Tax audit.

63(1)

Every person, carrying on the business or profession fulfilling the conditions specified in column B of the Table below, shall get his accounts of the tax year audited by an accountant, before the specified date.

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63(2)

The provisions of this section shall not apply,––

• (a) where profits and gains of business or profession, declared by the assessee are as per section 58(2);
• (b) where the person, other than that referred in section 61(2) (Table: Sl. No. 6), is deriving income of the nature referred to in section 61(2).

63(3)

The assessee shall furnish by the specified date, the report of such audit in such form, duly signed and verified by the accountant and setting forth such particulars, as prescribed.

63(4)

Where a person is required, by or under any other law, to get his accounts audited, then it shall be sufficient compliance of this section, if such person––

• (a) gets the accounts of such business or profession audited under such law before the specified date; and
• (b) furnishes by that specified date the report of such audit along with the report of the accountant in the form as prescribed.

63(5)

In this section, “specified date” in relation to the accounts of the assessee of the tax year, means the date one month prior to the due date for furnishing the return of income under section 263(1).

Explanation

Section Summary:

Section 63 of the new income tax law mandates that individuals or entities engaged in business or profession, who meet certain conditions (as specified in the table under column B), must have their accounts audited by a qualified accountant before a specified date. This section ensures compliance and accuracy in financial reporting for tax purposes.

Key Changes:

1. Mandatory Audit Conditions: The section introduces specific conditions (outlined in column B of the table) that trigger the requirement for a tax audit. These conditions are new and must be carefully reviewed to determine applicability.
2. Exemptions: The section provides exemptions for certain cases, such as when profits are declared under Section 58(2) or when income is derived from sources specified in Section 61(2).
3. Dual Audit Compliance: If an entity is already required to undergo an audit under another law, it can satisfy this section by submitting the audit report from that law, along with the prescribed accountant’s report.

Practical Implications:

• For Taxpayers: Businesses or professionals meeting the specified conditions must ensure their accounts are audited by a qualified accountant. Failure to comply could result in penalties or scrutiny by tax authorities.
• For Accountants: Accountants must ensure the audit report is prepared in the prescribed format and submitted by the specified date.
• For Entities with Dual Audits: Entities already subject to audits under other laws (e.g., Companies Act) can use the same audit report to comply with this section, provided they also submit the additional prescribed report.

Critical Concepts:

• Specified Date: This is defined as one month prior to the due date for filing the income tax return under Section 263(1). For example, if the return filing deadline is July 31, the specified date for audit submission would be June 30.
• Accountant: Refers to a Chartered Accountant (CA) or any other professional authorized to conduct audits under Indian law.
• Section 58(2): Pertains to the declaration of profits and gains in a manner prescribed by the tax authorities.
• Section 61(2): Relates to specific types of income, such as income from certain professions or businesses, which may exempt the taxpayer from the audit requirement.

Compliance Steps:

1. Determine Applicability: Check if your business or profession meets the conditions specified in column B of the table under Section 63(1).
2. Engage an Accountant: Hire a qualified accountant to conduct the audit if required.
3. Submit Audit Report: Ensure the audit report is prepared in the prescribed format and submitted by the specified date (one month before the income tax return filing deadline).
4. Dual Audit Compliance: If already audited under another law, submit both the existing audit report and the additional prescribed report by the specified date.

Examples:

• Scenario 1: A business with a turnover exceeding ₹5 crore (as per column B conditions) must undergo a tax audit. The audit report must be submitted by June 30 if the income tax return filing deadline is July 31.
• Scenario 2: A professional earning income from a source specified under Section 61(2) is exempt from the audit requirement, even if their turnover exceeds the threshold.
• Scenario 3: A company already audited under the Companies Act can use the same audit report to comply with Section 63, provided they also submit the additional prescribed report by the specified date.