A tax audit is an examination of an individual’s or business’s financial records and tax returns by tax authorities to verify compliance with tax laws and regulations. It aims to ensure accuracy in reporting income, deductions, credits, and other tax-related information.

Tax audits can be conducted by government tax agencies, such as the Internal Revenue Service (IRS) in the United States or the Income Tax Department in India. They may occur randomly or as a result of specific criteria, such as discrepancies in tax returns, unusually high deductions, or red flags identified through data analytics.

During a tax audit, tax authorities review financial documents, receipts, bank statements, and other records to verify income and expenses reported on tax returns. Taxpayers may be required to provide additional documentation or explanations to support their tax filings.