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Assisting and Arranging Audit

Assisting and Arranging Audit

An auditor is a person authorized to review and verify the accuracy of financial records and ensure that companies comply with tax laws.  Auditors work in various capacities within different industries.

The prime purpose of the audit is to form an opinion on the information in the financial report taken as a whole, and not to identify all possible irregularities. This means that although auditors are on the look-out for signs of potential material fraud, it is not possible to be certain that frauds will be identified.

Who is mandatorily subject to tax audit?

A taxpayer is required to have a tax audit carried out if the sales, turnover or gross receipts of business exceed Rs 1 crore in the financial year. However, a taxpayer may be required to get their accounts audited in certain other circumstances. We have categorised the various circumstances in the tables mentioned below:

NOTE: The threshold limit of Rs 1 crore for a tax audit is proposed to be increased to Rs 5 crore with effect from AY 2020-21 (FY 2019-20) if the taxpayer’s cash receipts are limited to 5% of the gross receipts or turnover, and if the taxpayer’s cash payments are limited to 5% of the aggregate payments. We present the various categories of taxpayers below:

Category of personThreshold
Business
Carrying on business (not opting for presumptive taxation scheme*)Total sales, turnover or gross receipts exceed Rs.1 crore in the FY
Carrying on business eligible for presumptive taxation under Section 44AE, 44BB or 44BBBClaims profits or gains lower than the prescribed limit under presumptive taxation scheme
Carrying on business eligible for presumptive taxation under Section 44AD Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit.
Carrying on the business and is not eligible to claim presumptive taxation under Section 44AD due to opting out for presumptive taxation in any one financial year of the lock-in period i.e. 5 consecutive years from when the presumptive tax scheme was optedIf income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for
Carrying on business which is declaring profits as per presumptive taxation scheme under Section 44ADIf income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for
Carrying on business which is declaring profits as per presumptive taxation scheme under Section 44ADIf the total sales, turnover or gross receipts does not exceed Rs 2 crore in the financial year, then tax audit will not apply to such businesses.
Profession
Carrying on profession Total gross receipts exceed Rs 50 lakh in the FY 
Carrying on the profession eligible for presumptive taxation under Section 44ADA1. Claims profits or gains lower than the prescribed limit under the presumptive taxation scheme 
2. Income exceeds the maximum amount not chargeable to income tax
Business loss
In case of loss from carrying on of business and not opting for presumptive taxation schemeTotal sales, turnover or gross receipts exceed Rs 1 crore
If taxpayer’s total income exceeds basic threshold limit but he has incurred a loss from carrying on a business (not opting for presumptive taxation scheme)In case of loss from business when sales, turnover or gross receipts exceed 1 crore, the taxpayer is subject to tax audit under 44AB
Carrying on business (opting presumptive taxation scheme under section 44AD) and having a business loss but with income below basic threshold limitTax audit not applicable
Carrying on business (presumptive taxation scheme under section 44AD applicable) and having a business loss but with income exceeding basic threshold limitDeclares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit

What happens if a person is required to get his accounts audited under any other law for eg. statutory audit of companies under company law provisions?

In such cases, the taxpayer need not get his accounts audited again for income tax purposes. It is sufficient if accounts are audited under such other law before the due date of filing the return. The taxpayer can furnish this prescribed audit report under Income tax law.

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