Tax Audit refers to the independent verification of the books of accounts of the assessee to form an opinion on the matters related to taxation compliances carried out by the assessee.
While preparing the books of accounts of the business or profession for the purpose of income tax filing, the assessee has to comply with the provisions of Income-tax Act, 1961 particularly from section 28 to section 44DB. The provisions in these sections deal with the income from business or profession which is chargeable to tax, how such incomes are computed, chargeability, various allowances or disallowances and the rate of depreciation on the various assets held by the assessee, deduction for making investments, deductions for making donations, treatment and tax compliances on borrowed capital, treatment and tax incidence on bad debts, statutory funds, accounting methods etc.
As per the provisions of Income Tax Act, 1961, Assesses who have turn over exceeding the limits prescribed shall get the books of account audited under section 44AB of the Act by a Chartered Accountant.Every person,—
# carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year; or
# carrying on profession shall, if his gross receipts in profession exceed fifty lakh rupees in any previous year; or
# 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 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or
# carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year; or
# carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year, get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed : Provided that this section shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD and his total sales, turnover or gross receipts, as the case may be, in business does not exceed two crore rupees in such previous year: Provided further that this section shall not apply to the person, who derives income of the nature referred to in section 44B or section 44BBA, on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later : Provided also that in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section. Explanation.—For the purposes of this section,—
# "accountant" shall have the same meaning as in the Explanation below sub-section (2) of section 288;
# "specified date", in relation to the accounts of the assessee of the previous year relevant to an assessment year, means the due date for furnishing the return of income under sub-section (1) of section 139.