A tax audit is an inspection of a person's income under the income tax act to confirm that there are no discrepancies or fraudulence involved. It is a process of scrutinized verification to ensure that the income and the deductions are precise.
An audit is done at least twice a year by a certified chartered accountant of the taxpayer under section 44AB.
According to the Income Tax Act 1961, Section 44AB refers to the audit of accounts of a separate set of individuals that meet the parameters prescribed under it. These accounts are audited only by a lawfully recognized chartered accountant to help the Assessing Officer (AO) with the estimation and computation of the net income of individuals subjected to audit.
Any individual who is mandated to get his/her accounts checked under section 44AB is required to submit a series of forms. They are forms 3CA, 3CB, 3CD, and 3CE.
Form 3(CA)It is an audit report form that needs to be compulsorily filled out and submitted by a certified auditor of the tax assessee. This form can be directly downloaded from the Income Tax website free of cost. This form is mandatory for taxpayers who are carrying Business and Profession and is already mandated to get their accounts audited under any other law.
The report possesses significant details that include:
It is an audit report that has to be produced on the behalf of an individual who manages the company or the profession and is not involved in the financial aspects and the accounting of the company audited according to any law apart from the 1961 Income Tax Act. This form is mandatory for taxpayers who are carrying business and profession but who are not required to get their accounts audited under any other law apart from Income Tax law. The two primary features that differentiate this form from the form 3CA are:
It is an intricate and detailed statement of information with 41 clauses. These are divided into two parts A and B of which 32 clauses form an integral aspect of filing the Income Tax Returns. The form is rendered concerning Rule 6G(2) of the Income Tax Rule. Some among the multiple detailed fields of requirement present in this form are the taxpayer’s revenue, annual yield, profit, and asset-liability details.
The only salient component that differentiates this form from the rest is how this document applies to all business audits across the country.
Form 3(CE)It is an audit report exclusively for the non-residents of India (NRI) or the foreign companies handling their fixed permanent business in India and receiving royalty or fees for technical services from the government or an Indian concern. This document is also important for filing the Income Tax Returns concerning Section 44DA of the Income Tax Act. The details of particulars needed to be filled by the auditor in this form are the same as that of the other forms except, it is only for people other than Indian citizens.
The Income Tax Department of India levies a penalty on taxpayers who abstain from getting their accounts audited regularly or fails to file any of the above-mentioned audit reports. The penalty could range from a minimum of 0.5% from total sales to a maximum of Rs. 1,50,000. Some individuals are relieved of tax penalties if the reason for their dereliction of duty stands valid and well-grounded to the ITD.
