Recent Buzz on Tax Audit

Introduction

The concept of tax audit in India was introduced under the Income Tax Act, 1961, through Section 44AB, which was inserted by the Finance Act, 1984, and became effective from Assessment Year 1985-86. The primary objective of tax audit is to ensure tax compliance, prevent tax evasion, and improve the accuracy of financial and tax reporting. However, its effectiveness depends on factors such as enforcement, compliance levels, and evolving regulatory frameworks so today we will learn some Recent Buzz on Tax Audit.

1. Tax Audit and Its Effectiveness

Research Findings on Tax Audit

Tax Education and Compliance a study found that tax audits alone are not enough to deter tax avoidance. However, when combined with tax education, compliance levels improve significantly. (Loso Judijanto et al., International Journal of Society Reviews, July 2024)

Tax Audit as a Monitoring Too another research highlights that tax audits effectively monitor the self-assessment system by changing taxpayer behavior. However, their impact on tax revenue generation is limited due to the high volume of data processing and limited technological infrastructure. (Wahyudin, D. et al., Ilomata International Journal of Tax & Accounting, July 2022)

Tax Compliance and Revenue Growth a global literature review indicates that tax audits have a positive relationship with tax compliance and revenue generation. They help in reducing issues like tax evasion, avoidance, and irregularities, leading to a more efficient tax system. (Amala Siby et al., JETIR, February 2019)

2. Tax Audit in the Income Tax Bill 2025

The Income Tax Bill 2025 aims to retain the provisions of tax audit, reinforcing its importance in tax administration. However, the debate continues on who should be allowed to conduct tax audits, specifically regarding the inclusion of professionals other than chartered accountants.

Key Issues in the Debate

Availability of Professional Accountants the number of practicing accountants affects political decisions on eligibility. In the case of GST audits, the low number of practicing cost and management accountants led to a relaxation of provisions.

Exclusive Rights vs. Role Suitability Expertise alone is not enough. Certain professional roles are assigned based on statutory expectations. For example, a court peon may have legal knowledge but cannot become a lawyer. Similarly, a neuro physician cannot perform neurosurgery.

Statutory Role of Professional Bodies Professional bodies such as the Institute of Chartered Accountants of India, the Institute of Cost Accountants of India, and the Institute of Company Secretaries of India were created by law and have specific responsibilities. Instead of asserting supremacy, professionals should focus on their statutory role and contributions.

3. Need for a Dedicated Tax Accounting Body

Currently, India does not have a statutory tax accounting body. The government relies on existing professionals such as chartered accountants, cost accountants, and company secretaries. Since chartered accountants have the largest number of practitioners, they were preferred for tax audits. However, allowing cost accountants, company secretaries, and other professionals could increase competition, improve efficiency, and enhance transparency in tax administration.

Proposal for an Institute of Tax Accountants of India

To address these concerns, the government may consider creating an Institute of Tax Accountants of India, similar to The Tax Institute in Australia or Singapore Chartered Tax Professionals.

This institute could certify professionals as tax auditors, opening up new career opportunities while strengthening India’s tax system.

Conclusion

Tax audits play a crucial role in ensuring compliance, reducing tax evasion, and improving financial transparency. However, their effectiveness depends on proper enforcement and the availability of qualified professionals. Creating a dedicated tax accounting institute could be a step towards a more efficient, competitive, and transparent tax audit system in India.

This version is well-organized and easy to read while maintaining the original content. Let me know if you need any more adjustments.