What should You do to be Safe from a Tax Audit?

A business or profession is carried out with a motive in mind for financial profits. And it is important to keep in mind that they should be appropriate profits without any suspicious record-less reports. So what you can do is the following:-

• Maintenance of accounts book which is mandatory as per the income tax act in India.
• Profit or gain should be computed which are computable under Chapter IV.
• Income is Taxable or Loss allowable under act of India.
• Show taxable income and allowable loss in tax return file.

What Type of Accounts Come under Tax Audit?

• Individual/Proprietorship.
• (Hindu undivided family)
• Company
• Partnership Firm.
• Association of person.
• Local Authority.

What is Included in Turnover for TAX Audit?

Duty drawback received on export sales shall be considered as part of Turnover in a financial year. Income made out of interests from income by money lender or through Foreign fluctuation income by an exporter shall be considered as part of turnover in a financial year or Advance received & forfeited from customers and if excise duty included in turnover it should be again debited in the profit and loss account.

Things that are Excluded in Turnover for TAX Audit?

Sale/ Purchase of Fixed Assets, Sale Proceeds of the Assets Held as Investments, Rental Income, residential or commercial property, Interest income and Reimbursement of expenses as receipt.

What is the Objective of Tax Audit?

One of the main objectives of tax audit is to derive a report as per the requirements of form no. 3CA/3CB and 3CD. Apart from reporting requirements of the above forms a proper tax audit for tax purposes will ensure that the accounts book and records are properly maintained as they truly reflect the income of the tax payer and appropriate claim for deductions in his overall tax made by him/her. Such tax audits would also in the review of fraud activities. It can also facilitate administration of the laws of tax audit by proper presentation of the involved accounts right before any income tax authorities and also considerably save the time and energy of the officer assessing in carrying out the routine procedure of verification.

In India, annual audit seems time consuming process and expensive process to businessmen. Tax audit firms in India can verify performance of the business with industry standards.

For example if your business is setup in Delhi, then tax audit firm in Delhi can review your financials and they can also recommend ways to improve.

Tax audit is required to be conduct by every eligible assesses. It is compulsory under the Income Tax Act. Tax audit has to be conducted by the tax consultants in India (Chartered accountant only.)

How Many Types of Tax Audit are there?

There are four types of tax audits:-

• The first type of audit is correspondence audit, which is the simplest of all types of tax auditsand involves an IRS to send letter to you requesting information specific to certain area of your tax return. Here IRS may have questions regarding some expense and might request you to send them receipts to provide evidence for your dedication.
• The second type of tax auditis office audit, here an auditor will have way more questions than in a simple letter about your return, generally will be more detailed and will probably take a day, and if IRS requires, they will give you more time to collect and send in necessary information.
• The third type is a field audit which is more comprehensive than office audit. Here IRS visits the tax payer at their house or their place of business/work. They may demand to see other things, they will not be limited to a particular item.
• The fourth type of tax audit is (TCMP) tax payer compliance measurement program. The main purpose of this tax audit is to get an update of data for IRS DIF scores which are developed from the analysis of a larger group involving up to fifty thousand randomly picked returns conducted every few years.