Income Tax Audit
Income Tax Audit is the examination of books of accounts by a Chartered Accountant (CA).
Income Tax Audit
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Income Tax Audit – Complete Detailed Guide (India)
1️⃣ What is Income Tax Audit?
Income Tax Audit is the examination of books of accounts by a Chartered Accountant (CA).
Conducted to verify:
Correctness of income
Compliance with Income Tax Act, 1961
Proper maintenance of books
Governed mainly by Section 44AB of the Income Tax Act.
Objective:
Ensure accurate reporting of income
Prevent tax evasion
Improve transparency and compliance
2️⃣ Who is Required to Get Tax Audit Done? (Section 44AB)
A. Business Assessees
Particulars
Audit Applicable
Turnover > ₹1 crore
Yes
Turnover up to ₹10 crore
No audit if cash receipts & payments ≤ 5%
Presumptive taxation (44AD) but profit declared < prescribed
Yes
B. Professionals
Particulars
Audit Applicable
Gross receipts > ₹50 lakh
Yes
Presumptive scheme (44ADA) but profit < 50%
Yes
3️⃣ Presumptive Taxation & Audit Impact
Section 44AD (Business)
Presumptive income: 8% (6% digital)
If profit declared less → Tax audit mandatory
Section 44ADA (Professionals)
Presumptive income: 50%
If declared less → Audit required
4️⃣ Due Dates for Tax Audit
Particular
Due Date
Tax Audit Report (Form 3CA/3CB & 3CD)
30th September
ITR filing (Audit cases)
31st October
Transfer Pricing cases
30th November
(Subject to government extensions)
5️⃣ Forms Used in Tax Audit
Form
Applicability
Form 3CA
Where accounts are already audited (Companies, LLPs)
Form 3CB
Where accounts are not audited under any other law
Form 3CD
Detailed tax audit report (Annexure)
6️⃣ Information Covered in Tax Audit Report (Form 3CD)
Nature of business/profession
Accounting method followed
Depreciation details
Disallowances under Section 40(a), 43B
Related party transactions
TDS/TCS compliance
GST turnover reconciliation
Cash transactions
Loans, advances & borrowings
7️⃣ Documents Required for Tax Audit
PAN & Aadhaar
Books of accounts (Cash book, Ledger, Journal)
Balance Sheet & Profit & Loss Account
Bank statements
GST returns & reconciliation
Fixed asset register
TDS returns & challans
Loan agreements & confirmations
8️⃣ Penalty for Non-Compliance (Section 271B)
0.5% of turnover or gross receipts
Maximum penalty: ₹1,50,000
Reasonable cause may grant relief (Section 273B)
9️⃣ Benefits of Tax Audit
Ensures statutory compliance
Reduces scrutiny risk
Improves credibility with banks & investors
Helps detect errors early
Facilitates smooth ITR filing
🔟 Common Reasons for Tax Audit Notices
High turnover with low profit
Cash-intensive transactions
GST–ITR mismatch
Non-filing of audit report
Repeated losses
1️⃣1️⃣ Post-Audit Responsibilities
Upload audit report on Income Tax Portal
Acceptance by assessee
File ITR after audit
Preserve records for minimum 6 years
📌 Advisory Draft – Income Tax Audit
(Use this directly for client communication)
SUBJECT: Advisory on Income Tax Audit Applicability & Compliance
Date: __________
Subject: Advisory on Income Tax Audit under Section 44AB – FY [20XX–XX]
Dear [Client Name],
This is to inform you that based on the review of your financial details for the Financial Year [20XX–XX], your case falls under the applicability of Income Tax Audit as per Section 44AB of the Income Tax Act, 1961.
Key Compliance Requirements:
Preparation and finalization of books of accounts.
Conduct of Income Tax Audit by a Chartered Accountant.
Filing of Tax Audit Report in Form 3CA/3CB along with Form 3CD on or before the prescribed due date.
Filing of Income Tax Return after successful audit submission.
Important Timelines:
Tax Audit Report Due Date: 30th September
ITR Filing Due Date: 31st October
Consequences of Non-Compliance:
Failure to comply may attract a penalty under Section 271B, amounting to 0.5% of turnover or gross receipts (maximum ₹1,50,000).
Our Scope of Assistance:
Review of books and financial statements
Conduct and filing of tax audit report
Advisory on disallowances and compliance issues
Support in filing Income Tax Return
We recommend initiating the audit process at the earliest to ensure timely compliance and avoid penalties.
Please feel free to contact us for any clarification or assistance.
Warm regards,
[Consultant Name]
[Designation / Firm Name]
[Contact Details]