Income Tax Audit Report

Income Tax audit report has to be filed in:

Form 3CA– Where the books of accounts of the business or profession of the person have been audited under any other law, Form 3CA is required to be filed.

Form No 3CA

Form 3CB– Where the books of accounts of the business or profession of the person have not been audited under any other law, in such a case Form 3CB is required to be filed.

Form 3CD – Form 3CD is the form that has to be filed in both of the above cases. Form 3CD is the Statement of particulars to be furnished under section 44AB.

How and when tax audit report shall be furnished?

Tax auditor shall furnish tax audit report online at https://www.incometaxindiaefiling.gov.in
by using his login details in the capacity of ‘chartered accountant’. Taxpayer shall also add CA details in their login portal. After uploading audit report by tax auditor, it should either be accepted/rejected by taxpayer. Where it is rejected for any reason, all the procedures need to be followed again until the taxpayer accpects the the audit report.

NOTE: Tax audit report shall be filed on or before the due date of filing the return of income under section 139(1) i.e., 30th November of the subsequent year where a taxpayer has entered into an international transaction and 30th September of the subsequent year in case of other taxpayers.

Penalty
If a taxpayer is required to conduct audit u/s 44AB but fails to get his accounts audited, then he will be liable for penalty under section 271B. Penalty will be levied for failure to get the accounts audited or failure to furnish a report of audit as required u/s 44AB. Penalty shall be levied 1.5% of total sales or Rs. 1,50,000, whichever is less.

Types of ITR Password you need to know

We all get confused sometimes while opening the PDF downloaded/received from various government sites. There are many documents in Income Tax and TDS, which require different type of Passwords to open the PDF downloaded/received from the respective sites. One person cannot remember all types of PDF passwords because the passwords are nearly same and contains a minor change, which makes it even more confusing.

Following is the table which shows various password formats to open a password protected files of Income Tax and TDS:

Forms/ Documents Password Format Example
Form 16/16A PAN number (Letters in Upper case) AAAAA1010A
Form 16B Date of Birth of Buyer (in DDMMYYYY) 01012012
Form 26AS Date of Birth of Buyer (in DDMMYYYY) 01012012
ITR-V PAN number (Letters in lowercase) and DOB (in DDMMYYYY) aaaaa1010a01012012
Intimation/ Order of Income Tax PAN number (and DOB (in DDMMYYYY)- in lowercase aaaaa1010a01012012
To open TDS provisional receipt or acknowledgement TAN number in lower case aaaa11111a
For extracting TDS certificates ZIP file TAN in upper case ABCE12567E

Difference between Financial Year and Assessment Year

As a person we earn income in one financial year and it gets taxed in the next financial year. FY is the year in which income is earned and the year in which income is taxed is known as Assessment Year. Further, the rate of tax applicable will be the rate of assessment year.

Meaning of Financial Year (FY) – Financial year is the year in which you earn income. A Financial year starts from 1st April and ends at 31st March.

Meaning of Assessment Year (AY) – Assessment Year means the period of 12 months commencing from 1st April every year. AY is the year in which returns are filed for the income earned in the previous financial year ended.

Hence, income is earned in Financial year (FY) and such income is taxed in Assessment year (AY).

For Example:

Period Financial Year (FY) Assessment Year (AY)
1st April 2016- 31st March 2017 2016-17 2017-18
1st April 2017- 31st March 2018 2017-18 2018-19
1st April 2018- 31st March 2019 2018-19 2019-20

Hindi Meaning of Financial Year and Assessment Year?

Hindi meaning Financial year (FY) is वित्तीय वर्ष and Hindi meaning of assessment year (AY) is निर्धारण वर्ष.

Let us understand with an Illustration:

Mr. Albert is working in a software company and getting a salary of Rs. 50,000 per month for financial year 2017-18.

The income of Mr. Albert is Rs. 6,00,000 which is earned by him in the year 2017-18 which is known as Financial Year and it will be taxable in the year 2018-19 which is known

Interest under Section 234B – Default on Payment of Advance Tax

Advance Tax means income tax which is to be paid in advance. The Scheme of Advance Tax is also known as Pay as you earn scheme. The advance tax is to be paid in various installments, which are spread over the financial year.

There are similar other penalties Under Section 234A (Default in the filing of Tax Returns) and Section 234C (Deferment of Advance Tax).

There can be two scenarios where this interest is applicable –

Your tax liability for the financial year is Rs.10,000 or more and you did not pay any advance tax as per installments.
OR
You are required to pay advance tax but has not paid atleast 90% of such advance tax on or before 31st March of the financial year.

In any of above cases, interest of Section 234B will be levied.

You will have to pay interest of 1% p.m or part of the month till the tax is actually paid.

In simple words, Interest under Section 234B will be levied:

ü If Tax Paid < 90% of Advance Tax Liability.

ü Interest under Section 234B will start from 1st April of Assessment year & will continue till tax is actually paid

How is interest u/s 234B calculated?

Let’s understand with an Illustration:

Illustration- 1

Ritika’s total tax liability is Rs 52,000. Ritika paid this amount on 9th July while filing her return.

Ritika’s total tax liability is more than Rs 10,000, she was liable to pay advance tax. Therefore, Ritika will be liable to pay interest under section 234B.

Interest calculation

Rs 52,000 x 1% x 4 (April, May, June, July)

= Rs 2,080

Ritika is liable to pay Rs 2,080 interest as per section 234B.

Illustration- 2

Mr. Ghanshyam is running his own business. Tax liability of him determined is Rs. 38,400. No advance tax is paid but there is a credit of TDS of Rs. 10,000 in his account. Balance tax is paid by him on 31st July( on due date of filing return). Will Mr. Ghanshyam be liable to pay interest u/s 234B?

In this case, the tax liability (after allowing credit of TDS) of Mr. Ghanshyam comes to Rs. 28,400 (i.e. Rs. 38,400 – Rs. 10,000) which exceeds Rs. 10,000 and hence, he is liable to pay advance tax. As Mr. Ghanshyam has not paid any advance tax and hence, he will be liable to pay interest u/s 234 B.

Interest under section 234B will be levied at 1% per month or part of the month. In this case, Mr. Ghanshyam has paid the outstanding tax on 31st July and thus, the interest u/s 234B will be levied for the period from 1st April to 31st July i.e. for 4 months and shall be levied on unpaid tax liability of Rs. 28,400. Interest at 1% per month on Rs. 28,400 for 4 months will come to Rs 1,136 .

Illustration- 3

Assume that Mr. Manas needs to pay total tax for the financial year is Rs. 1,50,000. A TDS of Rs 1,35,627 was already deducted from his total income. Manas have paid Rs 5,000 on 25th March and balance amount of Rs 9,373 paid by him at the time of return filing on 20th July.

Lets check whether Manas needs to pay interest under section 234B

First let’s calculate assessed tax. Assessed tax = Rs 1,50,000 (total tax) less Rs 1,35,627 (TDS)

= Rs 14,373

Manas should have paid at least 90% of the assessed tax or 90% of Rs 14,373 which is Rs 12,935 before 31st March. However, he paid only Rs 5,000. Therefore, Manas is liable to pay interest u/s 234B

Interest calculation

Rs 14,300(assessed tax) – Rs 5000 (Advance Tax) = Rs 9300

Rs 9300 x 1% x 4 months*

= Rs 372.

Therefore, Rs 372 is the interest payable under section 234B by Manas.

* For Months- (April, May, June, July)

Advance Tax – What it is, Who it applies to & When it is paid

Advance Tax means income tax which is to be paid in advance. The Scheme of Advance Tax is also known as Pay as you earn scheme. The advance tax is to be paid in various installments, which are spread over the financial year.
The income of the financial year is not earned in a single day but it is spread throughout the year and that is why such tax is collected by the government not on the day but throughout the year. This is the reason that scheme of advance tax is also known as PAY AS YOU EARN SCHEME.

Who should pay Advance Tax?

Salaried individuals and Businesses – An assessee is required to pay advance tax if his total tax liability is Rs.10,000 or more. You will have to pay advance tax as per various installments. Advance tax applies to all taxpayers such as salaried, freelancers, and businesses. Senior citizens, aged 60 years or older not running any business are exempted from paying advance tax.

For FY 2017-18 & FY 2016-17:

This is for both Individual and Companies

Due Date Advance Tax Payable
On or before 15th June 15% of advance tax
On or before 15th September 45% of advance tax
On or before 15th December 75% of advance tax
On or before 15th March 100% of advance tax

For taxpayers who have opted for Presumptive Business Taxation Scheme

Due Date Advance Tax Payable
By 31st March 100% of advance tax

For taxpayers opting for presumptive taxation having business income from plying, hiring or leasing of goods – Section 44AE

Due Date Advance Tax Payable
On or before 15th June 15% of advance tax
On or before 15th September 45% of advance tax
On or before 15th December 75% of advance tax
On or before 15th March 100% of advance tax

Penal Interest imposed by Income Tax Department under Sections 234A, 234B & 234C
You are required to pay Interest based on the Section 234 of the Income Tax Act.

  • Interest for default in furnishing of Return of income – Section 234A
  • Interest for default in Advance Tax Payment – Section 234B
  • Interest for deferment in installments of Advance Tax – Section 234C

Part I: Section 234 A – Interest for default in furnishing of Return of income
Income Tax Returns for a financial year are required to be filed within such time period as prescribed by Income Tax Department. If you don’t file such return within prescribed period, it will attract interest of Section 234A.
NOTE: Due Date for E-Filing Tax Returns:
Due date for filing Income tax returns (ITR) is 31st July of the Assessment year. For FY 2017-18, you can file your income tax returns at any time on or before 31st July, 2018

Use CAXpert to file your return if you haven’t filed it yet.
If you are liable to file Income tax return but does not file ITR till due date than, you will be liable to pay simple interest of 1% or part of month of outstanding tax. This interest will calculated from the due date applicable to you for return filing till the date you actually file your income tax return.

Part II: Section 234 B – Interest for default in payment of Advance Tax
There can be two scenarios where this interest is applicable –

Your tax liability for the financial year is Rs.10,000 or more and you did not pay any advance tax as per installments.
OR
You are required to pay advance tax but has not paid atleast 90% of such advance tax on or before 31st March of the financial year.
In any of above cases, interest of Section 234B will be levied.
You will have to pay interest of 1% p.m or part of the month till the tax is actually paid.

In simple words, Interest under Section 234B will be levied:

  • If Tax Paid < 90% of Advance Tax Liability.
  • Interest under Section 234B will start from 1st April of Assessment year & will continue till tax is actually paid

Part III: Section 234 C – Interest for deferment in installments of Advance Tax
Interest under Section 234C will be levied where you are liable to pay advance tax but has not paid advance tax as per installments, then you will be liable to pay a simple interest of 1% p.m. or part of the month for the period of delay.

Calculation of Interest under section 234C

Particulars Rate of Interest Period of Interest Amount on which Interest is calculated
Where, if Advance Tax paid on or before June 15 is less than 15% of the Amount Simple interest @1% per month or part of the month 3 months 15% of Amount less advance tax paid on or before June 15
Where, if Advance Tax paid on or before September 15 is less than 45% of the Amount Simple interest @1% per month or part of the month 3 months 45% of Amount less advance tax paid on or before September 15
Where, if Advance Tax paid on or before December 15 is less than 75% of the Amount Simple interest @1% per month or part of the month 3 months 75% of Amount less advance tax paid on or before December’ 15
Where, if Advance Tax paid on or before March 15 is less than 100% of the Amount Simple interest @1% per month or part of the month 1 months 100% of Amount less advance tax paid on or before March 15

* Amount on which interest is computed shall be = Tax on Total Income for the year less TDS less relief u/s 90 or 91 less tax credit u/s 115JD(if any).
* Such Interest will be calculated up to 31st March of the financial year (after 31st March of financial year the interest will be calculated under section 234B.

Know Everything on MSME Form 1 ROC Filing

MSME Form-1 (MCA) is to be filed by those specified companies whose outstanding payment to MSMEs suppliers is exceeding 45 days.

Date of Notification: In context to Order dated January 22, 2019, issued under Section 405 of the Companies Act, 2013.

Click here to read the full notification.

What is MSME Form 1 (MCA)?

The MSME Form-1 is to be filed for the payment of half yearly return with the Registrar of Companies (ROC) in respect of the outstanding payments to Micro or Small Enterprises.

The Ministry of Corporate Affairs have made major changes for protecting the interest of groups of small companies or business. He laid emphasis on following compliance by all Specified Companies Whether Public or a Private Company, Micro or Small.

The Companies who receive supply of goods or services from Micro or small enterprises and the amount of payment due with having the reasons of such delay, exceeds 45 days from the date of acceptance or date of deemed acceptance of the goods or services are required to file a half-yearly return.

The return shall be filed in prescribed MCA e-form “MSME FORM 1”

The Return should be state following points in it:

  • amount of payment due; and
  • reasons for the delayed payment

In the exercise of power under the provision of section 405 of the Companies Act, 2013, (18 of 2013) the Central Government made it necessary for all the “Specified Companies” to furnish the above-notified information about payment to micro and small enterprise suppliers.

Meaning of Some Important Terms

Specified Companies: Specified companies as per the provisions of section 9 of the MSME Development Act, 2006 are those companies who receive the supply of goods or services from MSMEs and the payment against these supplies to the suppliers of these MSMEs exceed 45 days from the date of acceptance or date of deemed acceptance of the goods or services
Micro and Small Enterprise: Any class or classes of enterprises (including proprietorship, Hindu undivided family (HUF), partnership firm, company, undertaking, co-operative society or an association of persons), in which are defined as MSME(s) under the Micro, Small and Medium Enterprise Development (MSME) Act, 2006.

Note: The Criteria specified above are specified bases Micro, Small and Medium Enterprises Development Act, 2006 and the bill to change the criteria of classification and to withdraw the MSMED (Amendment), 2015 is pending in the Lok Sabha.

Applicability on Companies

As per a notification issued by the MCA it has been mandated to file disclosures through e-Form MSME-I for every type of the Company – Public or Private Company, Micro or Small Companies; the Company that satisfies the following two conditions:

  • Condition 1: Company must have received Goods and/or Services from Micro or Small Enterprise
  • Condition 2: Payment must have been due/not paid, to such Micro and Small Enterprise for 46 days from the date of acceptance

Note: Date of deemed delivery refers to the acceptance of goods and services by the buyer in written with no objection with the product or services received within the 15 days time period.

Manner for Filing MSME Form 1 (MCA)

The Initial one-time Return: The companies should file, the MSME Form I detailing all the outstanding/ dues against the Micro or small enterprises suppliers that are existing on the date of notification of the related order within 30 days from the date of deployment of E-form MSME-1 on the MCA Portal.

Last date for filing Initial Return (First time return) in form MSME 1: Within 30 days from the date when E-form MSME-1 shall be deployed on the MCA Portal. Note: (as per the extended notification of MCA dated 21.02.2019).

Due Date for Filing MSME Form 1 (MCA)

Initially, every company is required to file MSME-1 before February 21, 2018 mentioning details of all outstanding payments to Micro or Small enterprises (MSMEs) suppliers existing on the date of notification of this order within thirty days

Thereafter, every company shall require to file MSME -1 as a half yearly return, in respect of outstanding payments to MSMEs.

Filing Period Due date of Filing
From April to September 31st October
From October to March 30th April

Exemption to this rule-Who should not file the form?

  • This Rule is not applicable for all the Companies but only for those Specified Companies whose dues to MSMEs suppliers exceed 45 days from the date of acceptance or deemed acceptance of the goods or services under the provisions under section 9 of the MSME Development Act, 2006.
  • If the payment against supplier exceeds 45 days but the supplier/Creditors gives a declaration that they do not fell under the category of Micro or small Enterprises.

Section 44AB of Income Tax Act – Applicability & Audit Reports

Income Tax Audit – Various kinds of audit being conducted under the different laws such as company audit conducted under company law, cost audit, stock audit etc. Similarly, Income tax law also mandates an audit known as ‘Tax Audit’. Tax audit is an examination of books of accounts of the business/profession from income tax perspective.

* Where-

  1. Section 44BB (non resident engaged in the business of exploration of mineral oils)
  2. 44BBB (any foreign company engaged in the business of civil construction etc. in certain turnkey power projects)
  3. 44AD (any business other than business referred to in 44AE)
  4. 44ADA (eligible professionals)
  5. 44AE (business of plying, hiring or leasing of goods carriages)
  • Above are presumptive taxation schemes. Where certain fixed percentage of income or amount is assumed to be the profit for the purpose of taxation.
    Under Income Tax Audit Turnover means the gross receipts of the business or profession, but does not include:
    1. Income received from renting of the house or any other rental income.
    2. Any money received by selling of an asset, held as Investment.
    3. The Income by selling of a Fixed Asset.
    4. Interest Income.

Form 3CA -Where the books of accounts of the business or profession of the person have been audited under any other law, Form 3CA is required to be filed.
Form 3CB– Where the books of accounts of the business or profession of the person have not been audited under any other law, in such a case Form 3CB is required to be filed.
Form 3CD – Form 3CD is the form that has to be filed in both of the above cases. Form 3CD is the Statement of particulars to be furnished under section 44AB
* The audit report under Income Tax shall be shall be filed before 30th September of the relevant Assessment Year.

Cash Accounting vs. Accrual Basis of Accounting

Definition of Cash Accounting

The basis of accounting in which the revenues and expenses are recognized only when cash is actually received or paid. In cash accounting method, the income or expense is recognised when the inflow or outflow of cash exists in reality.

The Cash basis accounting method is mostly used by sole traders, proprietors and other professionals who record their income when there is an actual inflow of cash and expenses of the entity.

Definition of Accrual Accounting

Accrual system of Accounting is also known as the mercantile system of accounting wherein the transactions are recognized and recorded as and when they take place. Under the accrual accounting method, the revenue is recorded when it is actually earned, and the expenses are reported when they are incurred.
The accrual method of accounting is used by most of the entities as it records the past transactions regarding the revenue and expense, but it also predicts the cash receipts and payments expected to arise in the future.

6 Major Differences between Cash Basis of Accounting and Accrual Basis of Accounting

BASIS CASH BASIS ACCOUNTING ACCRUAL BASIS OF ACCOUNTING
Meaning The method of accounting in cash basis is when the income or expense is recognized only when there is an actual inflow or outflow of cash. The method of accounting in accrual basis is when the income or expense is recognized on mercantile basis or accrual basis.
Nature The nature of cash accounting is simple. The nature of accrual accounting is complex
Method The method of cash basis of accounting is not recognized under the Companies Act. The method of accrual basis of accounting is recognized under the Companies Act.
Revenue Recognition The revenue is recognized when Cash is received. The revenue is recognized when revenue is earned.
Expense Recognition The expense is recognized when Cash is paid. The expense is recognized when expense is incurred.
Matching Concept Matching Concept is not applicable. Matching Concept is applicable.

Know Everything about GST Return Filing

1. What is GST Return?

The term “return” means statement of information furnished by the taxpayer to tax authorities at regular intervals.

The information to be furnished in the GST Return comprises of:

  • Details of business operations
  • Sales/Turnover
  • Purchases
  • Determination and Discharge of tax liability.
  • Deductions and Exemptions
  • All the returns under GST law are to be filed electronically.

2. Frequency of filing GST Return?

In the GST regime, any regular business registered under GST has to file two monthly returns and one annual return. This will results to 26 returns in a fiscal year.

Every registered person has to file one monthly return GSTR 1 (depending upon the turnover) and monthly GSTR 3B for furnishing the summary of outward supplies and inward supplies along with the payment of any GST dues.

3. Furnishing Details of Outward Supplies

  • Every registered person shall be required to file a return containing the details of outward supplies
  • Return has to be submitted in Form GSTR-1
  • GSTR-1 has to be submitted upto 10th of the subsequent month.
  • The details filed under GSTR-1 shall reflect in recipient GSTR-2A (auto populated) to cross verify the ITC available to the recipient

4. Furnishing Details of Inward Supplies

Every registered person shall be required to submit a return containing the details of inward supplies.
Return has to be submitted

5. Types of Returns under GST and Due Dates of filing GST Returns

Return Form Particulars Frequency Due Date
Form GSTR-1 Furnish details of outward supplies of taxable goods and/or services affected Monthly 11th* of the succeeding month with effect from October 2018

*Previously, the due date was 10th
Form GSTR-2A This is auto-populated of inward supplies made available to the recipient on the basis of Form GSTR-1 furnished by the supplier Monthly 11th* of the succeeding month
Form GSTR-2
Suspended
Detail of inward supplies of taxable goods and/or services affected claiming the input tax credit or modification in GSTR-2A Monthly 15th of the succeeding month
GSTR-3
Suspended
Monthly return of details of outward supplies and inward supplies along with the payment of tax. Monthly 20th of the succeeding month
Monthly
GSTR-3B which is a monthly return filed It is a Simple Return in which summary of outward supplies along with Input Tax Credit (ITC) is declared and payment of tax is affected by taxpayer Monthly 20th of the succeeding month
GSTR-4 Furnish details of outward supply. This return is for a taxpayer registered under the composition scheme Monthly 18th of the month succeeding quarter
GSTR-5 Furnish details of imports, outward supplies, tax paid, input tax credit etc. This return is for a Non-Resident foreign taxable person Monthly 20th of the succeeding month
GSTR-6 Return for an Input Service Distributor furnishing details of input credit distributed. Monthly 13th of the succeeding month
GSTR-7 Return for authorities furnishing the details of TDS deducted Monthly 10th of the succeeding month
GSTR-8 Details of supplies through e-commerce operator and the amount of tax collected on the supplies Monthly 10th of the succeeding month
GSTR-9 Annual Return for a Normal Taxpayer furnishing details of ITC availed and GST paid Annually 31st December of succeeding fiscal year*
GSTR-9A Annual Return for a taxpayer registered under the composition levy anytime during the year Annually 31st December of succeeding fiscal year*
GSTR-10 Final Return- For taxpayers whose registration has been surrendered or cancelled Once, when GST Registration is cancelled or surrendered Within 3 months of the date of cancellation or date of cancellation order, whichever is later
GSTR-11 Furnish details of inward supplies by a person having UIN and claiming a refund Monthly 28th of the month succeeding month for which statement is filed

* Subject to changes by Notifications/ Orders

6. Late Fees for non-filing of return in time

Return filing is mandatory under GST. Even if there is no transaction, you must file a NIL return.

  • You cannot file a return if you do not file previous month/quarter’s return.
  • Hence, late filing of GST return will have a cascading effect leading to heavy fines and penalty of interest
  • The late filing fee of the GSTR-1 is populated in the liability ledger of GSTR-3B filed immediately after such delay.

Section 44AD of Income Tax Act – Presumptive Taxation

  • The scheme shall be applicable to individuals, HUF’s and partnership firms excluding Limited Liability Partnership Firms. The scheme of presumptive taxation is applicable for any business, which has maximum gross sales or turnover or gross receipts of Rs. 2 crore.
  • The presumptive rate of net income is prescribed at 8% of gross turnover/gross receipts (6% in case of digital receipts).
  • An assessee who opts for presumptive taxation scheme, shall be exempted from maintenance of books of accounts related to such business as required u/s 44AA of the Income Tax Act.
  • An assessee may have gross sales/ turnover less than Rs. 2 crore, but show a net income below the presumptive rate of 8% or 6% (where applicable). In such a case, the assessee will need to maintain books of accounts (if such an assessee falls in any tax bracket and also get them audited.
  • The assessee cannot deduct any business expenses against the income under presumptive taxation scheme.
  • Section 44AD shall not apply to-

I. A person carrying on profession;
II. A person having income from commission or brokerage; or
III. A person carrying on agency business

  • Once the presumptive taxation scheme u/s 44AD has been opted by the assessee, he is required to file Income tax return under the presumptive taxation scheme only for a period of 5 years.
  • In case a taxpayer has filed the return as a normal taxpayer under presumptive taxation scheme or opted out of presumptive taxation scheme, then he cannot re-opt for the presumptive taxation scheme for the next 5 years.
  • ITR 4 would be applicable under this.