What Is Tax Audit?
Tax audit is an investigation of your tax return by the Internal Revenue Service (IRS to verify that your earnings and deductions are correct. A tax audit is when the Internal Revenue Service (IRS) determines to check your tax return a little more exactly and verify that your income and deductions are accurate.
What is the origin of a Chartered Account?
Many of us may be aware that the very first need of a Best Chartered Accountant was due to a requirement of examining of books of accounts.
The Indian Constitution was of the opinion that there should be an Authority who should take up the responsibility of the correctness of the books of accounts of the corporate.
With such intention, our Constitution decided to form an official body of accountants those are experts in knowing the accounting protocols and on whom the reliance could be placed. Hence Chartered Accountancy course was born to take special care of the corporate world in terms of maintaining proper books of accounts.
A Chartered Accounts conducts an Audit procedures and signs an Audit report prepared by him based on his/her observations and analysis and such Audit report provides a ground on which every official Authority in India places their reliance and trust. Hence a Chartered Accounts proves to be a key men in displaying correct image of the books of accounts.
What is the meaning of the term ‘Audit’?
The term ‘Audit’ means an official inspection of the books of accounts and accounting reports in order to express true and fair view and thus giving reliability to investors as well as share holders of an organization. It is also referred to a systematic review or assessment of something.
What are the different types of Audit being conducted?
There are various kinds of audit being conducted under different laws such as company audit/statutory audit conducted under company law provisions, cost audit, stock audit etc.
Why is Audit compulsory in some scenarios?
Income tax law mandates an audit called ‘Tax Audit for Some Scenarios. As the name itself suggests, tax audit is an examination or review of accounts of any business or profession carried out by the taxpayers from an income tax point of view.
Tax Audit is conducted to ensure proper maintenance and correctness of books of accounts and certification of the same is done by a Tax Auditor.
In case of a tax audit, the auditor, after a methodical examination of the books of accounts, reports observations or discrepancies in the periodical Audit report prepared by him.
From the preparedness of the Audit report, it enables the Tax authorities in verifying the correctness of income tax returns file thereby cross checking the calculations and verification of total income, claim for deductions etc.
A person becomes eligible of having carried out a tax audit only if the sales, turnover or gross receipts of the business exceeds Rs. 1 crore in a financial year.
However the same threshold limit is proposed to be increased to Rs. 5 crore with effect from AY 2020-21 (FY 2019-20) if the taxpayer’s cash receipts are limited to 5% of the gross receipts or turnover, and if the taxpayer’s cash payments are limited to 5% of the aggregate payments.
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