Faq’s

What is Service Tax and who pays this tax?

Service tax is, as the name suggests, a tax on Services. It is a tax levied on the transaction of certain services specified by the Central Government under the Finance Act, 1994.

It is an indirect tax (akin to Excise Duty or Sales Tax) which means that normally, the service provider pays the tax and recovers the amount from the recipient of taxable service.

What is Income-tax?

It is a tax levied by the Government of India on the income of every person. The provisions governing the Income-tax Law are given in the Income-tax Act, 1961.

What is the administrative framework of Income-tax?

The revenue functions of the Government of India are managed by the Ministry of Finance. The Finance Ministry has entrusted the task of administration of direct taxes like Income-tax, Wealth tax, etc., to the Central Board of Direct Taxes (CBDT). The CBDT is a part of Department of Revenue in the Ministry of Finance.

CBDT provides essential inputs for policy framing and planning of direct taxes and also administers the direct tax laws through the Income-tax Department. Thus, Income-tax Law is administrated by the Income-tax Department under the control and supervision of the CBDT.

Who is supposed to pay Income-tax?

Income-tax is to be paid by every person. The term ‘person’ as defined under the Income-tax Act covers in its ambit natural as well as artificial persons.

For the purpose of charging Income-tax, the term ‘person’ includes Individual, Hindu Undivided Families [HUFs], Association of Persons [AOPs], Body of individuals [BOIs], Firms, LLPs, Companies, Local authority and any artificial juridical person not covered under any of the above.

Thus, from the definition of the term ‘person’ it can be observed that, apart from a natural person, i.e., an individual, any sort of artificial entity will also be liable to pay Income-tax.

How does the Government collect Income-tax?

Taxes are collected by the Government through three means: a) voluntary payment by taxpayers into various designated Banks. For example, Advance Tax and Self Assessment Tax paid by the taxpayers, b) Taxes deducted at source [TDS] from the income of the receiver, and c) Taxes collected at source [TCS]. It is the constitutional obligation of every person earning income to compute his income and pay taxes correctly.

What is tax audit?

The dictionary meaning of the term "audit" is check, review, inspection, etc. There are various types of audits prescribed under different laws like company law requires a company audit, cost accounting law requires a cost audit, etc. The Income-tax Law requires the taxpayer to get the audit of the accounts of his business/profession from the view point of Income-tax Law.

Section 44AB gives the provisions relating to the class of taxpayers who are required to get their accounts audited from a chartered accountant. The audit under section 44AB aims to ascertain the compliance of various provisions of the Income-tax Law and the fulfillment of other requirements of the Income-tax Law. The audit conducted by the chartered accountant of the accounts of the taxpayer in pursuance of the requirement of section 44AB is called tax audit.

The chartered accountant conducting the tax audit is required to give his findings, observation, etc., in the form of audit report. The report of tax audit is to be given by the chartered accountant in Form Nos. 3CA/3CB and 3CD.

Under which authority the Companies (Cost Audit Report) Rules are issued?

Central Government, in exercise of the powers conferred by clause (b) of sub-section (1) of section 642 read with sub-section (4) of section 233B, and sub-section (1) of section 227 of the Companies Act, 1956 (1 of 1956), and in supersession of the Cost Audit Report Rules, 2001 has issued these rules.

As per section 44AB, who is compulsorily required to get his accounts audited, i.e., who is covered by tax audit?

As per section 44AB, following persons are compulsorily required to get their accounts audited:

A person carrying on business, if his total sales, turnover or gross receipts (as the case may be) in business for the year exceed or exceeds Rs. 1 crore.
A person carrying on profession, if his gross receipts in profession for the year exceed Rs. 25 lakhs.
A person who is eligible to opt for the presumptive taxation scheme of section 44AD (*) but he does not opt for the same and claims the profits or gains for such business to be lower than the profits and gains computed as per the presumptive taxation scheme ofsection 44AD and his income exceeds the amount which is not chargeable to tax.
(*) For provisions of section 44AD refer tutorial on “Tax on presumptive basis in case of certain eligible business”.
A person who is eligible to opt for the presumptive taxation scheme of sections 44AE (*) but he does not opt for the same and claims the profits or gains for such business to be lower than the profits and gains computed as per the presumptive taxation scheme ofsections 44AEE.
(*) For provisions of sections 44AE refer tutorial on “Tax on presumptive basis in case of certain eligible business”.
A person who is eligible to opt for the taxation scheme prescribed under section 44BB (*) or section 44BBB (*) but he does not opt for the same and claims the profits or gains for such business to be lower than the profits and gains computed as per the taxation scheme of these sections.
(*) section 44BB is applicable to non-resident taxpayers engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire basis to be used in exploration of mineral oils. section 44BBB is applicable to foreign companies engaged in the business of civil construction or erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project.

What is the penalty for not getting the accounts audited as required by section 44AB?

According to section 271B, if any person who is required to comply with section 44AB fails to get his accounts audited in respect of any year or years as required under section 44AB, the Assessing Officer may impose a penalty. The penalty shall be lower of the following amounts:
(a) 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such year or years.
(b) Rs. 1,50,000.
However, according to section 273B, no penalty shall be imposed if reasonable cause for such failure is proved.

What is the due date by which a taxpayer should get his accounts audited?

A person covered by section 44AB should get his accounts audited and should obtain the audit report on or before the due date of filing of the return of income, i.e., on or before 30th September (*) of the relevant assessment year, e.g., Tax audit report for the financial year 2013-14 corresponding to the assessment year 2014-15 should be obtained on or before 30th September, 2014.

(*) In case of a taxpayer who is required to furnish a report in Form No. 3CEB under section 92 in respect of any international transaction or specified domestic transaction, the due date of filing the return of income is 30th November of the relevant assessment year.

However, due date for filing of Income tax return and tax audit report for assessment year 2014-15 in case of an assessee (not having any international or specified domestic transaction) who is required to get his account audited under section 44AB or a working partner of a firm whose accounts are required to be audited has been extended to 30th Nov 2014 vide ORDER [F.No. 153/53/2014-TPL], Dated 26-09-2014 and ORDER [F.No. 133/24/2014-TPL], Dated 20-08-2014 respectively.

The tax audit report is to be electronically filed by the chartered accountant to the Income-tax Department. After filing of report by the chartered accountant, the taxpayer has to approve the report from his e-fling account with Income-tax Department (i.e., at www.incometaxindiaefiling.gov.in).

V.K Verma & Co.