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

B. Professionals

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

(Subject to government extensions)

5️⃣ Forms Used in Tax Audit

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

1. Upload audit report on Income Tax Portal

2. Acceptance by assessee

3. File ITR after audit

4. Preserve records for minimum 6 years

📌 Advisory Draft – Income Tax Audit

(Use this directly for client communication)

Email

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:

1. Preparation and finalization of books of accounts.

2. Conduct of Income Tax Audit by a Chartered Accountant.

3. Filing of Tax Audit Report in Form 3CA/3CB along with Form 3CD on or before the prescribed due date.

4. 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]