A tax audit refers to specific intrusion into the financial records of a business and is conducted to determine fairness in recording the amount of income and claims of expenses as well as overall adherence to the provisions of the Income Tax Act. It makes sure that books of accounts give true and fair view of financial position of the business. The audit is done by a Chartered Accountant (CA) who then submits a report in the prescribed form to the Income Tax Department. As per Section 44AB, tax audits are compulsory in the case of businesses and professionals whose turnover or gross receipts are beyond the specified limits of the law.
What is Tax Audit: Crucial for Certain Businesses
Ensures Accuracy of Records
A tax audit is crucial in untangling the correctness of books of accounts by a business. It will ensure that incomes, expenditure and deductions filed are accurately reported according to the Income Tax . Businesses always do Mazatlán sometimes unknowingly in keeping their accounts such that when it comes to filing the taxes, errors arise. These mistakes can be found out and rectified much before by reviewing it through a Chartered Accountant in detail. This does not only assist in ensuring the appropriate financial discipline is upheld but also decreases the likelihood of misrepresentation so that the financial statements present the real-life picture of the business.
Enhance Transparency
Tax audits play a very important role in boosting transparency and credibility in business activities. When businesses have their accounts reviewed by a Chartered Accountant, they signal accountability to the tax and the lending authorities, investors and other stakeholders. The openness earns the stakeholders trust that the organization is operating within the legal framework and doing things appropriately financially. It also assists in creating a reputation of integrity and trust in this market. In the current competitive business world, those businesses that practice transparent finances are in a better position to attract investors, obtain loans, and develop sustainably. Tax audits are therefore not only perceived as a compliance check but also as an image builder.
Prevents Tax Evasion
One of the major goals of a tax audit is deterrence of tax fraud. Businesses find it more difficult to hide any income or overinflate their expenses in a manner to avoid paying their tax obligations due to the thorough scrutiny they must endure as the result of the audit. Differences will surely be identified and reported when a chartered accountant works as an independent scout. This will also ensure that businesses contribute their part of the taxes paid and will limit manipulation of the taxes. Tax audits bring about a more secure and fair tax system as this kind of act will be discouraged and at the end it will bring in a culture of conformity and honesty.
Simplifies Return Filing
Companies are likely to encounter the challenge of filing correct income taxes, especially when they are attending to a variety of transactions and compliance requirements. A tax audit apportions this process by providing detailed report, comprising all the important financial information, namely, income, expenses, deductions, as well as any other important information. There is a lower probability of such a report containing errors and leading to notice or penalties of tax bodies due to the fact that such report is developed and approved by a chartered accountant. Knowing that all the numbers are correct and in compliance allows businesses to file their returns with more assurance. Tax audits simplify the entire process of submitting returns in this way.
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Also Read: Tax Audit in India: Key Goals & Importance