where a business is covered under Section 44AD and the taxpayer declares income lower than the presumptive rate, audit implications need to be examined based on the specific circumstances.
Simple Example
Suppose a trading business has:
Turnover: ₹7 Crore
Cash receipts: ₹10 Lakhs
Cash payments: ₹15 Lakhs
Since both cash receipts and cash payments are within the prescribed 5% limit, the higher turnover threshold of ₹10 Crore may be available. Therefore, merely having ₹7 Crore turnover does not automatically mean that tax audit is applicable.
In Simple Words
Income Tax Audit is a compliance mechanism under which a CA examines the taxpayer's books and reports whether the financial and tax-related information has been maintained and disclosed in accordance with the Income-tax Act.
Note: The exact applicability should be checked based on the nature of business/profession, turnover, cash transactions, presumptive taxation and other conditions applicable for the relevant assessment year.
Our Income Tax Audit professionals provide comprehensive review of books of accounts, financial records and tax compliance to ensure accurate reporting, identify tax risks and facilitate compliance with applicable provisions of the Income Tax Act.