Income Tax Audit – Section 44AB of the Income Tax Act

Last Updated at: August 25, 2020
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Section 44AB of the Income Tax Act
The TDS form has been revised by the income tax department, making it more detailed and enforcing deductors of state grounds for non-tax deductions. For cash withdrawals over Rs 1 crore, banks will now be expected to report Tax Deducted at Source (TDS) as per the amended form.

 

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, held that the penalty according to section 271B of the Income Tax Act, 1961 is not viable if the assessee’s reason for the delay in filing the tax audit report pursuant to section 44B is justifiable.

 

Are you a wishing to form a start-up or a small business?
No matter what, as per section 44AB if you fall under a certain class of taxpayers then you are required to get your accounts audited from a chartered accountant. The report of the tax audit is to be submitted by the CA either in Form 3CA or Form 3CB.

In this blog, you will gain knowledge about Income tax audit under section 44AB of the Income Tax Act. Just before getting into further details about Section 44AB, let us understand the term “Audit”.

Google Dictionary meaning of the term “audit” suggests it is an official inspection of an organization’s accounts, typically by an independent body.

What is a tax audit?

There are different types of tax audits prescribed under different laws for both businesses and individuals.

For example,

  • The company law requires a company audit, cost accounting law requires a cost audit, etc.
  • The Income-tax Law requires the taxpayer to get an audit of the accounts of his business/profession.

What are the objectives of the tax audit?

A regular audit of accounts of a business or a profession for tax purposes is essential to ensure that the books of account are properly maintained.

The chartered accountant conducting the tax audit is required to submit his findings, observation, etc., in the particular forms prescribed by the CBDT. It helps the tax department to keep a check on the fraudulent practises. At the same time, reporting the audit in a format will assist the assessing officers in carrying out verifying the correctness of the audit report.

Get free legal advice now

Who is required to get his accounts audited?

As per Section 44AB, there is a various category of taxpayers with different threshold limit who are required to get a tax audit.

Here is the list of taxpayers who needs to get the tax audit done:

BUSINESS:

  1. A person who is doing business with total sales, turnover or gross receipts in business for the year exceeds Rs 1 crore.
  2. A person who is doing the business and its profits and gains are considered as the profits and gains of that person under Section 44AE or Section 44BB or Section 44BBB of Income-tax act and he claimed his income to be lower than the taxable limit prescribed for the profits and gains of his business in any previous year.
  3. One who is doing business and its profits and gains are considered as the profits and gains of that person under Section 44AD of the Income-tax act and he claimed his income to be lower than the taxable limit prescribed for the profits and gains of his business but his income is more than the maximum limit exempted from paying income tax for any previous year.
  4. This provision is not applicable if he is conducting business and furnishing all tax details as per the presumptive taxation scheme under Section 44AD and his total sales or turnover doesn’t exceed Rs 2 Crores.

PROFESSION:

  1. A person in a particular profession needs to get his account audited if the gross receipts in profession exceed 25 lakhs in any previous year.
  2. A person in a particular profession who is eligible for a presumptive taxation scheme under Section 44ADA, but he claims the profits and gains for such profession to be lower than the profit and gains computed as per the presumptive taxation scheme and his income exceeds the amount which is not chargeable to tax.

NOTE:

This provision does not apply to the person, who derives income as per Section 44B and Section 44BBA, on and from the 1st of April, 1985.

If a person has already audited his accounts under any other law, then is it compulsory to get his accounts audited again to comply with Section 44AB?

As per Section 44AB, if a person has already audited his accounts under any other law, then he need not get his accounts audited to comply with the requirement of this section.

In this case, it is sufficient to report the details of the audit as required by the chartered accountant in the form prescribed under section 44AB, i.e., Form 3CA and Form 3CB.

What are the Forms used to report the tax audit?

The tax audit report has to be submitted by the chartered accountant in a particular form prescribed by the Income-tax department.

Form 3CA:

If a person is carrying on a business or profession and who has already audited his accounts under any other law other than Income-tax law.

Form 3CB:

If a person is carrying on a business or profession and who is not required to get his accounts audited under any other law.

Form 3CD:

It is a detailed statement of particulars which has to be filled along either of the above-mentioned forms.

What is the due date to submit the tax audit report?

A person covered by section 44AB should get his accounts audited and should obtain the audit report on or before the due date of filing of the return of income, i.e., on or before 30th September (*) of the relevant assessment year.

​The tax audit report is to be electronically filed by the chartered accountant to the Income-tax Department. After filing the report by the chartered accountant, the taxpayer has to approve the report from his e-fling account with Income-tax Department (i.e., at www.incometaxindiaefiling.gov.in).

What is the penalty for not getting the accounts audited?

If the taxpayer fails to submit the audit report, the Assessing Officer may impose a penalty according to Section 271B.

  1. 5% of the total sales, turnover or gross receipts or
  2. 1,50,000, whichever is lower.

However, no penalty will be imposed if a valid reason is provided for such failure under Section 271B.

 

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Income Tax Audit – Section 44AB of the Income Tax Act

9955
The TDS form has been revised by the income tax department, making it more detailed and enforcing deductors of state grounds for non-tax deductions. For cash withdrawals over Rs 1 crore, banks will now be expected to report Tax Deducted at Source (TDS) as per the amended form.

 

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, held that the penalty according to section 271B of the Income Tax Act, 1961 is not viable if the assessee’s reason for the delay in filing the tax audit report pursuant to section 44B is justifiable.

 

Are you a wishing to form a start-up or a small business?
No matter what, as per section 44AB if you fall under a certain class of taxpayers then you are required to get your accounts audited from a chartered accountant. The report of the tax audit is to be submitted by the CA either in Form 3CA or Form 3CB.

In this blog, you will gain knowledge about Income tax audit under section 44AB of the Income Tax Act. Just before getting into further details about Section 44AB, let us understand the term “Audit”.

Google Dictionary meaning of the term “audit” suggests it is an official inspection of an organization’s accounts, typically by an independent body.

What is a tax audit?

There are different types of tax audits prescribed under different laws for both businesses and individuals.

For example,

  • The company law requires a company audit, cost accounting law requires a cost audit, etc.
  • The Income-tax Law requires the taxpayer to get an audit of the accounts of his business/profession.

What are the objectives of the tax audit?

A regular audit of accounts of a business or a profession for tax purposes is essential to ensure that the books of account are properly maintained.

The chartered accountant conducting the tax audit is required to submit his findings, observation, etc., in the particular forms prescribed by the CBDT. It helps the tax department to keep a check on the fraudulent practises. At the same time, reporting the audit in a format will assist the assessing officers in carrying out verifying the correctness of the audit report.

Get free legal advice now

Who is required to get his accounts audited?

As per Section 44AB, there is a various category of taxpayers with different threshold limit who are required to get a tax audit.

Here is the list of taxpayers who needs to get the tax audit done:

BUSINESS:

  1. A person who is doing business with total sales, turnover or gross receipts in business for the year exceeds Rs 1 crore.
  2. A person who is doing the business and its profits and gains are considered as the profits and gains of that person under Section 44AE or Section 44BB or Section 44BBB of Income-tax act and he claimed his income to be lower than the taxable limit prescribed for the profits and gains of his business in any previous year.
  3. One who is doing business and its profits and gains are considered as the profits and gains of that person under Section 44AD of the Income-tax act and he claimed his income to be lower than the taxable limit prescribed for the profits and gains of his business but his income is more than the maximum limit exempted from paying income tax for any previous year.
  4. This provision is not applicable if he is conducting business and furnishing all tax details as per the presumptive taxation scheme under Section 44AD and his total sales or turnover doesn’t exceed Rs 2 Crores.

PROFESSION:

  1. A person in a particular profession needs to get his account audited if the gross receipts in profession exceed 25 lakhs in any previous year.
  2. A person in a particular profession who is eligible for a presumptive taxation scheme under Section 44ADA, but he claims the profits and gains for such profession to be lower than the profit and gains computed as per the presumptive taxation scheme and his income exceeds the amount which is not chargeable to tax.

NOTE:

This provision does not apply to the person, who derives income as per Section 44B and Section 44BBA, on and from the 1st of April, 1985.

If a person has already audited his accounts under any other law, then is it compulsory to get his accounts audited again to comply with Section 44AB?

As per Section 44AB, if a person has already audited his accounts under any other law, then he need not get his accounts audited to comply with the requirement of this section.

In this case, it is sufficient to report the details of the audit as required by the chartered accountant in the form prescribed under section 44AB, i.e., Form 3CA and Form 3CB.

What are the Forms used to report the tax audit?

The tax audit report has to be submitted by the chartered accountant in a particular form prescribed by the Income-tax department.

Form 3CA:

If a person is carrying on a business or profession and who has already audited his accounts under any other law other than Income-tax law.

Form 3CB:

If a person is carrying on a business or profession and who is not required to get his accounts audited under any other law.

Form 3CD:

It is a detailed statement of particulars which has to be filled along either of the above-mentioned forms.

What is the due date to submit the tax audit report?

A person covered by section 44AB should get his accounts audited and should obtain the audit report on or before the due date of filing of the return of income, i.e., on or before 30th September (*) of the relevant assessment year.

​The tax audit report is to be electronically filed by the chartered accountant to the Income-tax Department. After filing the report by the chartered accountant, the taxpayer has to approve the report from his e-fling account with Income-tax Department (i.e., at www.incometaxindiaefiling.gov.in).

What is the penalty for not getting the accounts audited?

If the taxpayer fails to submit the audit report, the Assessing Officer may impose a penalty according to Section 271B.

  1. 5% of the total sales, turnover or gross receipts or
  2. 1,50,000, whichever is lower.

However, no penalty will be imposed if a valid reason is provided for such failure under Section 271B.

 

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