TAX AUDIT
Tax Audit is an Examination or Review of Accounts of any business or Profession to verify your income, expenditure and deduction from Income Tax Act preview.
It also ensures that the Business are abide by the Tax Laws put in place by Income Tax Authority.
APPLICABILITY OF TAX AUDIT
FOR BUSINESS
| PARTICULAR | APPLICABILITY |
| TURNOVER EXCEEDS 10 Cr. | Tax Audit Applicable |
| TURNOVER EXCEEDS 2 Cr. but Up to 10 Cr. AND Minimum 95% of Transactions are not made through Banking Chanell i.e., 5% or more transactions are made through cash. |
Tax Audit Applicable |
| TURNOVER UPTO 2Cr. AND Amount of profit with respect to turnover is less than 8%(Payment received in Cash) OR 6%(Payment Received digitally) |
Tax Audit Applicable |
FOR PROFESSION
| PARTICULAR | APPLICABILITY |
| TURNOVER MORE THAN 50 Lakhs | Tax Audit Applicable |
| TURNOVER UP TO 50 Lakhs AND Amount of profit with respect to turnover is less than 50% |
Tax Audit Applicable |
Let’s Discuss Some Important Clauses that are Required to be checked by the Auditor-
Clause 8 Determining under which clauses of 44AB the Audit has been conducted
In this Auditor has to Ascertain the relevant clause applicable to the Assessee
Rules for Determining Relevant Clause
Sec 44AB (a) Turnover exceeds Rs. 10Cr. & 95% OR More Transaction are not made through Banking Channel i.e., 5% or more transactions are made through cash.
Sec 44AB (b) Gross Receipts from Profession Exceeds Rs. 50Lakhs during the Previous Year.
Sec 44AB(c) Carrying on Business where profit or gains from the business are deemed to be profit & gains u/s 44AE, 44BB & 44BBB.
Sec 44AB (d) Turnover is up to 2Cr. And Amount of profit with respect to turnover (in %) is less than 50%
Clause 11 List of Books of Accounts and Nature of relevant Documents Examined
Under this Tax Auditor has to check
Schedule indicating List of books of account maintained.
Obtain details as to the place where books are maintained.
Indicate all the books and other documents examined.
Clause 13 Method of Accounting Employed in the Previous Year
Review of Accounting Policies followed by Assessee along with obtaining management representation as to the method of accounting followed.
Enquire whether there has been any change in the method of accounting employed and obtain management representation regarding nature and reason for the change.
Clause 14 Method of Valuation of Closing Stock
Stock records should be checked for opening balances, receipts, issues, and closing balances.
Comparison of balances as per stock records should be done with balances obtained in physical verification.
Inventory valuation sheet should be checked thoroughly with regard to quantities, rates, method of valuation, etc.
Clause 18 Particular of Depreciation Allowable as per Income Tax Act, 1961
In this auditor needs to Check
Obtain Fixed Asset Register of the Assessee
Check the classification of the assets into different blocks and whether the same has been done correctly.
Tax auditor should go through the rate of Depreciation prescribed for different categories of assets.
Verify opening WDV with Form 3CD submitted for immediately preceding Financial Year along with segregation of Assets acquired during the year between the assets used for 180 days or more and the assets used for less than 180 days.
Obtain copies of the documents relating to acquisition/sale of Fixed Assets.
Clause 20 Details of Contribution received from employees for various funds
Scrutinize the Ledger of employees and check the correctness of said ledgers with vouchers and book of accounts.
Make sure the amount collected must be deposited with the concerned authority.
Clause 21 Amount of Expenses Inadmissible under Income Tax Act
Expenditure incurred by way of fine or penalty for violation of any law for the Time being in force.
Obtain a list of all payments made to a single party on a day that exceeds RS. 10000 on a cash basis
Clause 23 Related Party Transaction Disclosure u/s 40A(2)(b)
Obtain the list of the specified person as mentioned in the section.
Examine the details with the vouchers and books of accounts.
Obtain Management Representation indicating payment made to related party and nature of the payment.
Clause 33 Section-wise details of Deductions admissible under chapter VIA & Chapter III
Under this ensure that the assessee fulfills all the conditions specified in this section under which deduction is claimed. Further deductions are claimed correctly by taking into consideration the status of the Assessee.
Clause 35 Details of Closing Stock
Under this Assessee has to provide details of opening stock, Purchase made during the year, sales during the year, Closing Stock, and Any Excess/Shortage.
Clause 40 Details regarding Turnover, Gross Profit Turnover Ratio, Net Profit Turnover ratio, Inventory Turnover Ratio has to file.
Frequently Asked Questions
Audited Financial Statements of Previous Year.
PAN card
Registration Certificate under Indirect Tax Regime
TDS Return and Payment Challans of Relevant Financial Year.
GST Return and Payment Challan of Relevant Financial year.
Fixed Asset Register.
Stock Register and same being Reconciled with stock statement send to Bank.
PF & ESIC Payment challans along with bifurcation of Employee and Employer Contribution.
Lower of the following Amounts
• 0.5% of Total Sales, Turnover or Gross Receipts
• 1,50,000.00
