The tax audit report must be filed on or before the due date for filing the return of income. Those who have entered into an international transaction must file by 30 November of the subsequent year, and everyone else must file by 30 September of the subsequent year.
Our judiciary has different laws to deal with different types of audits, such as tax, stock, cost, and company audits. According to the Income Tax Act, 1961, Section 44AB lays down the law for income tax audits. Is this Section unfamiliar to you? 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 tax audit due date, Limit, and Section 44AB
What is an Income Tax Audit?
In this audit, individuals and companies are evaluated for compliance with income tax laws and filing accurate returns. An external agency usually handles this task to prevent corruption. As per the Income Tax Act, 1961, all filed returns are checked to ensure income, tax deductions, expenses, and claims are right. This process further simplifies return computation and the Chartered Accountant handling the audit must submit both Form 3CA/3CB/3CD and an audit report.
What is Section 44ab
Section 44AB, of the Income Tax Act deals with tax audits. A tax audit is when a special accountant looks at a person’s financial records to make sure everything is correct and fair. This is done to stop people from cheating on their taxes. The accountant checks if the person followed all the rules, like filing their taxes on time and telling the truth about their income and deductions. Only a special accountant, called a practising chartered accountant, can do a tax audit.
Who Is Liable for Audit Under Section 44AB
- If a person is running a business and their sales, turnover, or gross receipts exceed ₹1 crore in a year, they need to get a tax audit
- If a person is working in a profession and their gross receipts exceed ₹50 lakhs in a year, they need to get a tax audit
- If a person is using the presumptive taxation scheme under Section 44AD or 44ADA and their income exceeds a certain amount, they need to get a tax audit
- If a person is using the presumptive taxation scheme under Section 44AE and they own more than 10 goods carriages in a year, they need to get a tax audit
- A Chartered Accountant with a certificate of practice from the Institute of Chartered Accountants of India (ICAI) needs to do the tax audit.
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 return 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.
- Section 44BB: For NRIs working in areas related to mineral oils
- Section 44BBB: For multi-national and foreign companies involved in construction and power
- A section 44AD: All businesses except those that come under Section 44AE
- Section 44ADA: For all eligible professionals
- Section 44AE: For businesses dealing with leasing and hiring goods carriages
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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:
- Anyone earning more than ₹ 1 crore annually and has not applied under the presumptive taxation scheme.
- Anyone who has applied for consideration under the presumptive taxation scheme as per Section 44AD but earns more than ₹ 2 crore annually.
- Any business which falls under Sections 44AE, 44BB and 44BBB, but claims profits less than limits mentioned under their scheme.
- 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.
- Any employee of a company whose gross receipts exceeds ₹ 50 lakhs.
- 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.
- Cannot be a part-time practitioner
- Cannot owe the individual whose records are being audited more than ₹ 10,000
- One cannot accept an appointment in any Public Sector/Government/Listed or Public Company making more than ₹ 50 crores annually
- Cannot be the one maintaining the record books of the assessee
- One cannot be a partner or employee of the audit firm
- Cannot be an internal auditor for the company or individual being audite
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.
According to Section 44AB of the Act, business owners must have their accounts audited if their total sales, turnover, or gross receipts exceed ₹1 crore in any previous year. As of 2023, The limit is increased to ₹10 crores if at least 95% of the receipts/payments are made using non-cash methods. In 2021, the turnover limit under Sec 44AB has been increased from ₹5 Cr to ₹10 Cr under specific conditions:
- Cash payments should not exceed 5% of the total payments in the financial year
- Cash Receipts should not exceed 5% of the total receipts in the financial year.
It’s important to note that if taxpayers do not meet the above conditions, the turnover limit under Sec 44AB remains unchanged at ₹1 Cr.
Tax Audit Due Date:
Such a report must be submitted before 30th November in case of international transactions and before 30th September for others.
- Taxpayers must submit their tax audit report before 30 November if they have international transactions and before 30 September for other transactions
- If a taxpayer has more than one business, they must get a tax audit if the total revenue from all their businesses is more than ₹1 crore
- If a taxpayer is a professional in multiple fields, they must get a tax audit if their total revenue from all their professions is more than ₹50 lakhs annually
- If a taxpayer has both a business and a profession, they may need separate audits if their business revenue is more than ₹1 crore and their profession revenue is more than ₹50 lakhs. Both sources of income cannot be combined for the purpose of audit
- If a business/profession makes less than ₹1 crore/₹50 lakhs respectively, but has sold a fixed asset, the revenue from the sale is not considered for audit
- The sale of certain articles is exempt from audit, even if the revenue from the sale exceeds the audit threshold.
- 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 part of your profits and therefore is not considered for audits. The sale of the following articles is exempted from auditable income:
- Shares, stocks, securities
- Fixed assets
- Income from rents
- Income from interest
- 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.
- 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
- ₹ 1,50,000
- 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
When Section 44ab is Applicable
- Business sales, turnover, or gross receipts exceed ₹1 crore in a financial year
- Profession sales, turnover, or gross receipts exceed ₹50 lakhs in a financial year
- Gross receipts in a profession exceed ₹50 lakhs in a financial year
- Income is less than deemed profit and gains under Section 44AD for business under presumptive taxation scheme
- Income is less than deemed profit and gains under Section 44ADA for profession under presumptive taxation scheme
What is 3rd Provisions to Section 44ab
- Business sales, turnover, or gross receipts do not exceed ₹2 crores in the financial year
- Cash receipts and payments do not exceed 5% of the total receipts and payments in the financial year
- No deductions claimed under sections 10AA, 32AD, 33AB, 33ABA, or 35AD
- No exemption claimed under Section 11 or Section 12
Who is Mandatorily Subject to Tax Audit?
A taxpayer must get their accounts checked if the business’s sales, turnover, or gross receipts exceed Rs 1 crore in a year. But there are other situations where they may need to get their accounts checked too. We have listed these situations in the tables below:
Amendments in the above provision:
Finance Act 2020: Starting from the financial year 2019-20, the limit for getting a tax audit may be increased to ₹5 crores, as long as the taxpayer’s cash receipts are less than 5% of their gross receipts, and their cash payments are less than 5% of their total payments.
Finance Act 2021: Starting from 1 April 2021, the limit for getting a tax audit may be increased to ₹10 crores, if the cash transactions are less than 5% of the total transactions.
Who is Eligible for Section 44ab
- The sales, turnover or gross receipts of their business exceed ₹1 crore in a financial year
- The sales, turnover or gross receipts of their profession exceed ₹50 lakhs in a financial year
- They are in a profession and the gross receipts in the profession exceed ₹50 lakhs in a financial year
- They are in the presumptive taxation scheme of Section 44AD, but their income is less than the deemed profit and gains of their business
- They are in the presumptive taxation scheme of Section 44ADA, but their income is less than the deemed profit and gains of their profession
What is Form 3cb Section 44ab a
To file audited accounts, a Chartered Accountant should report the findings, observations and more, in the prescribed forms. For an audit conducted under Section 44AB, the audit report should be prepared in Form No. 3CB and the particulars in Form 3CD. For those who require an audit under other laws, the report must be in Form 3CA/3CB and particulars in Form 3CD. The Chartered Accountant should electronically file the tax audit report, which the taxpayer must approve using their e-filing account.
Clause 44ab(e) – When Provisions of Section 44ad(4)
In the Income Tax Act, there is a rule called Section 44AD which allows certain businesses to pay tax based on a fixed percentage of their turnover, instead of calculating their actual profits. However, if a business declares income lower than the fixed percentage, they must get their accounts audited by a Chartered Accountant under Section 44AB. This is to ensure that the business is paying the correct amount of tax.
For example, if a business declares income of ₹5 lakhs but the fixed percentage says they should have earned ₹6 lakhs, then they must get their accounts audited. But if they earn more than ₹6 lakhs, they don’t need to get their accounts audited.
Statutory Audit of Companies Under Company Law Provisions?
The Companies Act, 2013 mandates all companies registered under it to maintain proper books of accounts and get them audited by an independent auditor. The statutory audit of companies is a legal requirement under the Company Law provisions.
Section 139 of the Companies Act, 2013 mandates that every company shall appoint an auditor at the Annual General Meeting (AGM) of the company for auditing its books of accounts. The auditor appointed should be a Chartered Accountant in practice, and the appointment should be made for a period of five consecutive years.
The auditor appointed by the company is required to express their opinion on the financial statements prepared by the company, including the balance sheet, profit and loss account, cash flow statement, and other documents required to be prepared under the Company Law provisions. The auditor is required to verify the books of accounts, ensure that they are maintained as per the prescribed standards, and report any discrepancies or non-compliance found during the audit.
The statutory audit of companies is essential for ensuring the accuracy and reliability of the financial information presented by the company to its stakeholders, including shareholders, lenders, and regulatory authorities. The audit report issued by the auditor is an important document that provides assurance to the stakeholders regarding the financial health of the company and its compliance with the applicable laws and regulations.
What Constitutes an Audit report
- Form No. 3CA is used when a person doing business or profession is already required to get their accounts audited under any other law
- Form No. 3CB is used when a person doing business or profession does not need to get their accounts audited under any other law
If a tax auditor prepares any of the above audit reports, they must provide the necessary details in Form No. 3CD, which is a part of the audit report.
How and When Tax Audit Reports Shall Be Furnished?
The tax auditor needs to submit the tax audit report online using their login details. Taxpayers must also add the Chartered Accountant’s details in their login portal.
Once the auditor uploads the report, the taxpayer needs to approve it in their login portal. If it’s not approved, everything needs to be done again until it’s approved.
It’s important to file the tax audit report before the due date of filing the income tax return. For taxpayers involved in international transactions, the due date is November 30th of the following year. For other taxpayers, it’s September 30th of the following year. The year after that is called the assessment year.
Thus, we hope that we have adequately addressed your concern. If you require further assistance, please do not hesitate to contact us; we will be pleased to assist you as much as possible.