Audit is the examination or inspection of various books of accounts by an auditor followed by physical checking of inventory to make sure that all departments are following documented system of recording transactions. It is done to ascertain the accuracy of financial statements provided by the organization.
Who can perform an audit? In India, chartered accountants from ICAI or The Institute of Chartered Accountants of India can do independent audits of any organisation.
What is Audit ?
Audit means an inspection of books of accounts by some officials or some specified persons for the purpose of establishing the fact that the accounting records present a true and fair view.
Types of Audit
There are two types of audit, namely Statutory audit and Tax audit.
What is Statutory Audit?
Statutory audit is a compulsory audit for a Company governed by Companies Act, a Trust governed by Trust Act, Bank by RBI Act etc. by an external auditor to examine full accounting records of the organization.
What is Tax Audit?
A Tax Audit is an audit, made compulsory by the Income Tax Act, if the annual gross turnover/receipts of the assessee exceed the specified tax audit limit. Tax audit is conducted in Sec 44AB of the Income Tax Act by a Chartered Accountant. Simply Tax Audit means, an audit of matters related to tax.
Tax Audit Limit (Sec44AB) under Income Tax Act
According to Section 44AB of the Income Tax Act 1961 the Tax Audit limit for
Rs. 1 Crore. It means an assessee need to be audited under Sec.44AB if his annual gross turnover/receipts in business exceeds Rs. 1 Crore In the financial year.
Apart from the current provision, a new provision also inserted in Sec. 44AB that has been proposed to increase the tax audit limit from ‘1 crore’ to ‘5 crore’ if a person’s
- Aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed 5% of the said amount and
- Aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed 5% of the said payment.
Rs. 50 Lakh. It means an assessee need to be audited under Sec 44AB if his annual gross receipts in profession exceeds Rs. 50 Lakh in the financial year.
Penalty for Non-Compliance
If a taxpayer who is required to obtain the tax audit report but they fail to do so will be penalized. The defaulters of the tax audit report will be penalized under the Section 271B of the Income Tax Act. The penalty for non-completion of the tax audit report is 0.5% of the turnover or the gross receipts, this penalty amount is subject to a maximum of ₹ 1,50,000.
What is Presumptive Taxation Scheme
To reduce the tax burden and to provide relief from tedious work to small tax assessees, the government of India has incorporated a scheme of presumptive taxation. Businesses adopting the presumptive taxation scheme are not required to maintain regular books of account. They can declare the income at a prescribed rate.
Computation of Business income (U/Sec.44AD)
Sec 44AD provides special provision for computing profits and gains of business on presumptive basis. You need not to maintain proper accounting. Your net income is estimated to be @8% of your gross receipt/turnover. From F.Y. 2016-17, net income is calculated as @6% of gross receipts are received through digital mode of payments and @8% of gross receipts are received in cash.
Negative List :- the following persons are not eligible to avail any benefit under section 44AD_
- A Person carrying on profession as referred to in section 44AA(1)
- A person earning income tax in the nature of commission or brokerage
- A person carrying on any agency business
- A person who is in the business of plying, hiring or leasing goods carriages
- The assesse who has claimed any deduction under section 10A, 10AA, 10B, 10BA, 80HH to 80RRB in the relevant assessment year.
Can anyone declare higher income i.e. income above 8% under Presumptive Income Scheme (44AD)?
Yes, you can declare higher income (>8%) under sec 44AD. But income should not below 8%.
Computation of Professional Income (U/sec.44ADA)
The benefit of presumptive taxation which was elrlier available only to specified business has now been extended to professionals. Professionals whose total gross receipts do not exceeds more then Rs. 50 lakha in a financial year can claim benefit of this section from financial year 2016-17 (AY 2017-18) onwards.
The income of any person making use of this section would be assumed to be 50% of the total gross receipts for the year. The following are considered as professionals who can make use of this section_
- Architectural profession
- Profession of Accountancy
- Technical consultancy
- Interior Decoration
- Any other Profession as is notified by the CBDT.
The Assessee can voluntarily declare a higher income in his return.
Under this scheme, the assessee would be deemed to have been allowed the deduction under section 30 to 38. No other deduction for expenses would be allowed to the assessee and it would be deemed that he has already Claimed the deduction for all expenses.
However, in case the assessee claims that the profit and gains are lower than 50% — he would be required to prepare Books of Accounts under section 44AA, maintain receipts of all expenses and get his accounts audited by a Chartered Accountant.
Computation of business of Plying, Leasing or Hiring trucks (U/Sec.44AE)
The scheme of section 44AE is designed to give relief to small taxpayers engaged in the business of plying, hiring or leasing of goods carriages.
The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring or leasing of goods carriages and who does not own more than 10 goods vehicles at any time during the year.
In case of a person who is willing to opt for the presumptive taxation scheme of section 44AE, income will be computed on an estimated basis.
For Heavy Goods Vehicle, income will be computed at the rate of Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by taxpayer. In case of vehicles other than heavy goods vehicle, income will be computed at the rate of 7,500 for every month or part of a month during which the goods carriage is owned by taxpayer. Part of the month would be considered as full month.
Note 1 : If the actual income is higher than the presumptive rate, i.e., higher than Rs. 1 ,000/Rs. 7,500, then such higher income can be declared.
Note 2 : “Heavy Goods Vehicle”means any goods carriage having gross vehicle weight exceeding 12,000 kilograms.
Due Dates of Audit and Income Tax Return filing
Last Date of Income Tax Return Filing for AY 2020-21 (Non-Audit Cases)
The common due date of filing the Income Tax Return by Assesse whose Books of Account are not required to be audited is 31st July 2020. Note: “Among other measures, Due date of all income-tax return for FY 2019-20 will be extended from 31st July 2020 & 31st September 2020 to 30th November 2020.
Filing Income Tax Return Due Date for AY 2020-21 (Audit Cases)
The general due date for filing the Income Tax Return by Assesse is 30th September 2020 but finance ministry has extended till 30th November 2020.
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