To start with let’s first understand, who needs to get a tax audit? This will give us a basic idea whether or not we fall under the purview of tax audit. Every person – a)      Carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or equals 100 Lakh rupees in any previous year or b)      Carrying on profession shall if his gross receipts in profession exceed 25 lakh rupees in any previous years ; or c)       Carrying on the business shall, if the profits and gains from the business are deemed to be profits and gains of such person

• Under section 44AE or
• Section 44BB or
• Section 44BBB

And he has claimed his income to be lower than the profits or gains so deemed to be profits or gains of his business or d)      Carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AD and he has claimed lower profits. If your business falls under any of the above mentioned class then you need to get your accounts audited by a Chartered Accountant before the income tax return filing due date and furnish by that date, report of such audit in the prescribed form duly signed and verified by such Chartered Accountant and setting forth such particulars as may be prescribed. Once the audits of such businesses are done what should we do next? Now we need to report the same to the income tax department. Form 3CA/3Cb and 3CD are given by the person or entity that performs the audit and these are generally called the Tax Audit Reports. The due date for filing of tax audit report shall be based on the due date prescribed in section 139(1) for filing of return of income. In other words based on the status of the assessee the due date as applicable for filing of return of income shall equally apply for filing of tax audit report. Now we have the basic idea about whether or not we need to get a tax audit, so let’s try and understand a little more about the sections and provisions of income tax. Tax audit in general is governed by section 44AB. This section introduces us to some figures like Rs 1cr and Rs. 25 laces. The figure of Rs. 1cr is applicable to a person who has achieved and crossed it as a business turnover i.e. selling goods. The second figure of Rs. 25 laces is in respect of people who render services for more than the mentioned amount. Various freelancers and professionals fall under the second category i.e. turnover exceeding Rs. 25 laces. At the risk of being repetitive, here it should be clear that the turnover should exceed the limits specified for the applicability of the tax audit provisions. Now the word turnover comes into the picture, this gives rise to further confusions. What does turnover mean? Does it include indirect taxes such as VAT, CST and Excise Duty? According to the guidance of ICAI, the aggregate value for which the sales are affected or services rendered is to be taken, which includes all types of taxes applicable on the goods or services. Some important Facts 1)      Discount allowed in the sales invoice will added back to the sale price and therefore the same can be deducted from the turnover. 2)      Cash discount otherwise than that allowed in a cash memo/sales invoices is in the nature of a financing charge and is not related to turnover. The same should not be deducted. 3)      Special rebate allowed to customers can be deducted from the sales if it is in the nature of trade discounts. If it is in the nature of commission on sales, the same cannot be deducted. 4)      Price of goods returned should be deducted from the figure of turnover even if the returns are from the sales made in earlier years. 5)      Sale of fixed assets would not form part of turnover since these are not held for resale. 6)      Sale proceeds of property held as investment property will not form part of turnover. Case Studies Here are some general case studies for any more doubt that remain unclear. Q) ABC Associate reported sales of Rs. 99 laces and VAT of Rs. 3 laces, are ABC Associates liable for tax audit? A) No ABC Associates will not be liable for tax audit u/s 44AB because the output VAT will not form the part of sales as it is not the duty, cess,  tax etc. to bring the goods to the present location Q) ABC Ltd is engaged in the business of Chemical and Engineering whose sales are Rs. 85 laces and Rs. 40 laces respectively, are ABC ltd liable for tax audit? A) Yes ABC Ltd are liable for tax audit because the limit of Rs.1Cr is to be considered by taking collective sales values of all the businesses. Q) ABC associate is engage in the business of chemical whose turnover is. Rs. 95 Laces and also engage in practicing Chartered Accountancy whose Gross receipts is Rs. 10 Laces, are ABC associate liable for tax audit? A) No, ABC Associate is not liable for tax audit as limits of Rs. 1Cr is separate for business and Rs 25 Laces is separate for profession. Q) ABC Associate is engage in the business of chemical whose turnover is RS. 105 Laces and also engage in practicing Chartered Accountancy whose Gross receipts is Rs. 10Lacs. Whether ABC associates is liable for tax audit for both business and profession? A) ABC associates would be liable for tax audit for both business and profession. There being only one set of books of accounts. Penalty for Non Compliance of section 44AB Noncompliance of the provisions of this act shall attract penalty under sec 271B of the Income Tax Act. If any person required to get his audit done under section 44AB fails to do so before the specified date shall be liable for penalty of 0.5% of the turnover/gross receipts subject to a maximum penalty of Rs. 1,50,000. The overall due date for the compliance of tax audit procedures is 30^th September. Startups and small business should be very careful about these compliances, making their corporate base strong form the beginning and avoid litigation expenditure at a later stage. Thanks for reading for this article. Please feel free to write to us, We want to hear it all!Suggestions? Complaints? Feedback? Requests?  at [info@taxmantra.com] or call us at +91 88208208 11. We would be more than happy to assist you.