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Tax audit under section 44AB

The Section 44AB of the Income Tax Act enjoins provisions regarding tax audit under IT Audit. The tax audit is carried on to ensure that the payer has a fully maintained book of records and accounts, that properly depict the taxpayer’s income. The purpose of the tax audit is to ensure that the assessee is fully compliant towards various requirements such as the filing of returns, proper claim specification and of income tax deductions.

So basically, the audit is an exercise against fraudulent tax practices. Tax audit must be done by a practising chartered accountant. Read on to further understand section 44AB.

Applicability of Section 44AB

The following situations and scenarios entertain need for a tax audit with the guidance of a chartered accountant:

  • An individual pursuing enterprise and whose total turnover exceed a total of INR 2 crore in the previous year.

  • An individual pursuing a profession with gross profits crossing INR 50 lakh in the previous year.

  • Individuals eligible under the presumptive taxation scheme, and whose profits and gains for the respective business is less than what is calculated along the presumptive taxation scheme and his/her income goes beyond the taxable amount.

  • The above provision is applicable to taxpayers who opt for presumptive taxation scheme. It is not for those who select the scheme under Section 44AD and whose turnover is within INR 2 crores.

Kindly note that some bodies such as a company or co-operative society must get their accounts audited under specific laws. Such enterprises don’t have to undergo another tax audit under Section 44AB. Under such a scenario, the taxpayer in question simply has to obtain and furnish the particular audit report, supported by a report of a chartered accountant in either Form 3CA or 3CB. The specifics for this should be mentioned in Form 3CD.

Individuals Required to Perform Income Tax Audit as Per Section 44AB

Category of personThreshold
Carrying on business (not opting for presumtive taxation scheme)Total Sales, turnover or gross receipts exceeds Rs 1 crore
Carrying on business (opting presumetive taxation scheme under section 44ADTotal Sales, turnover or gross receipts exceeds Rs 2 crore
Carrying on professionGross receipts exceeds Rs 50 lakhs
Carrying on the business eligible for presumptive taxtation under section 44AE* 44BB* and 44BBB*Claim profits or gains lower than the prescribed limit under respective presumptive taxation scheme
Carrying on the business eligible for presumptive taxtation under section 44ADAClaim profits or gains lower than the prescribed limit under respective presumptive taxation scheme and income exceeds maximum amount not chargeable to tax
Carrying on the business eligible for presumptive taxation under section 44ADA due to opting for presumptive taxation in one tax year and not opting for presumptive taxation in one tax year and not opting for presumptive tax for any of the subsequent 5 consecutive years.If income exceeds maximum amount not chargeble to tax in subsequent 5 consecutive tax years from the tax year where presumptive taxation is not opted for

Forms Required to Be Submitted Under Section 44AB

These are the forms needed for use by individuals or people when an audit is done on their accounts. Such forms find special mention in Rule 6G of the ITA, along the needs of income tax audit, as per section 44AB.

For persons or individuals conducting enterprise where accounts are to be audited as per these provisions:

  • Form Number 3CA – Audit Form

  • Form Number 3CD – Statement showing relevant particulars

Individuals with accounts which are not required to be audited as per the provisions stated under any kind of law, with the exception of income tax laws, then the forms mentioned below are applicable:

  • Form Number 3CB – Audit Form
  • Form Number 3CD – Statement showing relevant particulars

Filing Tax Audit Report Under Through 44AB

Individuals who are required to have their accounts audited along the provisions of Section 44AB, need to file their audit report under Section 44AB along with their income tax returns by September 30th of assessment year.

These people need to compulsorily e-file their income tax audits together with their income tax returns, and submit all relevant details.

Non-Compliance of Income Tax Audit Under Section 44AB

Individuals who are required to have own accounts audited through Section 44AB, and yet fail at it, are required to pay 0.5% penalty on the total turnover earned over the financial year in question. The penalty cannot be more than Rs 1.5 lakhs in amount.

When the person in question has not got the accounts audited due to a legitimate reason, then there will be no penalty as per Section 271B. Reasons accepted in case of failure of income tax audit through Section 44AB:

  • Delay of the income tax audit due to the authorised chartered accountant or auditor resigning from duty.

  • Failure of income tax audit due to the unforeseen death of CA or auditor.

  • Failure of income tax audit due to the authorised CA or auditor not having access to the individual’s accounts. Including scenarios of theft, strikes etc.

  • Delay of income tax audit happens because of natural disaster.

Frequently Asked Questions

What is Tax Audit?

This is the process that leads to complete verification of the accounts of the assessee in question with the aim of validating income tax calculation and rules with the established laws of Income Tax. The process of auditing of books of accounts should be carried out by a certified Chartered Accountant.

What constitutes Audit report?

This is a written recommendation of an auditor on an entity's financial records. Written in a standard format, as deemed by auditing standards, a negative report will be generated when financial records are misstated.

What happens if a person is required to get his accounts audited under any other law for e.g. statutory audit of companies under company law provisions?

Section 44AB holds no specification as to only the statutory auditor affixed under the Companies Act performs the tax audit. This means that the tax audit can be conducted by a statutory auditor or a practicing CA.

Who is mandatorily subject to Tax Audit?

  • Carrying on business (not opting for presumtive taxation scheme*)

  • Carrying on business (opting presumetive taxation scheme under section 44AD

  • Carrying on profession

  • Carrying on the business eligible for presumptive taxtation under section 44AE 44BB and 44BBB*

  • Carrying on the business eligible for presumptive taxtation under section 44ADA

  • Carrying on the business eligible for presumptive taxation under section 44ADA due to opting for presumptive taxation in one tax year and not opting for presumptive taxation in one tax year and not opting for presumptive tax for any of the subsequent 5 consecutive years.

What are the Objectives of Tax Audit?

Tax audit has the following objectives:

  • Guarantee systematic maintenance and authenticity for books of accounts and authorisation of the same by an auditor

  • Noting discrepancies scanned by tax auditor, post a systematic examination of account books.

  • Making note of information such as

  • Tax depreciation,

  • Compliance of various provisions of income tax law etc.

  • This makes possible saving of the tax authorities’ time while verifying the correct income tax return as filed by the taxpayer.

Read More About Tax

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