TAX AUDITING

A tax audit is an examination of an organization's or individual's tax return to verify that financial information is being reported correctly. While the chances of being singled out for closer scrutiny are statistically low, there are factors that could increase your odds of receiving an audit notice. Fortunately, there are measures you can take now to minimize future problems.

With the beginning of tax season just a few weeks away, many business owners will soon be turning their attention to their tax returns. One concern that inevitably creeps into many taxpayers' minds is the possibility of being audited by the IRS.

RULES TO REMEMBER

Director General of Audit, New Delhi has prepared Service Tax Audit Manual, 2010. As per the guidelines, tax payers whose annual service tax payment (including cash and CENVAT) was Rs.3 crore or more in the preceding financial year may be subjected to mandatory audit each year. It is preferable that Audit of all such Units is done by using Computer Assisted Audit Program (CAAP) techniques. The frequency of audit for other taxpayers would be as per following norms:-

There shall be a sub-committee of three of the Executive Committee for scrutinizing membership applications and admitting members , the sub-committee shall satisfy itself that a person possesses the qualifications mentioned in the Rules and Regulations as well as in the bye-laws for the class of membership proposed.

• Taxpayers with Service Tax payment above Rs.3 crores (Cash + CENVAT) (MANDATORY UNITS) - to be audited every year.
• Taxpayers with Service Tax payment between Rs.1 crore and Rs.3 crores (Cash + CENVAT) - to be audited once every two years.
• Taxpayers with Service Tax payment between Rs.25 lakhs and Rs.1 crore (Cash + CENVAT) - to be audited once every five years.
• Taxpayers with Service Tax payment upto Rs.25 lakhs (Cash + CENVAT) - 2% of taxpayers to be audited every year.