Section 44AB

This guide explains everything you need to know about income tax audits under Section 44AB of the Income Tax Act, 1961.

What is Section 44AB?

Section 44AB mandates tax audits for certain taxpayers in India. It requires taxpayers whose business or professional income (turnover or gross receipts) exceeds a specified limit in a financial year to get their accounts audited by a chartered accountant. This audit verifies the accuracy of their income and deductions reported in the tax return, ensuring compliance with tax regulations.

Who Are Liable To Get A Tax Audit Done Under Section 44AB?

The Income Tax Act mandates tax audits for two main categories of taxpayers:
 

Businesses: A tax audit becomes compulsory if a business's gross turnover exceeds Rs. 1 crore in the preceding financial year. However, there's an exception: If cash transactions represent up to 5% of total gross receipts and payments, the turnover threshold for a tax audit is raised to Rs. 10 crores (effective from FY 2020-21).

Professionals: Professionals whose gross receipts surpass Rs. 50 lakh in the preceding financial year are liable for a tax audit.

The table below summarizes other circumstances that necessitate a tax audit:

What Are The Objectives Of The Income-Tax Audit?

The primary objectives of conducting a tax audit are:

• To ensure proper maintenance of books of accounts without fraudulent activities and to have them certified by a qualified auditor.
• To identify and report discrepancies noted during a thorough examination of the books of accounts.
• To report various information such as tax depreciation and compliance with income tax law provisions.
• To simplify the calculation and verification of total income, deductions, and tax liability.
• To verify the information filed in the income tax return regarding income, tax, and deductions claimed by the taxpayer.

What Constitutes A Tax Audit Report?

The tax auditor furnishes a report in a prescribed form, either Form 3CA or Form 3CB:

• Form 3CA is used when a person carrying on business or profession is already mandated to get their accounts audited under any other law.
• Form 3CB is used when a person carrying on business or profession is not required to get their accounts audited under any other law.

In both cases, the tax auditor must furnish the prescribed particulars in Form No. 3CD, which forms part of the audit report.
 

Period To Get A Tax Audit Report Furnished

The tax auditor electronically submits the tax audit report using their login details in the capacity of a ‘Chartered Accountant’. Taxpayers must also add the CA's details in their login portal.

Once the tax auditor uploads the audit report, the taxpayer needs to either accept or reject it in their login portal. If rejected for any reason, all the procedures need to be followed again until the audit report is accepted by the taxpayer.

Due Date for Filing Tax Audit Report:

You must file the tax audit report on or before the due date of filing the return of income. Here's a breakdown of the due dates:

31st October of the subsequent year: This applies if the taxpayer has entered into an international transaction.

30th September of the subsequent year: This applies to all other taxpayers.

The subsequent year itself is known as the assessment year.

Penalty Of Not Filing Tax Audit Report

If a taxpayer is required to get a tax audit done but fails to do so, the following penalty may be levied under Section 271B:

Least of the following:

0.5% of the total sales, turnover or gross receipts Rs. 1,50,000

However, no penalty shall be levied under Section 271B if there is a reasonable cause for such failure. Here are some examples of reasonable causes accepted by Tribunals/Courts:

• Natural calamities
• Resignation of the Tax Auditor and Consequent Delay
• Labor problems such as strikes, lock-outs for an extended period
• Loss of Accounts because of situations beyond the control of the Assessees
• Physical inability or death of the partner in charge of the accounts
   

Conclusion

Understanding tax audit requirements is crucial for businesses and professionals in India. This guide has provided a comprehensive overview of tax audits under Section 44AB, including who is liable, the objectives, report format, filing deadlines, and penalties for non-compliance. Remember, timely completion of tax audits avoids penalties. If you have any further questions or require assistance with tax audits, consult a qualified Chartered Accountant.