In this article, we will take an in depth look at the provisions of section 44AB and its applicability
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, 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, observations, etc., in the particular forms prescribed by the CBDT. It helps the tax department to keep a check on fraudulent practices. 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.
Who Is Required To Get His Accounts Audited?
As per Section 44AB, there are various categories 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:
- A person who is doing business with total sales, turnover or gross receipts in business for the year exceeds Rs 1 crore.
- 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.
- 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.
- 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.
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Profession:
- 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.
- 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 the 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.
- 5% of the total sales, turnover or gross receipts or
- 1,50,000, whichever is lower.
However, no penalty will be imposed if a valid reason is provided for such failure under Section 271B.
Turnover Limit for Income Tax Audit
Need a tax audit? Generally, businesses must get their books checked by a chartered accountant if their yearly sales cross ₹1 crore. Professionals, on the other hand, need an audit if their income tops ₹50 lakhs.
But there’s a twist! Since April 2021, the ₹1 crore limit for businesses can go up to ₹10 crore if most of your payments are digital (less than 5% cash).
Remember: This is just a basic rule. There are other situations where an audit might be necessary.
Categories of taxpayers who are mandatorily required to conduct tax audit of their records:
Businesses
- Big Spenders: If your business raked in over ₹1 crore in a year, you need a tax audit. But there’s a catch: if almost all your money moves digitally (less than 5% cash), you can handle up to ₹10 crore before needing an audit.
- Presumptive Tax Users: Those using the simple tax calculation methods (Sections 44AE, 44BB, or 44BBB) must get an audit if they claim profits lower than what the rules say.
- 44AD Users: Businesses using the simple tax method under Section 44AD need an audit if they show less profit than allowed and earn more than the basic tax-free income.
- Former 44AD Users: If you stopped using the Section 44AD simple tax method within the last 5 years and now earn more than the basic tax-free income, you’re back to needing an audit.
- Loss-Making Businesses: Even if your business lost money, you might still need an audit if your sales crossed ₹1 crore and your total income is above the basic tax-free amount.
Professionals
- High Earners: Professionals making over ₹50 lakh a year must get their books checked.
- Presumptive Tax Users: Doctors, lawyers, and other professionals using the simple tax method under Section 44ADA need an audit if they claim less than half their income as profit and earn more than the basic tax-free amount.
| Category | Condition |
| Businesses (Not Using Presumptive Tax) | Sales > ₹1 crore (₹10 crore if cash transactions < 5%) |
| Businesses Using Presumptive Tax (Sections 44AE, 44BB, or 44BBB) | Claimed profits < prescribed limit |
| Businesses Using Presumptive Tax (Section 44AD) | Declared income < presumptive tax limits & income > basic exemption limit |
| Former Users of Presumptive Tax (Section 44AD) | Income > basic exemption limit in subsequent 5 years after opting out |
| Loss-Making Businesses | Sales > ₹1 crore & income > basic exemption limit |
| Professionals | Gross receipts > ₹50 lakh |
| Professionals Using Presumptive Tax (Section 44ADA) | Claimed profits < 50% of receipts & income > basic exemption limit |
How and When Tax Audit Reports Shall be Furnished?
Online and Easy
Your chartered accountant will send your tax audit report directly to the Income Tax Department through their online account. You’ll need to add their details to your tax portal too.
Your Approval Matters
Once the report is uploaded, you’ll get a notification. It’s your job to review it and either approve or reject it on your tax portal. If you reject it, the whole process starts again.
Deadlines to Remember
The deadline for submitting your tax audit report depends on if you did business internationally.
- Domestic Business: Your report is due on September 30th of the following year.
- International Business: You have until October 31st of the following year.
Important: Make sure to submit your tax audit report before the final date for filing your income tax return. This is the same date as the audit report deadline.
Who is Mandatorily Subject to Tax Audit?
If you’re a business owner, you might need a tax audit. Here’s a quick guide:
- Big Spenders: If your business made over ₹1 crore in a year, you typically need a tax audit.
- Cash-Friendly Businesses: There’s a twist! If most of your money moves digitally (less than 5% cash), you can handle up to ₹10 crore in sales before needing an audit. This rule was updated in recent years to support digital payments.
Here are various categories of taxpayers below:
| Category of Person | Threshold |
| Businesses (Not Opting for Presumptive Tax) | Sales/Turnover/Gross Receipts exceed ₹1 crore. If cash transactions are up to 5% of total gross receipts and payments, the threshold limit of turnover for a tax audit is increased to ₹10 crores (w.e.f. FY 2020-21) |
| Businesses Using Presumptive Tax (Sections 44AE, 44BB, or 44BBB) | Claims profits or gains lower than the prescribed limit under the presumptive taxation scheme |
| Businesses Using Presumptive Tax (Section 44AD) | Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit |
| Former Users of Presumptive Tax (Section 44AD) | Income exceeds the basic exemption limit in subsequent 5 years after opting out |
| Loss-Making Businesses (Not Opting for Presumptive Tax) | Sales/Turnover/Gross Receipts exceed ₹1 crore & Income exceeds the basic threshold limit |
| Professionals | Gross Receipts exceed ₹50 lakh in the financial year |
| Professionals Using Presumptive Tax (Section 44ADA) | Claimed profits or gains lower than 50% of receipts and income exceeds the basic exemption limit |
Conclusion
Tax audits are different from other kinds of audits in the sense that it is required to be absolutely accurate to the last dime. This means that there cannot be any kind of rounding off and the auditor or chartered accountant signing the report has to be absolutely sure that ever number reported in the forms of the tax audit are accurate. If you have any other queries with regards to taxation or any other regulatory or legal matter, get in touch with us and we will ensure that you receive the right kind of professional help for your requirements.
FAQs
What is an income tax audit under Section 44AB?
A tax audit under Section 44AB is a mandatory verification of a business's financial records by a Chartered Accountant. It's required when a business's turnover exceeds a certain threshold. The audit ensures accurate income declaration and tax compliance.
What documents are audited under Section 44AB?
A tax audit covers various financial documents like sales and purchase bills, cash books, bank statements, inventory records, and other relevant paperwork. The auditor examines these documents to verify income, expenses, and overall financial health.
What is Form 3CA-3CD?
Form 3CA is the audit report prepared by the Chartered Accountant. It details the audit findings and income computation. Form 3CB is a summary of the audit report, while Form 3CD is for specific disclosures and computations.
Who can conduct a tax audit under Section 44AB?
Only a Chartered Accountant (CA) registered with the Institute of Chartered Accountants of India (ICAI) can conduct a tax audit under Section 44AB. They are qualified professionals with the expertise to verify financial records and prepare the audit report.
How to calculate turnover for tax audit?
Turnover for tax audit purposes generally includes total sales, receipts, and other income generated from business operations. Specific rules and exclusions may apply. It's advisable to consult with a CA to accurately calculate turnover for your business.
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