An income tax audit is a more in-depth examination of your tax return by the Income Tax Department in India. It goes beyond the basic verification done for most returns to ensure the accuracy of your reported income and tax calculations.

• What forms are involved? There are three main forms associated with this type of audit:
  • Form 3CA: This form acts as an annexure attached to the main report (Form 3CD) if your business is already required to undergo a statutory audit under another law (like the Companies Act).
  • Form 3CB: This form is used for businesses or professions that aren’t mandated by any other law to have a tax audit but are selected for one under Section 44AB.
  • Form 3CD: This is the main tax audit report itself. It includes detailed information about your business, its transactions, income, expenses, and taxes paid.
• Who prepares the forms? A Chartered Accountant (CA) is required to prepare and submit the Forms 3CA, 3CB, and 3CD to the tax authorities on your behalf.
• What happens during an audit? The auditor will request documents like invoices, receipts, bank statements, and accounting records to verify your income and expenses claimed in the return. They may ask for clarifications and explanations on specific transactions.

The limit for mandatory tax audits in India depends on the type of taxpayer:

• Businesses: A tax audit is mandatory if a business’s gross turnover exceeds Rs. 1 crore in the preceding financial year.
• Professionals: Professionals like doctors, lawyers, engineers, etc. must get their accounts audited if their gross receipts surpass Rs. 50 lakh in the preceding financial year.