Tax Audit – Due Date, Limit & Section 44AB

Last Updated at: January 08, 2020
2507
Tax Audit - Due Date, Limit & Section 44AB

India’s judiciary has different sets of laws to deal with the various audits we have such as tax, stock, cost and company audit. When it comes to income tax audit, as per the Income Tax Act, 1961, Section 44AB lays down the law. Are you unsure of this Section and everything it entails? If so, then you are in the right place because that’s what we will be trying to decode through this post. So here’s a look at everything you need to know about income tax audit and Section 44AB.

What is Income Tax Audit?

As the name suggests, this audit targets evaluates whether every individual or company has complied with the income tax laws and filed their returns accurately. This task usually falls on an external agency to ensure that no corrupt practices happen during this process. All the filed returns are checked to ensure that the income, tax deductions, expenditures and claims have been rightly mentioned as per the Income Tax Act, 1961. This process further simplifies return computation and the Chartered Accountant handling the audit must submit both Form 3CA/3CB/3CD and an audit report. 

Income Tax Audit Laws

Any individual or company which does not need to get their accounts audited under Section 44AB need not submit their records. For example, certain companies must stick to the policies outlined for stock audit or statutory audit, and hence, do not have to go in for income tax audit. Such accounts will have a separate tax audit report for their filings if they file their returns within the stipulated time. Here’s a look at the various Sections which handle laws related to income tax audit in India.

  1. Section 44BB: For NRIs working in areas related to mineral oils 
  2. Section 44BBB: For multi-national and foreign companies involved in construction and power 
  3. A section 44AD: All businesses except those that come under Section 44AE
  4. Section 44ADA: For all eligible professionals
  5. Section 44AE: For businesses dealing with leasing and hiring goods carriages

Get free legal advice now

Objectives of an Income Tax Audit

  • Gives an accurate account of all the returns filed in a fiscal year
  • Helps in the maintenance of records related to IT returns
  • Provides an analysis of frauds committed and faulty returns filed
  • Gives an assessment of which compliance measures are constantly disobeyed
  • Streamlines process of return computation
  • Prevents frauds, corrupt practices and malpractices

Eligibility or Tax Audit Limit

An Income Tax audit is mandatory for the following types of taxpayers:

  1. Anyone earning more than INR 1 crore annually and has not applied under the presumptive taxation scheme.
  2. Anyone who has applied for consideration under the presumptive taxation scheme as per Section 44AD but earns more than INR 2 crore annually.
  3. Any business which falls under Sections 44AE, 44BB and 44BBB, but claims profits less than limits mentioned under their scheme.
  4. Anyone who applied for the presumptive taxation but did not follow up in the five years after that though their annual income is higher than the maximum amount which is not chargeable to tax.
  5. Any employee of a company whose gross receipts exceeds INR 50 lakhs.
  6. Any employee eligible for presumptive taxation but claims profits less than the limits mentioned and whose income exceeds the maximum amount that is not eligible for tax deduction.

Report Filing Process

  • The CA tasked with filing the report must use their login credentials and then submit the audit report online.
  • For audits as per Section 44AB, Form 3CB(Audit Form) and Form 3CD(Particulars) are submitted
  • From the taxpayer’s side, he or she must also mention the name of the CA handling their return.
  • The taxpayer, once the report is made available, must go through it and then accept or reject it depending on its authenticity and accuracy.
  • In case a report is rejected, the CA must repeat the process until the report is accepted.
  • DUE DATE:

    Such a report must be submitted before 30th November in case of international transactions and before 30th September for others.

  • In case a taxpayer has multiple businesses, they must submit their records for an audit if the sum of all their generated revenues exceeds INR 1 crore.
  • In case the taxpayer is a professional who works in multiple fields, they must have their returns audited if their total revenue exceeds INR 50 lakhs annually.
  • If the taxpayer has both a business and a profession, then separate audits may be required in case their business makes more than INR 1 crore and if their profession generates over INR 50 lakhs. Hence, an audit is not made taking into consideration the cumulative revenue from both sources.
  • If your business/profession makes less than 1 crore/50 lakhs respectively, but the sale of a fixed asset has occurred, the money gained is not a part of your profits and therefore is not considered for audits. The sale of the following articles is exempted from auditable income:
  1. Shares, stocks, securities
  2. Fixed assets
  3. Income from rents
  4. Income from interest
  5. Expenses reimbursed by clients
  • Once uploaded, a report cannot be edited. However, if your accounts are revised via the approval of an Annual General Meeting, then the report must be changed after mentioning the reason for doing so.

Penalties

  1. Failure to comply with the rules mentioned above leads to a penalty which is the least of the following:
  • 0.5% of the total sales
  • 0.5% of Turnover 
  • and 0.5% of Gross receipts 
  • INR 1,50,000

2. Penalties may be waived if the taxpayer can cite a reasonable cause for not complying. Some of the reasons which will warrant a waiver are:

  • Delay due to an auditor resigning
  • Delay due to the death/disability/inability due to physical reasons of the account keeper
  • A delay due to labour issues 
  • Delay due to accounts being lost because of theft/fir/incidents 
  • Natural calamities

Eligibility to be a tax auditor

  1. Cannot be a part-time practitioner 
  2. Cannot owe the individual whose records are being audited more than INR 10,000 
  3. One cannot accept an appointment in any Public Sector/Government/Listed or Public Company making more than INR 50 crores annually
  4. Cannot be the one maintaining the record books of the assessee
  5. One cannot be a partner or employee of the audit firm 
  6. Cannot be an internal auditor for the company or individual being audited

 

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Tax Audit – Due Date, Limit & Section 44AB

2507

India’s judiciary has different sets of laws to deal with the various audits we have such as tax, stock, cost and company audit. When it comes to income tax audit, as per the Income Tax Act, 1961, Section 44AB lays down the law. Are you unsure of this Section and everything it entails? If so, then you are in the right place because that’s what we will be trying to decode through this post. So here’s a look at everything you need to know about income tax audit and Section 44AB.

What is Income Tax Audit?

As the name suggests, this audit targets evaluates whether every individual or company has complied with the income tax laws and filed their returns accurately. This task usually falls on an external agency to ensure that no corrupt practices happen during this process. All the filed returns are checked to ensure that the income, tax deductions, expenditures and claims have been rightly mentioned as per the Income Tax Act, 1961. This process further simplifies return computation and the Chartered Accountant handling the audit must submit both Form 3CA/3CB/3CD and an audit report. 

Income Tax Audit Laws

Any individual or company which does not need to get their accounts audited under Section 44AB need not submit their records. For example, certain companies must stick to the policies outlined for stock audit or statutory audit, and hence, do not have to go in for income tax audit. Such accounts will have a separate tax audit report for their filings if they file their returns within the stipulated time. Here’s a look at the various Sections which handle laws related to income tax audit in India.

  1. Section 44BB: For NRIs working in areas related to mineral oils 
  2. Section 44BBB: For multi-national and foreign companies involved in construction and power 
  3. A section 44AD: All businesses except those that come under Section 44AE
  4. Section 44ADA: For all eligible professionals
  5. Section 44AE: For businesses dealing with leasing and hiring goods carriages

Get free legal advice now

Objectives of an Income Tax Audit

  • Gives an accurate account of all the returns filed in a fiscal year
  • Helps in the maintenance of records related to IT returns
  • Provides an analysis of frauds committed and faulty returns filed
  • Gives an assessment of which compliance measures are constantly disobeyed
  • Streamlines process of return computation
  • Prevents frauds, corrupt practices and malpractices

Eligibility or Tax Audit Limit

An Income Tax audit is mandatory for the following types of taxpayers:

  1. Anyone earning more than INR 1 crore annually and has not applied under the presumptive taxation scheme.
  2. Anyone who has applied for consideration under the presumptive taxation scheme as per Section 44AD but earns more than INR 2 crore annually.
  3. Any business which falls under Sections 44AE, 44BB and 44BBB, but claims profits less than limits mentioned under their scheme.
  4. Anyone who applied for the presumptive taxation but did not follow up in the five years after that though their annual income is higher than the maximum amount which is not chargeable to tax.
  5. Any employee of a company whose gross receipts exceeds INR 50 lakhs.
  6. Any employee eligible for presumptive taxation but claims profits less than the limits mentioned and whose income exceeds the maximum amount that is not eligible for tax deduction.

Report Filing Process

  • The CA tasked with filing the report must use their login credentials and then submit the audit report online.
  • For audits as per Section 44AB, Form 3CB(Audit Form) and Form 3CD(Particulars) are submitted
  • From the taxpayer’s side, he or she must also mention the name of the CA handling their return.
  • The taxpayer, once the report is made available, must go through it and then accept or reject it depending on its authenticity and accuracy.
  • In case a report is rejected, the CA must repeat the process until the report is accepted.
  • DUE DATE:

    Such a report must be submitted before 30th November in case of international transactions and before 30th September for others.

  • In case a taxpayer has multiple businesses, they must submit their records for an audit if the sum of all their generated revenues exceeds INR 1 crore.
  • In case the taxpayer is a professional who works in multiple fields, they must have their returns audited if their total revenue exceeds INR 50 lakhs annually.
  • If the taxpayer has both a business and a profession, then separate audits may be required in case their business makes more than INR 1 crore and if their profession generates over INR 50 lakhs. Hence, an audit is not made taking into consideration the cumulative revenue from both sources.
  • If your business/profession makes less than 1 crore/50 lakhs respectively, but the sale of a fixed asset has occurred, the money gained is not a part of your profits and therefore is not considered for audits. The sale of the following articles is exempted from auditable income:
  1. Shares, stocks, securities
  2. Fixed assets
  3. Income from rents
  4. Income from interest
  5. Expenses reimbursed by clients
  • Once uploaded, a report cannot be edited. However, if your accounts are revised via the approval of an Annual General Meeting, then the report must be changed after mentioning the reason for doing so.

Penalties

  1. Failure to comply with the rules mentioned above leads to a penalty which is the least of the following:
  • 0.5% of the total sales
  • 0.5% of Turnover 
  • and 0.5% of Gross receipts 
  • INR 1,50,000

2. Penalties may be waived if the taxpayer can cite a reasonable cause for not complying. Some of the reasons which will warrant a waiver are:

  • Delay due to an auditor resigning
  • Delay due to the death/disability/inability due to physical reasons of the account keeper
  • A delay due to labour issues 
  • Delay due to accounts being lost because of theft/fir/incidents 
  • Natural calamities

Eligibility to be a tax auditor

  1. Cannot be a part-time practitioner 
  2. Cannot owe the individual whose records are being audited more than INR 10,000 
  3. One cannot accept an appointment in any Public Sector/Government/Listed or Public Company making more than INR 50 crores annually
  4. Cannot be the one maintaining the record books of the assessee
  5. One cannot be a partner or employee of the audit firm 
  6. Cannot be an internal auditor for the company or individual being audited

 

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