Tax Audit Alert: 5 Shocking Facts Every Taxpayer Must Know Before 30th September!

The tax audit report must be filed by 30 September of the assessment year. Five things to know about tax audit.

September has just begun and the deadline for filing tax audit reports is fast approaching. In a bid to promote compliance with the Indian taxation system and prevent possible tax evasion, the Central Board of Direct Taxes (CBDT) has made tax audit reporting a necessary requirement for certain businesses and individuals.

So, here are five essential aspects of tax audit you should know about to ensure smooth sailing of your financial processes. Before delving into this topic, let us first understand the basics of tax audit. A tax audit, in simple terms, refers to the process of evaluating the annual financial statements and ensuring accurate reporting of these statements.

Understand that the fundamental goal of a tax audit is to thoroughly analyze an entity's financial reports and ensure compliance with the relevant tax laws and regulations. The tax authority undertakes this process to reduce tax evasion, prevent fraudulent financial reporting, and increase revenue for the government.

The following are key things to know:

1. Who Needs to Conduct a Tax Audit?
A tax audit is required for several business entities and individuals depending on their turnover or income. Generally, every person fulfilling certain criteria, such as business turnover exceeding INR 1 crore, or professional income exceeding INR 50 lakhs need to engage in tax audit. Here, it's crucial to note that a tax audit isn't a requirement for every individual or business. However, if you're unsure about whether your entity requires a tax audit, consult an accountant or financial advisor who can provide relevant guidance on this issue.

2. Types of Tax Audits
There are multiple types of tax audits which are available in India. These audits are of two types: mandatory and discretionary. Mandatory tax audits are required for specified businesses and professionals. The taxation authorities carry out discretionary or optional audits whenever they have a valid reason to suspect tax evasion. During a tax audit, it's good to be well-versed on these so as to take informed decisions.

3. Objective of Conducting Tax Audit
A tax audit helps to promote tax compliance and combat instances of tax evasion. However, its purpose extends beyond that. It also involves verifying accounting treatment, detection of 'unreported income,' assessment of income tax and detection of 'incorrect income'.

4. What is the Due Date for Filing a Tax Audit Report?
Tax audit reports are due by 30 September of the assessment year. Taxpayers typically enjoy the last months of the financial year and may get some extra time in assessment year to meet the prescribed deadline. They are expected to make required tax payments and keep up with other tax requirements.

5. Appointment of an Auditor
Unless a Chartered Accountant is appointed as an auditor to carry out the audit of their books of accounts, no entity can comply with tax audit reporting requirements. Auditor appointment must be made via an auditor's letter, indicating a clear range of their duties and fees. Auditors verify whether tax entities' books of account and financial reports comply with the specified accounting framework. As per law, the auditor has to provide their report within a stipulated time period.