The provisions for tax audits in India are covered under section 44AB of the Income Tax Act 1961. As per section this section, every person who falls under one of the categories listed below shall have their accounts audited by a practicing chartered accountant (CA), and have an audit report submitted by the due date for the filing of income return.
Any person carrying on a business whose total sales, turnover or gross receipts in the business exceeds Rs.1 crore; or
Any person carrying on a profession whose gross receipts exceeds Rs.25 lakh; or
Any person carrying on a business where the profits and gains from the business are determined on a presumptive basis under section 44AE, 44BB or 44BBB, and who has claimed their income to be lower than the profits or gains of his business; or
Any person carrying on a business whose income is determined on a presumptive basis under section 44AD and who has claimed such income to be lower than the profit of their business, yet exceeds the maximum amount which is not chargeable as income tax.
Such an audit report shall be filed using Form 3CA (in case of a company), Form 3CB (other than a company), and shall be accompanied with Form 3CD. The due date of filing a return, in the case where an assessee is required to furnish an audit report, is September 30th after the end of the financial year.
If the person is required by any other law to have their accounts audited, it shall be sufficient compliance within the provisions of this section if the accounts are audited before the specified date and a report of the audit is furnished by that date, including a further report by a CA in the form prescribed under this section.
The basic question that then arises is in regards to the definition of turnover. Does it refer to gross turnover or net turnover? Does it include value-added tax, excise duty, or service tax?
A summarised meaning of turnover, after considering the guidance notes of the Institute of Chartered Accountants of India (ICAI), states that turnover is the aggregate value for which sales are effected or services are rendered. It includes all type of taxes applicable on such goods or services.
If the tax audit report has not been obtained from the CA on or before the due date of filing an income return, penalty under section 271B shall be attracted. The penalty is equal to half the percent of total sales, turnover or gross receipts, or Rs.1 Lakh – whichever is less.