If you are wondering if your company is eligible for tax audits, you must understand what they are and how to prepare for them. There are many factors that must be considered before submitting a tax audit report. The primary goal of a tax audit is to ensure that your books of accounts are correct. A qualified chartered accountant will evaluate your business records to ensure compliance with financial reporting laws. They will also evaluate your business for different guidelines, such as total sales, turnover, and gross profit made in a financial year.
A business is required to get its books of accounts audited if it has a turnover or sales of Rs. 1 crore, or if its taxable income exceeds this threshold. Generally, a business should have more than 90% of its transactions go through banks, which is a necessary prerequisite for a tax audit. If the assessee is not eligible for a tax audit, the only other option is to file a return of income with the Internal Revenue Service.
However, if your company is under audit, there are steps you can take to avoid it. Filing late or exceeding a legal extension period is a major red flag that may increase the chances of an audit. An audit can go back several years, and if you are not fully compliant, filing a late tax return is evidence of noncompliance. You may even face penalties for failing to file or paying your taxes.
A business that fails to submit its books of accounts or to maintain accounting records for a financial year is penalized under Section 271B. Failing to submit a tax audit report in this case will result in a penalty of up to 1.5 lakhs. However, if your company does not have a tax audit plan, you can still have your books of accounts audited. It is important to understand that a tax audit can have a significant impact on your business.
The FY 2019-20 tax audit applicability schedule does not change penalties that apply if you fail to file a report. However, you must make sure that your audit is applicable to your business and meets all of the criteria. If you do not file your audit report on time, you will likely face penalties for failure to file. You should always file the reports before your audit is scheduled to end. If you are not prepared, you could end up owing the tax department money for years to come.
The first step in preparing for a tax audit is to gather all the necessary records. The records that are needed for the audit include detailed general ledger and journal entries, sales and purchase invoices, and resale and exemption certificates. Before you meet with the tax representative, you should be prepared to answer any questions or explain any issues that are related to your records. The tax representative will know how to push the point and when to be friendly.