An Overview

Section 44AB specifies the certain categories of individuals or businesses that require Tax Audits by a chartered accountant in order to ensure compliance with the tax laws and to keep an eye on fraudulent tax practices on regular basis.

What is the Definition Tax Audit?

Under Section 44AB of the Income Tax Act, 1961, persons involved in certain professions or exceeding a certain amount in business have to get their Books of Accounts audited by a chartered accountant is known as Tax Audit.

Audit refers to inspection or scrutiny of accounts, in order to ensure compliance with the Income Tax Act and other related laws, and to check fraudulent practices.

Income Tax Audit Limits for FY 2022-23 (AY 2023-24)

• A Business person whose gross receipts/turnover/sales for the previous financial year is more than Rs. 1 crore.
• A Professional whose gross receipts for the previous financial year is more than Rs. 50 lakh.
• Persons covered under Sections 44AD, 44AE, 44AF, 44BB and 44BBB, who are declaring lower profits from business than what is estimated.
• As per the latest announcement, the persons who carry out most of the transactions (95% in this case) online, that is through digital transactions, will be eligible for an increase in the limit for tax audit.

Different Types of Tax Audits

There are three types of auditing process. They are given below:

• Field audit: A field Audit is conducted in person by a tax auditor at the tax payer’s place of business or home. The tax auditor examines the taxpayer’s financial records and verifies the information reported on the Tax return.
• Office audit: An office audit is similar to a field audit, but it takes place at the tax authority’s office rather than the TAx payer’s Loaction.
• Correspondence Audit: This type of Audit is conducted through mail, the tax payer is asked to provide documentation to support the deductions or credit claimed in their tax return.
• Random Audit: A random audit is conducted randomly, without any specific reason or suspicion of noncompliance.
• Compliance Audit: A compliance audit is conducted to determine if the taxpayer is complying with all applicable tax laws and regulations.
• Limited Scope Audit: A limited scope audit focuses on a specific aspect of the taxpayer's tax return or financial records.
• Joint Audit: A joint audit is conducted by more than one tax authority, such as when the taxpayer operates in multiple jurisdictions.

What are The Main Objectives of Tax Audit?

Tax audits are conducted by tax authorities to ensure that taxpayers are complying with tax laws and regulations.

The Objectives of a tax audit include the followings:

• To verify the accuracy and completeness of the tax returns filed by the taxpayer.
• To identify any errors or omissions in the taxpayer's tax return that result in underpayment of taxes.
• To detect any instances of tax evasion or noncompliance with tax laws.
• To assess penalties and interest on any unpaid taxes or noncompliance with tax laws.
• To provide guidance to taxpayers on how to comply with tax laws in the future.
• To ensure that taxpayers are keeping adequate records to support their tax returns.
• To deter taxpayers from engaging in noncompliant behavior in the future.
• To promote fairness and equity in the tax system by ensuring that all taxpayers are treated equally under the law.

Overall, the objectives of tax audits are to ensure that taxpayers are meeting their obligations under the tax laws and to maintain the integrity of the tax system.