What is a tax audit?

The term `audit` refers to a check, review, verification or inspection of a record, transaction, account etc. A tax audit is the process of verification and inspection of the accounts of a taxpayer to confirm their adherence to the provisions of the Income Tax law.

Section 44AB of the Income Tax Act, 1961 deals with the Audit of the Accounts of a certain category of persons carrying on a business or engaged in a profession. The class of taxpayers listed under this section compulsorily have to get their accounts audited by a Chartered Accountant. The CA will check and verify that these accounts comply with the various provisions of the Income Tax law. Simply put, the audit that is required as per Section 44AB of the Income Tax Act, 1961 is called a tax audit.

The outcome of the audit is an audit report. This report is drawn by the Chartered Accountant where he or she gives his findings and observations about the compliance of the person under audit.