Check out this blog for information on tax audits, tax audit reports, the purpose of tax audit reports, analysis of tax audit forms, and other relevant information.
Income Tax Audit Under Section 44AB
Inspecting and verifying accounts, transactions, or records is termed an audit. An income tax audit report is done to confirm whether a certain taxpayer is abiding by all the provisions of the income tax laws of the country. Section 44AB of the Income Tax Act, 1961 deals with the audits of taxpayers listed under it.
Applicability of Income Tax Audit under Section 44AB
- Businesses with a previous year’s total sales, turnover, or gross receipts exceeding ₹10 crore, as long as:
- Cash receipts are less than 5% of gross receipts or turnover
- Cash payments are less than 5% of aggregate payments
- Professionals with gross receipts exceeding ₹50 lakh in the previous year from their respective professions.
Reasons for Income Tax Audit Reports
The tax audit reports are performed to achieve the following:
- Maintain the books of accounts and ascertain their accuracy
- To get the accounts books certified by a tax auditor
- To ensure that the income tax law provisions are being followed
- Income Tax audits also check/verify whether the records show the actual income of the taxpayer
- Also, that the deduction claims are correct/valid.
The Income tax audit reports are made and filed in either of the forms mentioned below:
- Form 3CA
- Form 3CB
- Form 3CA: This form is used for a taxpayer earning income through a business or profession for whom it is already mandatory to get his books audited under any other country’s law but for the income tax law.
- Form 3CB: This form is furnished for a taxpayer earning income through business or profession who is not required to get his books of accounts audited under any other law prevailing in the country.
Particulars of Form 3CA
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Point – 1
- Name of the taxpayer
- Address of the taxpayer
- Permanent Account Number of the taxpayer
- Name of the auditor (firm/individual)
- The law under which the book of accounts has been audited
- Date of the tax audit reports
- Beginning and Eed date of the profit and loss account/income and expenditure account
- Date of the balance sheet click here to more about: https://www.incometax.gov.in/iec/foportal/
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Point – 2
Declaration mentioning attachment of form 3CD with the tax audit reports.
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Point – 3
The observations of the tax audit reports.
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Point – 4
- Place and date of signing the tax audit reports
- Name, address, and membership number of the auditor
- Seal of the Auditor
Particulars of Form 3CB
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Point -1
- Name of the taxpayer
- Address of the taxpayer
- Permanent Account Number of the taxpayer
- Date of the balance sheet
- Period of the Income and Expenditure Account/ Profit and Loss Account
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Point – 2
Address(s) of the places where the books of accounts are kept
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Point – 3(a)
Audit observations/qualifications/discrepancies/comments
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Point – 3(b)
Declaration by the auditor regarding
- Getting information and explanations needed for the audit
- Assurance that the books of accounts are maintained accurately
- The balance sheet and profit and loss account appear to be accurate and true
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Point – 4
Declaration of attaching form 3CD along with the income tax audit reports.
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Point – 5
Audit observations/discrepancies
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Point – 6
- Place and date of signing the tax audit reports.
- Name, address, and the auditor
- Membership number of the auditor.
- Seal of the auditor
Form 3CD
Form 3CD is mandatory to be attached to the audit report. It is an elaborate statement of particulars containing forty-one points/items. The details related to the business/profession and its transactions must be filled in correctly.
Form 3CE
This form is furnished in the case of foreign companies and non-residents. The non-resident Indians and foreign companies that receive a royalty for their technical services must get their book of accounts audited. This audit report will be furnished in form 3CE, and an annexure containing the particulars too will be attached to the report.
Particulars of Form 3CE
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Point – 1
- Name of the non-resident
- Address of the non-resident
- His/her Permanent Account Number
- The financial year for which the audit was conducted
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Point – 2
Declaration regarding obtaining all necessary information and explanations for the audit.
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Point – 3
Certification about the permanent establishment of the profession in India.
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Point – 4
Declaration of the income from royalty u/s 44DA for the assessment year.
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Point – 5
- Name and signature of the Auditor along with his seal
- Details regarding the income through royalty should be mentioned in the Annexures of this form.
Difference Between Form 3CA, Form 3CB and Form 3CD
The primary difference between Form 3CA and Form 3CB lies in the audit requirement clause. Form 3CA makes an audit requirement mandatory, while Form 3CB does not impose such an obligatory condition.
In contrast, the principal variance between Form 3CA and Form 3CD is the level of detail provided; Form 3CD serves as a comprehensive statement of accounts, functioning as a supporting document for Form 3CA. Here is a detailed explanation:
| Form 3CA | Form 3CB | Form 3CD |
| It is for professionals or businesses that are obligated to undergo a compulsory audit as per legal requirements other than those related to Income Tax. | It is for individuals or businesses who do not necessitate a compulsory audit under any regulation other than Income Tax Law. | Comprehensive form with fields that encompass various audit data. |
| A one-page form consolidating audit information gathered from various documents, including the Balance Sheet, Form 3CD, Profit and Loss Statement, and more. | A one-page form consolidating income information obtained from various documents, including the Balance Sheet, Profit and Loss Statement, and more. | A comprehensive audit report form containing numerous fields for the entry of specific information, including revenue, turnover, expenses, profits, asset and liability details, and more. |
| Applicable tax assessees can submit it regardless of their income or turnover. | This form is exclusively available for tax assessees whose income surpasses ₹1 crore and who have not chosen the presumptive tax mechanism. | This document is relevant to all types of business audits and provides a comprehensive record of all transactions conducted by the audited business or professional. |
Due Date of Obtaining the Income Tax Audit Report
The audit report must be obtained by 30th September of the relevant assessment year.
This date may be extended by the department in case of a pandemic. The due date to submit the audit report for the Income Tax Assessment year 2021-22 was extended to 15th January 2022.
Penalty for Not Filing the Income Tax Audit Report
If the taxpayer does not get his books of account audited or fails to submit/ file the audit report, he will have to face the consequences. The Assessing Officer (AO) may impose a penalty U/s 271B of the IT Return Filing Act, 1961. The minimum penalty maybe 0.5 percent of total sales made or turnover/ gross receipts, and the penalty can go up to ₹1,50,000.
Conclusion
We hope this article has been of help in providing details of the income tax audit report under section 44AB. A business audit refers to checking, reviewing, and inspecting records, transactions, and accounts. A tax audit is the verification and inspection of the account books to confirm that the taxpayer abides by all the income tax law provisions. The mandatory Income tax audit reports must be carried out to ascertain that all the provisions of the Income Tax Act, of 1961 are complied with. If the audit report is not submitted in the stipulated period, the taxpayer may have to pay the penalty.
Frequently Asked Questions
What is the distinction between Form 3CA-3CD vs. 3CB-3CD in tax audit reports?
Form 3CA-3CD applies to taxpayers whose accounts are required to be audited under any other law, such as the Companies Act, 2013 or the Banking Regulation Act, 1949. Form 3CB-3CD applies to taxpayers whose accounts are not required to be audited under any other law.
Can you explain the purpose and content of a tax audit report using Form 3CB-3CD?
A tax audit report, typically generated through Form 3CB-3CD, fulfills the critical role of independently affirming the accuracy of a taxpayer's income tax return, while also addressing their compliance with pertinent tax laws and regulations. This report encompasses several key elements, including a statement from the tax auditor certifying the correctness of the taxpayer's books of accounts and income tax return, a comprehensive report highlighting any observations and recommendations made by the auditor, an itemised breakdown of the taxpayer's income and expenses, along with a detailed account of assets and liabilities, and finally, a summarised assessment of the taxpayer's conformity with other applicable tax laws and regulations.
What does Section 44AB of the Income Tax Act entail regarding tax audits?
Section 44AB of the Income Tax Act requires certain taxpayers to have their accounts audited and to file a tax audit report using Form 3CB-3CD. The taxpayers who are required to undergo a tax audit under Section 44AB are those whose turnover or gross receipts exceed a certain threshold limit.
How should one analyse the information presented in Form 3CB-3CD?
To effectively analyse the content within Form 3CB-3CD, it is imperative to initially grasp the report's primary objective. This report serves the purpose of offering an independent assurance regarding the accuracy of the taxpayer's income tax return, pinpointing instances of non-compliance with tax statutes and regulations. Subsequently, a meticulous review of the report is essential to pinpoint any observations or recommendations provided by the tax auditor. If areas of concern have been identified by the auditor, immediate corrective actions should be taken. Lastly, the report should be scrutinised to ensure its thoroughness and precision, encompassing all requisite information, including the taxpayer's income, expenses, assets, liabilities, and adherence to tax laws and regulations.
Who is responsible for filing Form 3CB and Form 3CD in tax audit cases?
The taxpayer is responsible for filing Form 3CB and Form 3CD in tax audit cases. However, the taxpayer can engage a chartered accountant to conduct the tax audit and prepare the report.
Is there a specific turnover limit associated with Section 44AB for tax audits?
Yes, Section 44AB imposes distinct turnover limits for tax audits in the financial year 2023-24. These limits are categorised as follows: for businesses involved in trading, the threshold is set at ₹1 crore, for manufacturing businesses, it stands at ₹2 crore, and for enterprises offering professional services, the limit is ₹50 lakh.
Can you provide an example illustrating Section 44AB of the Income Tax Act?
The Income Tax Act's Section 44AB addresses the auditing of certain persons' accounts. Stated differently, people who satisfy the requirements outlined in Section 44AB will need to make sure that a certified chartered accountant audits their books. Suppose that Mr. X is a businessman who operates a trading firm. His turnover for the financial year 2023-24 is ₹1.2 crore. Since Mr. X's turnover exceeds the turnover limit of ₹1 crore, he will be required to undergo a tax audit under Section 44AB.
What are the eligibility criteria for using Form 3CB in tax audits?
This form may only be submitted by assessees who earn more than ₹1 crore and have not chosen to use the presumptive tax scheme.
Does the inclusion of GST turnover affect the threshold for Section 44AB tax audits?
No, the inclusion of GST turnover does not affect the threshold for Section 44AB tax audit reports. The threshold limit is based on the taxpayer's turnover or gross receipts from all sources, including GST.
What penalties may be imposed for non-compliance with tax audit requirements?
Taxpayers who fail to comply with tax audit requirements may be subject to penalties and interest charges. The penalties can be significant, so it is important for taxpayers to be aware of their obligations and to comply with them.
