The Most Crucial Types of Tax Audits in India

Tax is referred to as the amount that must be paid by a person known as a taxpayer if they fall within a pre-determined limit.

Tax is referred to as the amount that must be paid by a person known as a taxpayer if they fall within a pre-determined limit. Audit refers to an assessment or inspection carried out by persons who are known as auditors. Tax audit is the inspection of individuals regarding the payment of taxes. In India, a tax audit is a process of inspecting an individual's tax return to ensure that his income and deductions are accurate.

Types of Tax Audits in India
Types of Tax Audits in India

What are the types of tax audits in India?

Tax audits are classified into the following categories which are important for taxpayers to understand -

Correspondence Audit

This type of audit is the lowest form of an audit. In this audit, the tax authority sends a request to the taxpayer to inquire about certain information.

Office Audit

An office audit is conducted in the office premises of the tax authority. The financial records of the taxpayer are evaluated by the assessment authorities.

Field Audit

This audit is a comprehensive audit in which tax authorities evaluate an individual's financial records. A filed audit is the opposite of an office audit because the field audit is performed at the taxpayer's business location or the accountant's office.
Corporate Tax in India
Corporate Tax in India

What is the purpose of a tax audit in India?

  • The purpose of a tax audit is to verify that the tax reports submitted to the tax authorities are true and accurate.
  • It also ensures that businesses maintain proper books of accounts and records of all revenue and expenses.
  • Mentioning important information like compliance with various provisions of Income Tax laws etc.

What are the eligibility requirements for Tax Audit?

This section will mention some of the minimum requirements that are required to be considered eligible for a tax audit. It is important for individuals to understand the minimum requirements.

Category 1

Businesspersons who have a business but have not opted for a presumptive taxation scheme

Limit

The total sales, turnover or gross receipts of the individual exceeds Rs. 1 crore.

Category 2

A business person who is carrying on business activities and is eligible for presumptive taxation under section 44AE, 44BB, or 44BBB.

Limit

Makes profit or profit less than the prescribed limit

Category 3

carrying on business and are eligible for presumptive taxation under section 44AD

Limit

Declares taxable income less than the prescribed limit under Estimated Tax

Category 4

A business person who has opted for a presumptive taxation scheme under section 44 AD of the Income Tax Act, 1961

Limit

Gross receipts, turnover or total sales exceeds Rs.2 crore

Category 5

An employee of a firm whose gross receipts exceed Rs. 50 lakhs

Category 6

An employee of the company/organization who is eligible for presumptive taxation under section 44 ADA

Limit

He claims those benefits which are less than the limit prescribed under the presumptive taxation scheme and the income exceeds the maximum amount which is not chargeable to tax.

What is the process of tax audit in India?

There are certain steps in the process of tax audit which must be followed in a proper manner by the individuals.

What documents are required for the process of tax audit?

Certain documents are important and must be prepared and submitted to the tax authorities for assessment purposes.

Form 16

Form-16 consists of two parts - Part A and Part B, Part-A contains all the details of tax deducted by your employer during the year. Part-B of the form contains your gross salary break-up details like exemption allowances, perquisites, etc.

Payslip

Salary contains information related to everything related to salary, allowances, and bonuses that a person gets.

Interest certificate from banks and post office

A person receives interest from various places like Savings Bank Accounts, Post Office Savings Accounts, Fixed Deposit, and Recurring Deposit. One must obtain all interest certificates to submit to the tax authorities.

Form 16A / Form 16B / Form 16C

  • Form 16A is a form issued by the bank which contains the details regarding the deduction in respect of the amount of TDS.
  • Form 16B will be issued by the buyer to the person who sold his property to him mentioning the details regarding TDS deduction.
  • Form 16C is for individuals who are landlords; Individuals who have given their land on rent to tenants will have to ask their tenants to issue Form 16C.

Form 26AS

This form is a consolidated tax statement. The information included in this form is as follows -

  • TDS deducted by the employer of the individual
  • TDS is deducted by banks if the interest income exceeds Rs. 10,000,
  • TDS deducted by any other organization for payment made to individual
  • Advance tax deposited by himself during the financial year 2017-18,
  • Self-assessment tax paid by you.
  • tax saving investment proof
The maximum tax savings that an individual can claim should not exceed Rs. 1.5 lakh in a financial year.

Some of the tax savings/tax breaks available to an individual are as follows -

  • Employees Provident Fund (EPF)
  • Public Provident Fund (PPF)
  • Investing in ELSS Scheme of Mutual Funds
  • life insurance premium payment
  • National Pension System (NPS)
  • Deduction under section 80D to 80U 80
There are certain expenses for which a person can claim the deduction. For example, a substantial amount is deducted from the health insurance premiums under section 80D.

Home Loan Statement from Bank / NBFC
If the person takes a loan from a bank or any financial institution, he has to obtain a loan statement, which he later submits as one of the documents for a tax audit.

Capital Gains

If the individual has made any capital gain by selling assets or through mutual funds, he/she has to record the gain in his/her Income Tax Return (ITR).

Aadhar Card

Aadhar card serves as the identity proof of an individual. An individual has to submit his Aadhar card details to the Income Tax Authority as per Section 139AA of the Income Tax Act.

Conclusion

Tax audit is an important process and is done by the concerned authorities. It should be conducted in the prescribed manner as auditing is important. whose due dates are mentioned a few months before the audit is done.

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