INCOME TAX AUDIT

Before getting into tax audit and its details, it is quite essential to understand the term ‘audit’. The word “audit” means that it is a licence to officially inspect a particular organisation’s official accounts and produce a report based on an independent body. One can also term audit as a systematic review or an assessment of something in general.

What is an income tax audit?

There are multiple types of audit conducted in total under various laws such as statutory audit, company audit which are conducted under specific company law provisions, stock audits and cost audits are some to name. In that manner, income tax law also states an audit termed ‘tax audit’. Now, a tax audit is a comprehensive examination or review of all the accounts of any particular business or profession run by taxpayers from an income tax standpoint. Thus, making the process of computation of income for filing of return of income a more straightforward approach.

Prime objectives of income tax audit

Some of the significant objectives of an income tax audit are -

• To make sure of the proper maintenance of books of accounts and adequate certification ensured by a tax auditor.
• The tax auditor reports observations and discrepancies after a set of methodical examinations of the books of account.
• To report the prescribed information like the tax depreciation and the compliance of various provisions of income tax law for the most. This allows the tax authorities to verify the correctness of income tax returns pinned by the taxpayer. Thus, making the calculation and verification of total income and claim for deductions more-easier. These are some of the prime objectives of the income tax audit.

Who is required to get audited mandatorily income tax audit?

A taxpayer, in general, is supposed to have his / her tax audit carried out if the overall sales or gross receipts and turnover of the business exceeds Rs. 1 crore in a particular annual year. Nonetheless, a taxpayer is supposed to get their accounts audited in some specific circumstances—however, the overall threshold limit of Rs. 1 crore is proposed to be increased to Rs. 5 crores from the effect of AY 2020-2021 and as per the FY 2019-2020, if a taxpayer’s cash receipts are withheld to five per cent of overall turnover or gross receipts and if the taxpayer’s payments are limited to five per cent of the overall aggregate payment.