What does TAX Audit mean?
Audit simply means investigation, analysis and confirmation, so that the tax audit is carried out when the tax filing is under scrutiny. In order to determine whether the income assessed and deductions claimed by you are correct or not, tax audit is carried out. Generally tax return forms a part of tax audit when something is abnormal entered by you.
What is the applicability of a TAX Audit?
A business needs to conduct tax audit where its turnover exceeds INR 1 Crore in a financial year and where a person is carrying on a profession whose turnover exceeds INR 50 lakhs in a financial year, tax audit needs to be conducted.
Following things shall be included in the turnover for TAX Audit:-
Duty drawbacks earned from export sales shall be counted as part of the Turnover during the financial year. Income made out of interests from income by money lender or through foreign fluctuation income by an exporter shall be considered as part of turnover in a financial year or Advance received & forfeited from customers and if excise duty included in turnover it should be again debited in the profit and loss account
What should you do to be Safe from a Tax Audit?
A business or profession is carried out with a motive in mind for financial profits. And it is important to keep in mind that they should be appropriate profits without any suspicious record-less reports. So what you can do is the following:-
- Books of accounts are required to be maintained according to the Income Tax Act in India.
- Profit and gain that is computable under Chapter IV should be calculated.
- Income is taxable and loss permissible under the Indian Act.
- List taxable income and permissible loss in the folder of the tax return.
Who all are eligible to conduct Tax Audit?
- Hindu undivided family
- Partnership Firm.
- Association of person.
- Local Authority.
What is the exclusion from turnover for TAX Audit?
Selling / purchase of fixed assets, sale of assets retained as securities, rental income, residential and business land, interest income and repayment of expenditures as receipt.
Define the purpose of Tax Audit?
Driving to the report according to the need of the form no. 3CA/3CB and 3CD is the aim of the tax audit. In contrast to the reporting requirements of the above forms, a proper tax review for tax purposes should insure that the reports and documents are properly maintained because they accurately reflect the earnings of the tax payer and the correct deductions in his or her total tax charged by him or her. These tax audits would also be part of the survey of evasion practices. It can also promote the implementation of the tax audit regulations by correctly introducing the reports in dispute to any income tax authority and also substantially saving the time and energy of the appraisal officer during the regular confirmation process.
In India, the regular review tends to be a time consuming process and a costly system for businesses. Tax audit firms in India can validate the output of business in accordance with industry standards.
For instance, if your firm is set up in Delhi, then a tax audit firm in Delhi can analyze your accounts and can also suggest ways to enhance your business.
The tax assessment shall be carried out by all competent assesses as it is mandated by the Income Tax Act. Tax reviews shall be carried out by tax experts in India. (Chartered accountant only.)
What are the kinds of tax audit?
Four types of audits are there which are described below:-
- Correspondence audit is the first type of audit and it is considered a simplest type of tax audits in which IRS is required to send letter to you for demanding the certain and required information related to certain area of your tax return. Here IRS may have concerns about some spending and may request you to give them documents to provide evidence of your commitment.
- Office audit is the second type of tax audit. In this scenario, the inspector will have more concerns than in a simple letter about your filing, would usually be more thorough and would surely take a day, and if IRS allows, they would allow you additional time to collect and deliver the relevant and required information.
- Field audit is the third type of tax audit and is very detailed audit than office audit. Here IRS meets the tax payer at their home and their place of business / work. They will allow certain items to be seen; they will not be restricted to a specific item.
- Tax Payer Compliance Measurement Program (TCMP) is the fourth type of tax audit. Tax audit's main objective is to refresh the information of IRS DIF scores generated from a larger group study of up to fifty thousand randomly obtained returns produced every few years.