Section is 44AB of Income Tax Act 1961 contains provisions related to tax audit. The primary objective of tax audit is to ensure that books of accounts are kept properly and computation is correct.
In earlier article we discussed about what are limits for income tax audit, applicability and related provisions. Now, in this article we will get to know about chacklist for Income tax audit for FY 2022-23. Basically, check list means list of tasks required in specific process arranges in form of checklist. And income tax audit checklist will be checklist to perform tax audit efficiently and effectively.
Main objective of tax audit checklist is to describe audit scope,audit procedure with vouching and verification .An Institute of Chartered Accountants of India publish checklist for tax audit u/s 44AB for conducing tax audit. We can make our own checklist format also by taking this checklist as basis considering business structure, size,etc.
Some important points to be included in checklist are:
||1.Last years closing balances of assets and liabilities
are incorporated as opening balance of this year. 2.Assure that there is no difference in closing and
opening balance of any account.
3.Verify that opening balance is entered correctly.
|2. Personal expenses checking:
|1.It is important to check whether personal expenses of partner, proprietor are treated as drawings and not as business expenses.
2.Ensure that proper accounting entry has been passed.
|3. General Information:||Basic information about assesse, business are to be considered under this section. It includes-
1. Basic info like name,PAN,address
2. Registration details of business under any other law
3. Nature of business
4. Details of partner/director, voting power, profit sharing,etc
|4. Taxation and accounting policies:||1.If assesse has opted for presumptive taxation,
special tax rates(section 115BA/BAA/BAB),check
whether it fulfills all requied conditions.
2.Verify TDS liabilities and returns are as per tax
3.Methods and policies are as per applicable INS AS
|5. Documents & Records||1.Check which books are required to be maintained
by assesse as per section 44AA.
2.Reconcile the income recorded in P&L Account with
|6. Allowances / Disallowances:
|1.Details of expenses, provisions not allowed are treated
as deemed income.
2.Statutory payment expenses are allowed only if paid.
|.7.Booking of deductions||1.Check which income tax deductions are claimed by entity with their proof document.
2. Also, verify that the claimed amount of deduction is within prescribed limit of act.
|8.Other Imporatant details:||1.Check loans and advances provisions as per section
269S/ 269SS/ 269STrequirements.
2.Details of brought forward depreciation / losses is to be
3.Also implication of section 40a(2),43(B) are to be
There are some important clauses that need more attention in tax audit. Below table provides checklist points for such selected important clauses of form 3CD/CB.:
|Clause No.||Particulars of clause||Points to be considered|
|9||Details of partners/members and their profit sharing ratio,etc.||1. Check partnership deed and crosscheck partners name, profit ratios.
2. If any changesin name, ratios compared to last year disclosure is required.
|10||Depreciation particulars||1.Prepare schedule of assets and
depreciation in required format.
2.Assets should be grouped on basis of block
of asset and rate of depreciation.
3.Verify whether opening WDV is correctly
4.Check any adjustments to the block of fixed
asset during year from available records.
5.Also adjustment related to GST, foreign
exchange, grant,etc. Are to be checked
6.Check whether rate applied is correct as per
|11||Bonus,commission or other payments toemployee||● .20(a): In this clause, any sum paid to
employee as bonus, exgratia and
commission are to be disclosed only if
amounts are paid/payable in lieu of
● .20(b): Disclose details of contributions received from employees for various funds like provident fund, superannuation fund, ESIC etc. Such contributions are allowed as deductions only if made within due date as per respective law.
|12||Details of amount debited to P&L account being capital/personal expenditure,etc.||1.Check whether P&L include any personal or
capital nature expenses.
2.Generally following accounts are to be
checked properly for this-
-Repair & Maintenance,
-Salaries & Wages,
-Stores & spare parts consumption,
– Legal, Professional & Consultancy fee
3. If any such expense found, then ensure
correct adjustment treatment is adopted to
|13||Amounts inadmissible under
|1.Prepare/obtain statement showing
payments made outside India along with
details of TDS, royalty, fees for technical
services ,interest ,etc. to NRI.
2.Calculate TDS amount and crosscheck.
If any shortage found, report the details
3.If TDS is deducted on such payment to
NRI but not paid within due date,such
payment will be disallowed for
year. Report this.
4.Incas of payment to residents related to
fee,commission,royalty,etc. And no TDS
is deducted or deducted but not paid in
due date , such pyment will not be
allowed to the extent of prescribed limit.
|14||Payment of interest, remuneration, commission,etc. Inadmissible u/s 40(b)/40(ba)||1.Check whether payment of interest,
remuneration, commission,etc. is as per
2.If any excess paymet, or not allowable
payment as per deed is made,disclose
|15||Disallowance/ deemed income under section 40A(3):||1.Obtain list of payments,with amount
more than Rs.20000, madeotherwise
than account payee check/draft.
2.Verify cash book and bank book to
3.Incase of transport business limit will get
enhanced to Rs.35000.
|16||Provision for payment of gratuity not allowable under section 40A(7);||1.Obtain schedule of gratuity calculations
and check amount of gratuity calculated
and payable to employees who left.
2.Check actual pyment date.It should not
be after due date applicable.
3.Indiacte details of Provision for gratuity.
. contribution,gratuity payable.
|17||Any sum paid to employer not allowable under section 40A(9)||1.Obtain list of payments made by an
employer towards the setting up or
contribution to any fund, trust, company,
etc., other than:
a. Recognized provident fund.
b. Recognized gratuity fund.
c. Recognized superannuation
2.If payment made to other than
above fund, disclosure is required.
|18||Liability of a contingent nature||Check if any contingent liability is there, if yes, disclose it.|
|19||Amount of deduction inadmissible in terms of section 14A||1.Check if assessee has earned any exempt income.
2.Trace that income related expenses incurred.
3.If such expenses are to be added back to taxable income.
|20||Amount inadmissible under the proviso to section 36(1)||1.Check if assesse has any loan and
paid/accrues interest thereon.
2.If such borrowed loan is not put to use
then such expenses are not allowed as
Repayment of Loan/Deposit / Specified Sum under Sections 269SS / 269ST and 269T:
|1. Prepare/obtain statement giving details about loan taken/repaid by assesse
during year. .
2. Whether advances received/repaid against property has been recorded properly in fixed asset/concern property account correctly.
All loans taken/accepted above
Rs.20000 are to be reported with
required information in given format.
4. Section 269ST–
As per section,No person is allowed to
receive loan of more than Rs.2 Lakh
otherwise than cheque,draft or ECS,
a)from a person in aday
b)inrelation to single transaction
c)inrelation to transaction related to
Reporting of non-compliance of above
section is required under this clause.
Following details are to be furnished-
(i) Name, address and PAN
(if available) of the payee;
(ii) Nature of transaction;
(iii) Amount of payment (in Rs.);
(iv) Date of payment.
Provisions of section states,no person
is allowed to repay loan amount
exceeding Rs.20000 otherwise than by
cheque, draft or ECS.
And non-compliance of section
requires reporting in this clause with
(i)Name, address, PAN pf payer
(ii) amount of loan or deposit or any
|22||Compliance related to TDS payable on certain expenses||1.Check whether provisions of Chapter
XVII-B or Chapter XVII-BB are
applicable to assesse.If yes then details
should be givan.
2.Whether assesse has submitted
statement of TDS/TCS as required.
3.Check if any interest is payable by
assessee on above payments.
|23||In the case of a domestic company, details of tax on distributed profits under section 115-O||1.Incase domestic company has paid
dividend to shareholders, DDT is
required to be paid by company.
2.Details are required to be furnished
under this clause are-
(a) total amount of distributed profits;
(b) amount of reduction as per section
115-O (i) &(ii)
(c) total tax paid thereon
(d) dates of payments with amounts.
3.Similarly if assessee has received any
amount as dividend, details of amount
and date of receipt are to be disclosed.
|24||Details regarding turnover, gross profit, etc., for the previous year and preceding previous year||1.Calculate required ratios and
crosscheck it with given information.
2.Give particulars of the components of
the amounts considered in the ratios.
3.Calculation method of gross profit
should be disclosed and to be followed
Continuously for allyears.
4.Following details are to be given for
reporting under this clause-
(i) Total turnover
(ii) Gross profit/turnover
(v)Material consumed/finished goods
After above details , Chartered Accountant need to prepare for tax audit roadmap. CA need to ensure that all points related to tax audit checking is done. Below is details for How to start preparation for tax audit.
Get Financial records– First and foremost all the documents and financial statements should be obtained. The opening balances should be verified with the previous years audited statements. Check previous remarks and points as reported in previous year’s Form-3CD.
Check Compliance – Detail related to direct and indirect tax such as , TDS , Income Tax , Professional Tax , GST , VAT etc. should be verified. CA need to ensure all provision as per compliances are complied by company. If not then report in tax audit.
Vouching– Vouching means checking all the vouchers of the entity with books of accounts. Vouching of expenses , bill , invoices , sales invoices helos to understand risk , irregularities etc.
Revenue Recognition- As vouching throws light on the expenses incurred, bank statement tells about various incomes that were earned during the year in addition to regular sales. It should be ensured that all the incomes are booked properly.
Checking other important transactions-
Other transactions like sale/purchase of capital asset, receipt of loans and advances should be thoroughly checked. The ageing of debtors, creditors should be checked. It should be ensured that all accounting policies are being followed consistently, change and effect of such change should be reported in the audit report.
Cross Verification of details- These days due to varied compliance requirements under various laws, details can be cross-verified. E.g. Purchase and Sales can be cross-verified from GSTR-2A/GSTR-3B. Similarly a part of income can be verified from entries appearing in Form 26AS.
Deep ledger scrutiny- Ledger scrutiny is checking of different ledger of party , clients , bank etc. by Professional. This is needed to ensure noting unusal in books of accounts.
Details of deductions and allowances claimed- Details of deductions and allowances claimed by the assessee should be verified and eligibility should be checked.
Preparing Audit Report and providing remarks- Once all the details are verified, the auditor needs to prepare the remarks against the points in checklist and provide his observations/qualifications
ICAI also given detail guidelines for Tax Audit Checklist. The detail tax audit check list gives road map to Chartered Accountant for planning , execution and completing audit report. In Tax audit verification , vouching and disclosure of facts is important. Purpose of tax audit is to ensure the accuracy of the financial records and check if there was any fraud or tax evasion. Tax audit is reporting done under Form 3CA , 3CD and 3CE. Time to time there is changes in law , rules etc. hence tax audit check list need to be amended as per changes in law.