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Tax Audit Service
Tax Audit under Sec 44AB of the Income Tax Act, 1961 is a statutory requirement of the act performed by taxpayers who satisfy certain thresholds of turnover or income. The basic aim of Tax Audit is to check whether the taxpayer’s account maintained is reflective of his income and expenses, and whether the taxpayer is compliant to the provisions of the Income Tax Act. Whereas bookkeeping or account examination carried out by any individual or within the company itself implies checking entries in your accounts, recording of transactions, and calculation of tax liability for error-free operations, a tax audit should be carried out by a Chartered Accountant. This process includes examination of your accounts to see if your accounts are properly maintained. For most tax-paying individuals, including business enterprises and professionals with substantial turnover or tax dues, a tax audit is not only a legal formality, but it can also prove to be a crucial safety net against tax notices. Organizing for an audit is only to be expected, and with that comes numerous questions: Who requires an audit? How do the triggers and the forms relate to one’s finances?
What Is a Tax Audit Under Section 44AB?
A Tax Audit under Section 44AB of the Income Tax Act means an independent examination of a taxpayer’s financial records and books of account. A qualified Chartered Accountant (CA) conducts this audit and prepares an audit report in Form 3CD, which is then submitted along with the tax audit report in Form 3CB/3CD.
The objective of this audit is to:
- Verify accuracy of income declared
- Check correctness of deductions claimed
- Confirm compliance with statutory provisions
- Ensure tax liability is computed correctly
- Identify mismatches or errors before filing income tax returns
A tax audit is required for businesses and professionals meeting specific monetary thresholds set by the law.
Who Is Required to Get a Tax Audit?
Businesses
Professionals
Specified cases
Tax Audit Process
Appoint a Qualified CA
Taxpayers must hire a qualified CA authorized to conduct tax audits.
Submit Financial Records
Complete financial records, including ledgers, cashbooks, and other supporting documents, must be submitted to the auditor.
Verification of Entries
The CA verifies entries related to income, expenditure, and tax relief against original documents.
Identify & Resolve Inconsistencies
Any inconsistencies or errors are highlighted, and supplementary documents may be requested for clarification.
Prepare Audit Forms (3CA/3CB/3CD)
The report is prepared using the following forms: Form 3CA: For entities audited under other laws (e.g., Companies Act). Form 3CB: For entities not audited under any other law.Form 3CD: A detailed annexure with particulars as required under tax law.
Upload Report to E-Filing Portal
The tax audit report is uploaded to the Income Tax Department’s e-filing portal along with the taxpayer’s acknowledgement.
Documents Required for Tax Audit
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Financial Statements
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Bank Records
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Tax Documents
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GST Records
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Depreciation Details
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Loan Agreements
Tax Audit Thresholds Simplified
| Type of Taxpayer | Threshold for Tax Audit |
| Business | Turnover > ₹1 crore |
| Professional | Receipts > ₹50 lakh |
| Cash Accounting with Excess Cash Transactions | Tax audit applicable even if thresholds not met |
| Special Cases | As prescribed under law |
What Is Form 3CD & Why It Matters?
Form 3CD is essentially a detailed tax audit report consisting of audited financial statements, explanations, and statutory compliance information presented in a structured format. This includes particulars of accounts, turnover & gross receipts, expenses and deductions claimed, loans and advances, liabilities, tax payment, and TDS compliance, accompanied by observations, remarks, and required statements of reconciliations. This legal document has to be submitted along with income tax returns wherever tax audit applies, as it has been specified under Section 44AB of taxation regulations.
Key Areas Checked in a Tax Audit
Turnover Verification
Expense Classification
Fixed Assets & Depreciation
Tax Payments
GST and Income Tax Reconciliation
Compliance with Section 44AA
Common Mistakes Businesses Make in Tax Audits
Many taxpayers make avoidable errors that invite scrutiny or penalties:
- Incomplete books of account
- Sales mischaracterization
- Missing invoices or bills
- Incorrect depreciation claims
- Mismatch of GST and Books
- Ignoring cash transaction limits
- Not reconciling bank statements
- Misreporting closing stock.
- Delayed audit planning
Consequences of Non-Compliance or Late Audit
In case of non-compliance or Late audit, here are some of the major consequences:
- Penalty of up to 0.5% of turnover under Section 271B
- Notices from CPC or income tax officers
- Disallowance of deductions claimed
- Reopening of past assessments under Section 147
- Difficulty in getting loans or credit facilities
- Loss of business credibility and trust
Costs & Timeline for Tax Audit
- Timeline: Typically takes around 4 to 8 weeks based on the complexity
- Cost Variables: Turnover size, business complexity, documentation readiness
- Deliverables: Form 3CD, audit observations, reconciliation reports, filing support
Why Choose Patron Accounting for Your Tax Audit
At Patron Accounting, we recognize that no two businesses are identical and therefore, we come up with our own set in relation to taxation requirements. When it comes to conducting a tax audit , it is more than just a matter of compliance.
Our team of experienced Chartered Accountants carefully reviews your accounts and provides an audit report as per legal norms and other business considerations. We assist you in dealing with any discrepancies before it gets converted into Notices, and our defensible statements are used to respond to any subsequent queries raised by the tax authorities.
Whether your company transacts in multiple lines of business, has complex or mixed sources of income, or has many tax deductions, our audit strategy is tailored to your specific requirements. At the core of everything we do is the importance of clear and professional reporting.
Through Patron Accounting, your tax audit becomes more than a legal requirement but a platform for establishing good financial disclosure and internal controls, which will help your business achieve sustained growth.
Frequently Asked Questions
Have a look at the answers to the most asked questions.
