Tax audit is an examination of business's tax return to verify that financial information is being reported correctly and that too under a signarture of a Chartered Accountant (CA
Tax Audit Report under form 3CD
With the closing of books of every 31st March and due date of return filing getting near, we gear up hopes for the next financial year, but “Have we ensured that closing has been done? Tax and statutory audit reports are furnished timely? Annual income tax returns are filed accurately? “
Tax audit is a mechanism opted by Income Tax authorities ensure that due consideration has been paid to provisions of income tax and adequate , For making adequate and accurate filings, we need to ensure appropriate reports are filed along with Income tax returns by businesses.
Let us have an analysis on:
- A. Meaning and purpose,
B. Applicability, and - C. Form and Details required to be captured
- D. Consequences of non-compliance with Tax Audit?
A) Meaning and purpose of Tax Audit
1. Meaning of Tax Audit
Audit refers to review of books of accounts of an organisation by an independent body. Different statutes (laws) provide for audits as per the provisions obtained therein. Commonly known is the Companies Act, 2013 (for companies incorporated in India) which requires Statutory Audit to be conducted by an Independent Chartered Accountant (CA) and furnishing to Registrar of Companies a report on such audit with fairness opinion on accounts of the company within 180 days from the end of financial year.
Similarly, Income Tax Act also requires an audit to be conducted known as ‘Tax Audit under section 44AB’ by the auditor of the Company.
Due date of furnishing such report is prior to furnishing of Income Tax return of the year (i.e. before 30th September), except where transfer pricing report is applicable (i.e. 30th November).
Due date for FY 2018-19: Standard timelines mentioned in the Income Tax Act will apply unless there is a specific notification issued by CBDT regarding extension of due dates. i.e. 30 Sep 2019
2. Purpose
Tax audit has been introduced due to following reasons:
- - Ensuring proper maintenance and correctness of books as required under Income Tax
- - Attestation by an independent qualified professional to build trust fo stakeholders
- - Reporting of any non-compliance/ observation with regard to income tax provisions to Income tax authorities
- - Providing for correct determination of income tax liability by giving due regard to tax depreciation, deduction, and other provisions etc.
B) Applicability of Tax Audit u/s 44AB:
It is important to note that every business is not required to get is accounts audited under Income tax. Only those falling under applicable provisions are required to comply with such provision.
Following taxpayers are required to furnish Tax Audit report:
|
Sr. no. |
Type of Taxpayer |
Conditions |
|
1 |
Engaged in business (normal) |
if total sales/ turnover/ gross receipts in business exceed Rs. 1 crore in the previous year |
|
2 |
Engaged in business of plying/ hiring / leasing of goodsand owns not more than 10 goods carriages (trucks) at any time during the previous year |
If taxpayer claims that profits chargeable to tax is less than those required to be opted under presumptive scheme (section 44AE) |
|
3 |
Resident Individual/HUF./PF engaged in business of exploration, etc., of mineral oils. or foreign company engaged in turnkey projects |
If taxpayer claims that profits chargeable to tax is less than those required to be opted under presumptive scheme (section 44BB |
|
4 |
Resident Individual/HUF/PF engaged in business opting for presumptive taxation under section 44AD and turnover does not exceed Rs. 2 crs |
If taxpayer claims that profits chargeable to tax is less than 8% of turnover |
|
5 |
Engaged in profession (normal case) |
if total sales/ turnover/ gross receipts in business exceed Rs. 0.5 cr in the previous year |
|
6 |
Resident taxpayer engaged in profession opting for presumptive taxation under section 44ADA and receipts do not exceed Rs. 0.5 crs |
If taxpayer claims that profits chargeable to tax is less than 50% of gross receipts |
C) Form and Details required to be captured under Tax Audit report form
Following are the applicable forms for tax audit (click on each form heading to see this format):
- - Form 3CA – A taxpayer engaged in business/ profession and is mandatorily required to get his accounts audited under any other law than income tax. Example: A company is required to get its accounts audited compulsorily under Companies Act 2013. Hence, it will furnish Form 3CA.
- - Form 3CB – A taxpayer engaged in business/ profession and is not required to get his accounts audited under any other law but income tax.
- - Form 3CD: Every resident taxpayer required to file Form 3CA/3CB is required to furnish this 44-points detailed statement containing particulars of all section w.r.t business and profession. Each clause calls for income tax section specific details w.r.t various aspects of the business. Any discrepancy has to be filled at appropriate places.
- - Form 3CE: A non-resident taxpayer or a foreign company deriving income of Royalty/ Fee for technical services and operating through a Permanent establishmet in India.
It is important to note that form 3CD asks for details w.r.t compliance with General Anti avoidance rules (GAAR) under clause 30C and details of turnover and taxes paid under GST under clause 44. Applicability of this clause has been deferred till 31 March 2020 and is not applicable to FY 2018-19
Refer our previous blog, to see what are the additional details to be captured in Form 3CD for FY 2018-19 as compared fro previous years.
D) Penalty for non-compliance
Penalty is imposed u/s 271B on account of not getting accounts audited or non- filing of audit report.
- - Minimum Penalty: 0.5% of the total sales/ turnover/ gross receipts upto a maximum of Rs. 1.5 lakhs.
- - Where reasonable cause for non-compliance is provided to satisfaction often authorities, no penalty should be imposed.
We hope you find the above useful. Please feel free to contact us in case of clarifications.
Regards,
TheTaxTellers Team
