TAX AUDIT – A Complete Guide for Businesses in India
Running a business comes with responsibilities — and one of the key compliance requirements under the Income Tax Act is Tax Audit. It ensures transparency, accuracy, and proper maintenance of your business’s financial records.
If you are a business owner, professional, or entrepreneur, understanding what a tax audit is, when it applies, and how it works can help you stay compliant and avoid penalties. Let’s dive deep into everything you should know about Tax Audit in India.
🧾 What is a Tax Audit?
A Tax Audit is an examination of the books of accounts of a business or professional carried out by a Chartered Accountant (CA) to verify that the financial records are correct and comply with the provisions of the Income Tax Act, 1961.
The main objective is to ensure that the income declared, deductions claimed, and taxes paid are accurate.
Once the audit is completed, the Chartered Accountant issues a report in Form 3CA/3CB along with Form 3CD, which is submitted electronically to the Income Tax Department.
⚖️ Objective of Tax Audit
Tax audit isn’t just a formality — it serves multiple purposes for both the taxpayer and the government:
- ✅ Ensures proper maintenance of books of accounts.
- ✅ Facilitates accurate computation of income and tax liability.
- ✅ Prevents tax evasion by ensuring transparency.
- ✅ Streamlines assessment procedures for tax authorities.
- ✅ Standardizes reporting for all taxpayers under audit.
📊 Who is Liable for Tax Audit?
Tax audit applicability depends on the nature of business or profession and the turnover/receipts in a financial year.
Let’s understand the limits in simple terms.
1. For Businesses (Section 44AB(a))
Tax audit is mandatory if:
- Total sales, turnover, or gross receipts exceed ₹1 crore during the financial year.
However, the limit increases to ₹10 crore if:
- Cash receipts and payments are each less than 5% of total transactions.
This means if your business is mostly digital (online payments, bank transfers, UPI, etc.), you enjoy a higher audit threshold.
2. For Professionals (Section 44AB(b))
If you’re a professional (like a doctor, lawyer, CA, engineer, architect, etc.), tax audit applies if:
- Your gross professional receipts exceed ₹50 lakh in a financial year.
3. For Presumptive Taxation Scheme (Section 44AD, 44ADA, 44AE)
Even if you’re under presumptive taxation (paying tax on a fixed percentage of turnover), you need a tax audit if:
- Your declared income is less than the prescribed rate, and
- Your total income exceeds the basic exemption limit.
Example:
If you are a shopkeeper under Section 44AD with ₹80 lakh turnover but declare income lower than 8%, and your taxable income crosses ₹2.5 lakh — you must get a tax audit done.
📘 Types of Forms Used in Tax Audit
There are four main forms associated with tax audit:
| Form | Used When | Purpose |
|---|---|---|
| Form 3CA | Business/profession already required to be audited under another law (e.g., Companies Act) | Report under Section 44AB along with statutory audit report |
| Form 3CB | Business/profession not required to be audited under any other law | Independent audit report under Income Tax Act |
| Form 3CD | Annexure to 3CA/3CB | Detailed statement of particulars like depreciation, TDS, loans, payments, etc. |
| Form 3CE | For non-residents earning income through India | Audit report for foreign entities under specific provisions |
📅 Due Dates for Filing Tax Audit Report
The tax audit report must be submitted on or before the due date of filing the income tax return, which is:
- 31st October of the assessment year (for most businesses and professionals).
- If you’re required to furnish a report in Form 3CEB (international transactions), the due date is 30th November.
Timely submission is crucial — otherwise, penalties may apply.
💰 Penalty for Non-Compliance
Failure to get a tax audit done or to submit the report before the due date can lead to penalties under Section 271B of the Income Tax Act.
| Type | Penalty Amount |
|---|---|
| Failure to conduct tax audit | 0.5% of total turnover or ₹1,50,000 (whichever is lower) |
| Delay in submission of report | Same as above, unless a valid reason is proven |
If you have a genuine reason like a natural calamity, data loss, or other valid cause, penalties may be waived by the Assessing Officer.
🧮 Example – When Tax Audit Becomes Mandatory
Example 1:
A trader has ₹1.8 crore turnover in FY 2024–25, but 98% of transactions are digital.
→ No tax audit required (since below ₹10 crore threshold).
Example 2:
A professional architect earns ₹70 lakh in FY 2024–25.
→ Tax audit mandatory (since professional receipts exceed ₹50 lakh).
Example 3:
A small contractor declares profit of 3% on ₹90 lakh turnover under presumptive scheme.
→ Audit required (as profit < 8% and income exceeds basic exemption).
🧠 Key Information Reported in Form 3CD
Form 3CD is a detailed statement containing 41 clauses about your business and financials, such as:
- Nature of business or profession
- Books of accounts maintained
- Loans and deposits above ₹20,000
- Payments in cash exceeding prescribed limits
- Depreciation as per Income Tax Act
- Details of TDS deducted and paid
- Deductions claimed under various sections (like 80C, 80G)
- Details of GST turnover reconciliation
It’s an in-depth report that provides tax authorities with a transparent picture of your financials.
🧾 Role of a Chartered Accountant in Tax Audit
A Chartered Accountant (CA) plays a vital role in the tax audit process.
Here’s what they do:
- Examine and verify all financial statements and ledgers.
- Ensure that accounting records comply with tax laws.
- Identify errors, misreporting, or violations (if any).
- Suggest corrective measures and improvements.
- Prepare and submit the audit report electronically.
In short, a CA ensures that your business remains 100% compliant and audit-ready.
📊 Benefits of Conducting Tax Audit
Getting a tax audit done offers several benefits beyond compliance:
- Accuracy in financial reporting: Ensures your financial records reflect the true state of business.
- Prevention of tax penalties: Detects non-compliance early.
- Improved credibility: Banks and investors prefer businesses that maintain audited records.
- Smooth tax assessments: Makes the process hassle-free during scrutiny.
- Better internal control: Highlights areas for cost-saving and financial discipline.
⚙️ Process of Conducting a Tax Audit
The entire tax audit process is systematic and technology-driven:
Step 1: Appointment of Chartered Accountant
You appoint a CA authorized to conduct tax audits under the Income Tax Act.
Step 2: Review of Books of Accounts
The CA examines all accounting records, invoices, ledgers, TDS deductions, and financial statements.
Step 3: Verification of Compliance
The CA verifies that all statutory deductions (GST, TDS, EPF, etc.) are correctly recorded and paid.
Step 4: Preparation of Audit Report
After verification, the CA prepares Form 3CA/3CB and Form 3CD based on the findings.
Step 5: Upload on Income Tax Portal
The report is uploaded electronically using the CA’s digital signature, and the taxpayer approves it from their login.
📑 Documents Required for Tax Audit
To conduct a tax audit, you’ll need:
- PAN card and Aadhaar of proprietor/partners/company directors
- Previous year’s audit report and ITR
- Books of accounts (cash book, journal, ledger)
- Bank statements and reconciliation
- Sales and purchase invoices
- Fixed asset register
- TDS certificates and payment challans
- Loan and investment details
- Details of related party transactions
Proper documentation ensures a smooth and error-free audit process.
🏢 Tax Audit vs Statutory Audit – Know the Difference
| Basis | Tax Audit | Statutory Audit |
|---|---|---|
| Law | Income Tax Act, 1961 | Companies Act, 2013 |
| Purpose | Verify tax compliance | Verify overall financial health |
| Applicability | Based on turnover/receipts | Mandatory for all companies |
| Conducted by | Chartered Accountant | Chartered Accountant |
| Reporting Format | Form 3CA/3CB & 3CD | Audit Report + Financial Statements |
⚖️ Recent Changes in Tax Audit Provisions
- Increased threshold: Digital businesses now enjoy a ₹10 crore limit (up from ₹5 crore earlier).
- Mandatory e-filing: All tax audit reports must be filed online using the CA’s digital signature.
- Reconciliation with GST: Authorities now cross-check turnover declared in ITR with GST returns to identify mismatches.
📈 Importance of Timely Tax Audit
Delaying your tax audit can have cascading effects — late filing of income tax returns, loss of deductions, and penalties.
Early completion helps you:
- Identify financial irregularities before year-end.
- Make corrections in TDS or GST records.
- File ITR without last-minute stress.
💼 Our Tax Audit Services
At Meerad, we provide professional Tax Audit and Compliance Services to businesses and professionals across India. Our experienced Chartered Accountants ensure that your financials are accurate, compliant, and ready for submission.
Our Services Include:
- Conducting tax audits under Section 44AB
- Preparing and filing Forms 3CA/3CB & 3CD
- Reviewing books of accounts and financial statements
- GST and TDS reconciliation
- Compliance advisory and error rectification
- Representation before tax authorities (if needed)
✅ Why Choose Us?
- Experienced CAs: Expert professionals with in-depth knowledge of tax laws.
- Accuracy & Confidentiality: Your data is handled with utmost security.
- Timely Delivery: We ensure reports are filed before due dates.
- End-to-End Support: From documentation to e-filing — we handle everything.
- PAN-India Service: Available online for clients across India, including Patna, Delhi, and beyond.
📞 Get Your Tax Audit Done with Ease
Whether you’re a small business, a professional, or a growing company — tax audit compliance is not optional; it’s essential. Let our experts handle your tax audit while you focus on running your business stress-free. NGO
📱 Contact No: +91-85400-99000
📧 Email: info@meerad.in
🏢 Address: A98, Bindapur Matiala Road, Uttam Nagar, New Delhi, India-110059