Has the deadline for submitting a tax audit report been pushed back?

A detailed examination of the financial records of a company or a professional, such as a doctor, lawyer, or chartered accountant (CA), constitutes an income tax audit. specific taxpayers whose business or professional income above a specific threshold are required to perform an income tax audit. The deadline for submitting the income tax audit report has been set by the income tax department.

When must the tax audit report be submitted?

The tax audit report must be submitted on or before September 30 of the relevant assessment year by those who are required to have their books audited.

Therefore, those people who earned more than the required amount for an audit in FY 2022–23 (AY 2023–24) must have their income audited by September 30, 2023, and their income tax audit report must also be filed to the ITR portal by that date.

 

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The deadline for uploading an income tax audit report by a fund, trust, educational institution, university, hospital, or other medical institution has been extended by the Central Board of Direct Taxes (CBDT) until October.

According to a circular issued by the CBDT on September 18, 2023, “the due date of furnishing Audit report under clause…. of the Income-tax Act, 1961, in the case of a fund, trust, or institution, any university or other educational institution, any hospital or other medical institution, for the Previous Year 2022-23, which is September 30, 2023, is hereby extended to October 31, 2023.”

The Income Tax Act requires charitable trusts, educational institutions, hospitals, and universities that qualify for an income tax exemption to file Form 10B or Form 10BB if a tax audit is necessary. The new auditing regulations and forms were implemented on April 1, 2023, however, they could only be filed as of the end of August 2023. The deadline for submitting the aforementioned documents has been moved from September 30, 2023, to October 31, 2023, in light of the difficulties taxpayers are currently experiencing.

 

What is the deadline for filing ITRs that include audit reports?

For persons who are subject to a tax audit under Section 44AB, i.e., those with business or professional income above a predetermined threshold, the final date for submitting an ITR on the e-filing ITR portal is October 31, 2023.

If the income tax audit report is not uploaded, the filed ITR will be deemed invalid. Note that the deadline for filing an ITR differs if an organization is subject to a tax audit under any other section except section 44AB.

 

tax audit

 

Imagine that under section 44AB for the fiscal year 2022–23 (adjusted fiscal year 2023–24), a person with business or professional income above a certain threshold must perform an income tax audit. Therefore, before September 30, 2023, he or she must upload the audit report and have their books of accounts examined by a tax auditor. Afterward, by October31, 2023, file his or her ITR.

Individuals with company or professional income whose books of accounts must be audited often file ITR-3 by October 31 of the relevant assessment year. However, they must wait until September 30, 2023, for FY 2022–2023 (AY 2023–2024), to upload their tax audit report before filing an ITR.

Individuals with company or professional income whose books of accounts must be audited often file ITR-3 by October 31 of the relevant assessment year. However, they must wait until September 30, 2023, for FY 2022–2023 (AY 2023–2024), to upload their tax audit report before filing an ITR.

Hospitals, universities, and other qualifying educational institutions must submit Form ITR-7. The deadline for filing ITR-7 has been moved from October 31 to November 30, 2023, because Form 10B/10BB must be submitted one month before the ITR filing deadline.

According to a frequently asked questions document by the Income tax department, ITR-7 is used by entities that are required to file ITR under Section 139(4A), Section 139(4B), Section 139(4C), or Section 139(4D).

 

Has the deadline for filing an income tax audit been pushed back?

Only charitable trusts, educational institutions, hospitals, and universities that qualify for income tax exemption and must file Forms 10B and 10BB have extended the deadline for income tax audits. Others continue to use September 30 as the date.

 

tax audit

 

When must ITR and audit report be submitted by?

For people who are subject to an income tax audit under section 44AB, the deadline to submit an ITR is October 31.

 

Read More: Mistakes and Solutions in the Realm of Income Tax Practices

 

Who is subject to a tax audit under section 44AB, and what are the ITR forms they use?

Individuals with business or professional income who are subject to tax audit under section 44AB typically use ITR-3.

 

 

 

LLPs AUDIT MANDATES FOR THE FISCAL YEARS 2022–23 AND 2023–24

Tax Audit by LLP

Objective

An LLP’s tax audit largely checks the completeness and quality of the financial and tax-related data disclosed in the LLP’s tax returns. Ensuring conformity with tax rules and regulations is the key goal.

 

Mandatory Prerequisite

The Income Tax Act of 1961 mandates that LLPs perform tax audits if certain conditions are met, including exceeding a predetermined turnover threshold. LLPs that meet these requirements are required to undergo the tax audit.

 

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Carried out by

A competent chartered accountant or tax expert often conducts a tax audit, which involves reviewing the LLP’s financial documents and tax reports to determine its taxable revenue and spot any inconsistencies.

 

Report

A tax audit report, also known as Form 3CD, is produced by the auditor at the conclusion of the audit and includes numerous details on the audit’s findings, tax compliance, and other pertinent information.

 

LLP Statutory Audit

Objective

For the purpose of determining accuracy, fairness, and compliance with statutory obligations, a statutory audit of an LLP entails a more thorough investigation of its financial statements and accounting records.

 

Essential Requirement

According to the Limited Liability Partnership Act of 2008 and its implementing Rules, LLPs must perform statutory audits. No matter how much business they do, LLPs must participate in a statutory audit.

 

Carried out by

The LLP’s partners employ an independent certified chartered accountant to undertake a statutory audit. To give an unbiased evaluation, the auditor’s independence is crucial.

 

Report

The auditor delivers a Statutory Audit Report following the completion of the statutory audit, which contains an opinion on whether the financial statements provide a true and fair assessment of the LLP’s financial situation and if they are in compliance with applicable laws and accounting standards.

 

 

Financial Audit Requirements for LLPs

According to the Limited Liability Partnership (LLP) Act and the Income Tax Act, LLPs having annual revenues of at least Rs. 40 lakhs or contributions of at least Rs. 25 lakhs must have an audit of their financial records.

 

Tax Audit Applicability for AY 2023-24

Businesses

A tax audit is necessary if a company’s gross receipts or turnover exceed Rs. 1 crore. – A tax audit is not necessary if gross receipts or turnover are greater than Rs. 1 crore but less than Rs. 10 crores, and if the percentage of cash transactions is less than 5%. – A tax audit is necessary if gross receipts or turnover exceed Rs. 10 crores.

 

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Professionals

A tax audit is necessary if a professional’s gross receipts are greater than Rs. 50 lakhs. A tax audit is necessary if a professional asserts a profit that is lower than the allowed threshold and is eligible for the presumptive taxation plan under Section 44ADA.

 

Penalty for Noncompliance with Tax Audit

A penalty of 0.5% of the total sales, turnover, or gross revenues, or Rs. 1,50,000, whichever is less, would be assessed if a tax audit is applicable and the assessee fails to have their accounts audited.

 

Income Tax Return Filing Deadlines for LLPs (FY 2022-23)

LLPs must submit their income tax returns by July 31st even if a tax audit is not necessary. LLPs needing a tax audit are required to submit their income tax returns by September 30. – Even LLPs that did not conduct any activity during the financial year are required to file Nil Income Tax Returns.

 

Examples of the requirements for LLP audits

Demands for LLP Financial Audits

According to the LLP Act and Income Tax Act, XYZ LLP must have its financial records audited if it earned yearly revenues of Rs. 45 lakhs in the prior fiscal year.

 

Application of Tax Audits for AY 2023–24

Business Example

ABC Enterprises would not need a tax audit if they had a turnover of Rs. 1.2 crores in the assessment year 2023–2024 and their cash transactions made up less than 5% of the total. Regardless of the percentage of cash transactions, they would need a tax examination if their revenue exceeded Rs. 10 crores.

Professional Example

During the assessment year, Dr. Smith, a physician, made gross receipts of Rs. 60 lakhs. Dr. Smith would need a tax audit in this situation because their professional gross receipts surpassed Rs. 50 lakhs.

 

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Penalty for Failure to Comply with Tax Audit

Imagine that XYZ Traders, a partnership firm, was qualified for a tax audit but chose not to have their books examined. If their annual sales totaled Rs. 2 crores, they would be subject to a fine of 0.5% of Rs. 2 crores, or Rs. 1,00,000, because this sum is less than the Rs. 1,50,000 minimum penalty threshold.

 

Read More: The Top 10 Red Flags for a Tax Audit

 

Deadlines for LLPs to file their income tax returns (FY 2022-23)

1. DEF LLP must submit their income tax returns by July 31st even if they did not need a tax audit for the fiscal year 2022–2023 (if required).

2. On the other hand, GHI LLP would have to submit their income tax returns by September 30th if they were subject to a tax audit for the same fiscal year.

3. JKL LLP must still submit Nil Income Tax Returns even if they had no commercial activity throughout the fiscal year.

The Top 10 Red Flags for a Tax Audit

In order to verify accuracy and conformity with tax rules, a tax authority (such as the Internal Revenue Service in the United States) will formally examine a taxpayer’s financial records and tax returns. Audits are carried out to confirm that the taxpayer has accurately declared their income and deductions and to spot any inconsistencies or possible tax evasion. The taxpayer may be asked to pay additional taxes, fines, or penalties if problems are discovered during the audit.

 

Who is subject to a tax audit?

Based on their income and business activity, certain people and entities are subject to undergo tax audits:

Businesses

According to Section 44AB of the Income Tax Act, if a person is carrying on a business, they are subject to a tax audit if their total sales, turnover, or gross receipts for the year exceed Rs. 1 crore. However, if they opt for the presumptive taxation scheme under Section 44AD and their total sales or turnover doesn’t exceed Rs. 2 crores, they are exempt from the tax audit requirement. Additionally, the threshold for businesses is increased to Rs. 10 crores if more than 95% of their business transactions are conducted through banking channels and cash receipts/payments do not exceed 5% of the total receipt/payment.

 

tax audit

 

Professionals

Individuals engaged in a profession are subject to a tax audit if their gross receipts in that profession for the year exceed Rs. 50 lakhs.

 

The Top 10 Red Flags

Audits can be triggered by various factors, and while these aren’t definitive guarantees of an audit, they can raise red flags. The top 10 warning signs are as follows:

Large Income Disparities

Earning a substantial income can attract scrutiny, especially if it’s significantly higher than in previous years.

Unreported Earnings

An audit may result from failure to disclose all sources of income, including cash payments, rental income, and freelancing.

Hefty deductions

Claiming disproportionately significant deductions in comparison to your income or industry standards can raise red flags because it may appear that you’re trying to artificially lower your taxable income.

Cash Transactions

Particularly in a commercial setting, a high amount of cash transactions can draw attention because they are frequently linked to undeclared revenue and possible tax fraud.

Excessive Business Expenses

An audit may be initiated if you declare business expenses that are exorbitant, unjustified, or disproportionate to your income.

Frequent Amended Returns

Regularly updating your tax returns may be a sign that there were errors in your initial filings, which can trigger an audit when the authorities check your financial information.

 

tax audit

 

Foreign Accounts

Because tax authorities are pursuing offshore tax evasion aggressively, failing to disclose offshore accounts or foreign income may result in an audit.

Information inconsistency

Giving contradictory or inconsistent information on various tax forms from different years can raise red flags because it could imply errors or possible attempts to manipulate your tax liability.

 

Read More: How to respond to an erroneous notice from the I-T Department

 

High Tax Deductions for Charities

It can be suspect if you claim significant charitable deductions without the appropriate paperwork or in relation to your income.

Losses in business

Reporting business losses year after year could raise questions since some people might use them to artificially reduce other revenue. To verify the validity of these losses, tax authorities might conduct an investigation.