There are various kinds of audits being conducted under different laws such as company audit /statutory audit conducted under company law provisions, cost audit, stock audit etc. Similarly, income tax law also mandates an audit called ‘Tax Audit’.

As the name itself suggests, tax audit is an examination or review of accounts of any business or profession carried out by taxpayers from an income tax viewpoint. It makes the process of income computation for filing of return of income easier.

• Ensure proper maintenance and correctness of books of accounts and certification of the same by a tax auditor
• Reporting observations/discrepancies noted by tax auditor after a methodical examination of the books of account
• To report prescribed information such as tax depreciation, compliance of various provisions of income tax law, etc.
• To report prescribed information such as tax depreciation, compliance of various provisions of income tax law, etc.

A taxpayer is required to have a tax audit carried out if the sales, turnover or gross receipts of business exceed Rs 1 crore in the financial year. However, a taxpayer may be required to get their accounts audited in certain other circumstances. We have categorised the various circumstances in the tables mentioned below:

• Finance Act 2020: The threshold limit of Rs 1 crore turnover for a tax audit is proposed to be increased to Rs 5 crore with effect from AY 2020-21 (FY 2019-20) if the taxpayer’s cash receipts are limited to 5% of the gross receipts or turnover, and if the taxpayer’s cash payments are limited to 5% of the aggregate payments.
• Finance Act 2021: With effect from 1st April 2021, the threshold limit of Rs 5 crores is increased to Rs 10 crores in case cash transactions do not exceed 5% of the total transactions.

• Tax auditor shall furnish his report in a prescribed form which could be either Form 3CA or Form 3CB where:
• Form No. 3CA is furnished when a person carrying on business or profession is already mandated to get his accounts audited under any other law.
• Form No. 3CB is furnished when a person carrying on business or profession is not required to get his accounts audited under any other law.
• In case of either of the aforementioned audit reports, the tax auditor must furnish the prescribed particulars in Form No. 3CD, which forms part of the audit report.

The tax auditor shall furnish a tax audit report online by using his login details in the capacity of ‘Chartered Accountant’. Taxpayers shall also add CA details in their login portal.

Once the tax auditor uploads the audit report, the same should either be accepted/rejected by the taxpayer in their login portal. If rejected for any reason, all the procedures need to be followed again till the audit report is accepted by the taxpayer.

You must file the tax audit report on or before the due date of filing the return of income. It is 30th November of the subsequent year(extended to 28th February 2022 for AY 2021-22) in case the taxpayer has entered into an international transaction and 30 September (extended to 15th February for AY 2021-22) of the subsequent year for other taxpayers.

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:

• 0.5% of the total sales, turnover or gross receipts
• Rs 1,50,000

However, if there is a reasonable cause of such failure, no penalty shall be levied under section 271B.

So far, the reasonable causes that are accepted by Tribunals/Courts are:

• Natural Calamities
• Resignation of the Tax Auditor and Consequent Delay
• Labour problems such as strikes, lock-outs for an extended period
• Loss of Accounts because of situations beyond the control of the Assesses
• Physical inability or death of the partner in charge of the accounts