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Income Tax Audit under Section 44AB

Income Tax Audit under Section 44AB

There are various types of audits prescribed under different laws like company law requires a company audit; cost accounting law requires a cost audit, etc. The Income-tax Law requires the taxpayer to get the audit of the accounts of his business/profession from the view point of Income-tax Law.

Introduction

Section 44AB gives the provisions relating to the class of taxpayers who are required to get their accounts audited from a chartered accountant. The audit conducted by the chartered accountant of the accounts of the taxpayer in pursuance of the requirement of section 44AB is called tax audit.

The audit under section 44AB aims to ascertain the compliance of various provisions of the Income-tax Law and the fulfillment of other requirements of the Income-tax Law.

The chartered accountant conducting the tax audit is required to give his findings, observation, etc., in the form of audit report. The report of tax audit is to be given by the chartered accountant in Form Nos. 3CA/3CB and 3CD. The same is filed to the Income Tax Department.

Who is covered by tax audit?

Tax audit limit is provided in section 44AB. This limit may change every year by the Finance Act of that respective year.

Tax audit limit for financial Year 2015-16 or Assessment year 2016-17

The following persons need to get tax audit:

  1. If the person is carrying on business and the total sales/turnover/gross receipts exceeds  1 crore in the previous year; or
  2. If the person carrying on the business and opting for presumptive taxation under section 44AE (business of plying, hiring or leasing goods carriages) or 44BB(business of exploration, etc., of mineral oils.) or 44BBB(business of civil construction)and claiming his income from any such business to be lower than the income prescribed under the relevant section; or
  3. If the person carrying on the business referred to in section 44AD and claiming his income from such business to be lower than the income prescribed u/s 44AD and during such year his income exceeds the basic exemption limit.
  4. If the person is carrying on profession and the total gross receipts exceeds  25 lakh in the previous year

A snapshot

A snapshot

Tax audit limit for financial Year 2016-17 or Assessment year 2017-18

The following persons need to get tax audit:

  1. If the person is carrying on business and the total sales/turnover/gross receipts exceeds 1 crore in the previous year; or
  2. If the person carrying on the business and opting for presumptive taxation under section 44AE (business of plying, hiring or leasing goods carriages) or 44BB(business of exploration, etc., of mineral oils.) or 44BBB(business of civil construction)and claiming his income from any such business to be lower than the income prescribed under the relevant section; or
  3. If the person is carrying on the business and the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year
  4. If the person is carrying on profession and the total gross receipts exceeds  50 lakhin the previous year; or
  5. If the person is carrying on profession and computing profits on presumptive basis as referred to in section 44ADA and claiming his income from such profession to be lower than the income prescribed u/s 44ADA as well as his income exceeds the basic exemption limit

 Who Conducts Tax Audit?

The books of accounts for the relevant previous year are required to be audited by a Chartered Accountant before the specified date and the audit report obtained under this provision is required to be furnished by that date.

What is the due date for Tax audit?

The “specified date” prescribed for this purpose is due date of furnishing the return of income u/s 139(1) of the relevant assessment year.

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If a person is required by or under any other law to get his accounts audited, then is it compulsory for him to once again get his accounts audited to comply with the requirement of section 44AB?

Persons like company or co-operative society are required to get their accounts audited under their respective law. S ection 44AB provides that, if a person is required by or under any other law to get his accounts audited, then he need not again get his accounts audited to comply with the requirement of section 44AB.

Is such a case, it shall be sufficient if such person gets the accounts of such business or profession audited under such law and obtains the report of the audit as required under such other law and also a report by the chartered accountant in the form prescribed under section 44AB, i.e., Form No. 3CA and Form 3CD

What are the forms for Tax audit report?

Rule 6G prescribes the forms in which the report of the tax audit conducted by the chartered accountant is to be which are described below:

S.No.Form No.Particulars of reportDownload link
1Form 3CAAudit report under section 44AB of the Income – tax Act, 1961, in a case where the accounts of the business or profession of a person have been audited under any other law.Download
2Form 3CBAudit report under section 44AB of the Income – tax Act, 1961, in a case where the accounts of the business or profession of a person have not been audited under any other law.Download
3Form 3CDStatement of prescribed particulars to be furnishedDownload

What is the mode of submission of tax audit report?

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

upload income tax form

What is the penalty for not getting the accounts audited as required by section 44AB?

According to section 271B, if any person who is required to comply with section 44AB fails to get his accounts audited in respect of any year or years as required under section 44AB, the Assessing Officer may impose a penalty. The penalty shall be lower of the following amounts:

(a) 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such year or years.

(b) Rs. 1,50,000.

However, according to section 273B , no penalty shall be imposed if reasonable cause for such failure is proved.

Author’s Note: Please refer the GUIDANCE NOTE on Tax Audit Issued By ICAI for detailed comprehension of different terms.

Post in your queries, if any.

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