Tax audit under income tax laws

Tax audit under income tax laws

The Income tax laws mandate a tax audit. Section 44AB of the Income Tax Act, 1961, lays down the provisions for income tax audit. Tax audit is an examination or review of accounts of businesses or individual taxpayers from an income tax point of view. It makes the process of income computation for filing tax returns easier. If any taxpayer who is required to get the tax audit done but fails to do so, the least of the following may be levied as a penalty:

1) 0.5% of the total sales, turnover or gross receipts

2) Rs 1, 50, 000

Objectives of tax audit:

1) Ensure proper maintenance and correctness of books of accounts and certification of the same by a tax auditor

2) Reporting observations/discrepancies noted by tax auditor after a methodical examination of the books of account

3) To report prescribed information such as tax depreciation, compliance of various provisions of income tax law etc.

4) All these enable tax authorities in verifying the correctness of income tax returns filed by the taxpayer. Calculation and verification of total income, claim for deductions etc. also becomes easier.

The following are the other sections under Income Tax Act, 1961, which also lay down regulations related to income tax audit in India. These are presumptive taxation schemes, wherein a pre-determined percentage of income is assumed to be the gain or profit meant for taxation.

1) Section 44BB: For Non-Resident Indians (NRIs) involved in business specializing in the mineral oils industry, like exploration

2) Section 44BBB: International company involved in the business of civil construction etc. in certain power projects

3) Section 44AD: Any business except those businesses mentioned under Section 44AE

4) Section 44ADA: This section focuses on the regulations regarding income tax audits for eligible professionals

5) Section 44AE: Businesses specializing in leasing, hiring and plying of goods carriages.