Compulsory Audit of Accounts
Introduction
This provision provides for mandatory audit of books of accounts of an assessee who is engaged in business or profession. The tax audit is required if gross turnover or receipts from business or profession exceeds the prescribed threshold limit. The tax audit can be conducted by a Chartered Accountant who is in practice.
1. About
1.1. Who has to get books of accounts audited?
A taxpayer is required to maintain books of accounts and get them audited. The requirement to maintain the books of accounts is prescribed under Section 62 and the requirement to get them audited is mentioned in Section 63.
An assessee shall get the books of accounts audited if its gross turnover or receipts during the relevant tax year exceeds the prescribed threshold limit. If the threshold limit, as specified in the below table, is not crossed, the assessee shall not be required to get the books of accounts audited by a Chartered Accountant.
Following persons are compulsorily required to get their books of account audited by a Chartered Accountant:
| Nature of Business or Profession | Category of Taxpayer | When audit is mandatory? |
| Any professions (specified or non-specified) | Any | If gross receipts from profession during the relevant tax year exceeds Rs. 50 lakhs |
| Business | Cash receipt and payment up to 5% (See Note 1) | If total sales, turnover or gross receipt from business during the tax year exceeds Rs. 10 crore |
| Business | Any | If total sales, turnover or gross receipt from business during the tax year exceeds Rs. 1 crore |
| Business eligible for Presumptive Tax Scheme under Section 58(2) [Table S. No. 1] | Resident Individual or HUF | • If income of assessee exceeds the maximum exemption limit and he has opted for the scheme in any of the last 5 tax years but does not opt for the same in current year; or • Taxpayer claims that his profits from profession are lower than the profits computed under Section 58(2) [Table S. No. 1] and total income exceeds the maximum exemption limit. |
| Business eligible for Presumptive Tax Scheme under Section 58(2) [Table S. No. 1] | Resident Partnership Firm (other than LLP) | • Taxpayer has opted for the scheme in any of the last 5 tax years but does not opt for the same in current year; or • Taxpayer claims that his profits from profession are lower than the profits computed under Section 58(2) [Table S. No. 1] and total income exceeds the maximum exemption limit. |
| Profession eligible for Presumptive Tax Scheme under Section 58(2) [Table S. No. 3] | Resident Individual or Resident Partnership Firm (other than LLP) | Taxpayer claims that his profits from profession are lower than the profits computed under Section 58(2) [Table S. No. 3] and total income exceeds the maximum exemption limit |
| Business eligible for Presumptive Tax Scheme under Section 58(2) [Table S. No. 2] | Any Assessee engaged in plying, hiring or leasing of goods carriage | Taxpayer claims that his profits from business are lower than the profit computed under Section 58(2) [Table S. No. 2] and total income exceeds the maximum exemption limit. |
| Business eligible for Presumptive Tax Scheme under Section 61(2) [Table S. No. 5] | Non-resident assessee engaged in exploration of mineral oil | Taxpayer claims that his profits from business are lower than the profit computed under Section 61(2) [Table S. No. 5] |
| Business eligible for Presumptive Tax Scheme under Section 61(2) [Table S. No. 4] | Foreign Co. engaged in civil construction | Taxpayer claims that his profits from business are lower than the profit computed under Section 61(2) [Table S. No. 4] |
Note 1: Following conditions need to be fulfilled:
(a) Cash receipts, including amount received for sales, turnover or gross receipts, does not exceed 5% of the aggregate amount received during the tax year; and
(b) Cash payments, including amounts incurred for expenditure, do not exceed 5% of the aggregate amount paid during the tax year.
For the purpose of computing the limit of 5%, payment or receipt by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the payment or receipt in cash.
1.2. Form for filing of tax audit report
The tax audit report has to be furnished in the forms as prescribed below:
| Category of Taxpayer | Form for Audit Report | Annexure to Audit Report |
| If books of accounts of assessee is required to be audited under any other law | Form 26 (Part A) | Form 26 (Parts C & D) |
| In any other case | Form 26 (Part B) | Form 26 (Parts C & D) |
1.3. Requirement for audit under other law
Where assessee is required to get his books of accounts audited under any other law, it is sufficient for him to get his accounts audited under that law and furnish a report of such audit and a report in Form 26 (Part A) and 26 (Parts C & D) by a chartered accountant by the prescribed due date.
The tax auditor is required to enclose a copy of the statutory audit report with Form 26 (Part A). However, where the statutory auditor has not been appointed or the statutory auditor"s report is unavailable, the tax auditor can give his audit report in Form No. 26 (Part B) with Form 26 (Parts C & D). In such a case, the tax auditor will have to conduct a financial audit certifying whether the books of account provide a true and fair view of the state of affairs of the assessee
1.4. Due date for furnishing Audit Report
It is mandatory to file the tax audit report before one month prior to the due date of furnishing return of income under section 263(1) i.e. by the following dates:
| Situations | Due date for filing of tax audit report |
| If assessee is required to furnish a report of transfer pricing (TP) in Form No. 48 | Before 31st October of the relevant tax year |
| In any other case | Before 30th September of the relevant tax year |
1.5. Revision of audit report
The audit report may be revised by getting revised report of audit from an accountant, if any payment is made after furnishing of report which necessitates recalculation of disallowance under Section 35 or Section 37. Revised audit report must be signed and verified by such accountant and it should be furnished before the end of the relevant tax year for which the report pertains. In summary tax, the return of income is processed to disallow expenditure or increase the income indicated in the audit report but is not taken into account in computing the total income in the return. Therefore, revision of the tax audit report is mandatory to avoid disallowance under Section 35 or Section 37.
Further, the ‘Guidance Note on Tax Audit under Section 63’ issued by the ICAI provides that the audit report under section 63 should not normally be revised. However, sometimes a member may be required to revise his tax audit report on grounds such as:
a) Revision of accounts of a company after its adoption in annual general meeting.
b) Change of law e.g., retrospective amendment.
c) Change in interpretation, e.g., CBDT Circular, Judgments, etc.
1.6. How to furnish audit report?
The tax audit report has to be submitted electronically at www.incometax.gov.in by the Chartered Accountant, which shall be approved by the assessee. Refer tutorial to know more about the process of uploading and approving the tax audit report.
1.7. Penalty for non-compliance
Main article: Penalty for failure to get accounts audited
If any person fails to get his accounts audited or fails to furnish a report of tax audit as required under this provision, the penalty may be imposed under Section 446.
References
ICAI’s Guidance Note on Tax Audit.
This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.