Tax Audit Checklist for FY 2024 - 25: A Comprehensive Guide for Compliance

Tax audits under Section 44AB of the Income Tax Act, 1961, are an important compliance mechanism for businesses and professionals whose turnover or gross receipts exceed prescribed thresholds. With increasing scrutiny from tax authorities and evolving reporting requirements, a well-prepared tax audit checklist making sure timely and error-free submissions.

This guide outlines a comprehensive checklist for tax audit readiness for the financial year 2024-25, helping taxpayers and professionals streamline documentation, disclosures, and procedural compliance.

1. Applicability of Tax Audit

Before initiating the audit process, determine whether the entity is liable for tax audit:

• Business Entities: A Tax audit is mandatory if total sales, turnover, or gross receipts exceed ₹1 crore. If cash transactions are limited to 5% of total receipts and payments, the threshold increases to ₹10 crore.
• Professionals: Tax audit applies if gross receipts exceed ₹50 lakh.
• Presumptive Taxation Cases: If the income declared is below the presumptive rate under Sections 44AD, 44ADA, or 44AE, and the total income exceeds the basic exemption limit, tax audit becomes applicable.

2. Preliminary Documentation

Ensure the following documents are compiled before commencing the audit:

• Financial statements and trial balance
• Ledger extracts and bank statements
• Tax computation sheet and depreciation schedules
• The previous year’s tax audit report

3. Structural and Reporting Considerations

Establishing the structural integrity of the audit report is essential before validating financial data. Key reporting elements include:

• Assessee Identification: Confirm the assessee’s name, address, PAN or Aadhaar, and legal status under Section 2(31).
• Indirect Tax Registrations: Report all applicable GSTINs, excise, customs, and other indirect tax identifiers.
• Audit Applicability Clause: Clearly state the relevant clause under Section 44AB—whether audit is triggered by turnover, presumptive taxation, or other conditions.
• Period Reporting: Accurately mention the previous year and assessment year, especially in cases of restructuring or new business.
• Responsibility Statements: Include brief paragraphs outlining the responsibilities of both the assessee and the auditor.
• Observations and Qualifications: Report qualificatory remarks directly in Form 3CA or 3CB; general notes should be annexed separately.
• Assignment Limits: Ensure adherence to professional limits on the number of tax audit assignments accepted annually.

This framework ensures that all subsequent audit validations are built on a compliant and complete reporting structure.

4. Books of Accounts and Records

Verify maintenance and completeness of statutory books:

• Cash book, journal, ledgers
• Sales and purchase registers
• Inventory and fixed asset records
• Payroll and expense vouchers
• Reconcile turnover with GST returns, TDS returns, and bank credits.
• Verify income recognition policies for consistency with accounting standards.
• Check for other income such as interest, rent, or capital gains.
• Compute depreciation as per Income Tax norms.
• Verify asset additions and deletions with supporting invoices.
• Cross-check opening balances with the prior audit report.
• Section 40A(3): Disallow cash payments exceeding ₹10,000 per day per person.
• Section 40(a)(ia): Disallow expenses for which TDS was not deducted or deposited on time.
• Section 43B: Ensure statutory dues like PF, ESI, GST, etc., are paid before the return filing due date.
• Section 40(b): Partner remuneration must comply with limits specified in the partnership deed.
• Match TDS receivable with Form 26AS and books.
• Verify timely deposit and filing of TDS returns (Form 24Q, 26Q).
• Reconcile GST turnover with books and GSTR-3B/GSTR-1.
• Check for GST input credit reversals and ineligible credits.

5. Turnover and Income Verification

6. Depreciation and Fixed Assets

7. Payments and Deductions

8. TDS and GST Reconciliation

9. Reporting Under Form 3CD

Form 3CD is the backbone of tax audit reporting. Key clauses to review:

10. Related Party Transactions

• Identify specified persons under Section 40A(2)(b).
• Ensure arm’s length pricing and documentation.
• Disclose in Form 3CD Clauses 23 and 26.
• Comply with Sections 269SS and 269T for cash loans/deposits.
• Document capital contributions and withdrawals.
• Disclose interest-free loans appropriately.
• Tax Audit Report Due Date: November 10, 2025 (AY 2025–26)
• ITR Filing Due Date: December 10, 2025 (for tax audit cases)
• Form Submission: File Form 3CA/3CB and Form 3CD online using DSC
• UDIN Requirement: Mandatory for all audit reports by Chartered Accountants
• Turnover mismatch between books and GST returns
• Non-reporting of high-value cash transactions
• Incorrect expense classification
• Omission of deemed income or disallowances
• Incomplete Form 3CD disclosures
• Address all Form 3CD clauses
• Maintain audit trail and working papers
• Document management representations
• Review the auditor’s observations and qualifications

11. Loans, Advances, and Capital Transactions

12. Filing and Deadlines

13. Common Errors to Avoid

14. Final Review and Auditor’s Notes

A meticulous tax audit checklist not only ensures statutory compliance but also strengthens internal financial discipline. With increasing digitisation and data matching by tax authorities, businesses must proactively reconcile records and disclosures. Early preparation, accurate documentation, and professional oversight are key to a smooth and compliant tax audit process.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates