Tax audit is the verification of the books of accounts of an assessee to validate the income tax computation and compliance with the laws of Income Tax. Auditing of books of accounts must be carried out by a certified Chartered Accountant. In this article, we look at tax audit limit, section 44AB of the Income Tax Act and appointment of tax auditor.
In case of a business, tax audit would be required if the total sales turnover or gross receipts in the business exceeds Rs.1 crore in any previous year. Under the Income Tax Act, “Business” simply means any economic activity carried on for earning profits. Section 2(3) has defined the business as “any trade, commerce, manufacturing activity or any adventure or concern in the nature of trade, commerce and manufacture”.
In case of a profession or professional, tax audit would be required if gross receipts in the profession exceeds Rs.50 lakhs in any of the previous year. A profession or professional could be any of the following as per Rule 6F of the Income Tax Rules, 1962:
- Authorised representative
- Film Artist – Actor, Cameraman, Director, Music Director, Editor, etc.
- Interior Decorator
- Legal Professional – Advocate or Lawyer
- Medical Professional – Doctor, Physiotherapist, etc.,
- Technical Consultant
As per the provisions of section 44AB/44AD of the Income Tax Act, 1961, every person carrying a business whose turnover exceeds Rs.1Cr./ 2 Cr. (as the case may be) or carrying a profession whose receipts exceeds Rs. 50 Lakhs in the financial year, must get his accounts audited before filing
The following books and accounts must be maintained by all professions and businesses mandatorily if they cross a threshold specified under Income Tax Act.
- A cash book (i.e., a record of all cash receipts and payments, kept and maintained from day-to-day giving the cash balance in hand of each day or at the end of a specified period not exceeding a month).
- A journal, in case of mercantile system.
- A ledger.
- Carbon copies of bills (whether machine numbered or otherwise serially numbered) exceeding Rs. 25 issued by the person and carbon copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by the person.
- Original bills/receipts issued to him in respect of expenditure (payment vouchers if bills/receipts are not issued and amount of expenditure does not exceed Rs. 50).
In addition to above, a person engaged in medical profession (i.e., a practitioner of any system of medicine – physicians, surgeons, dentists, pathologists, radiologists, vaids, hakims, etc.) has to maintain following items:
A daily case register in prescribed form (i.e. Form 3C), showing date, patient’s name, nature of professional services rendered (i.e., general consultation, surgery, injection, visit, etc.,) fees received and date of receipt; and
An inventory under broad heads, as on the first and last day of the previous year, of the stock of drugs, medicines and other consumable accessories used for the purpose of his profession.