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Section-44AB

Section 44AB of Income Tax Act

Section 44AB of Income Tax Act

Section 44AB of the Income Tax Act contains provisions pertaining to the tax audit under the Income Tax Audit. A tax audit is an examination of a taxpayer’s books of accounts.  The examination is conducted to ensure that the taxpayer has properly maintained the books of accounts and other records. Also, the books of accounts should truly reflect the income earned by the taxpayer. During the tax audit, the person responsible for issuing the tax audit report should verify whether the assessee has complied with various requirements like filing of income tax returns, accurate specification of claim and income tax deductions, and so on. A tax audit is a measure which is initiated to curb fraudulent tax practices. Tax audit must be carried out by a practising chartered accountant. This article provides an overview of Section 44AB, which deals with the concept of a tax audit.

Section 44AB

Section 44AB of the Income Tax Act is reproduced below for reference:
44AB. Every person,—
(a)  carrying on business shall, if his total sales, turnover or gross receipts, 
as the case may be, in business exceed or exceeds one crore rupees in any previous year; or
(b)  carrying on profession shall, if his gross receipts in profession exceed 50 lakh rupees 
in any previous year; or
(c)  carrying on the business shall, if the profits and gains from the business are deemed 
to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, 
as the case may be, and he has claimed his income to be lower than the profits or gains so deemed 
to be the profits and gains of his business, as the case may be, in any previous year; or
(d)  carrying on the profession shall, if the profits and gains from the profession are deemed 
to be the profits and gains of such person under section 44ADA and he has claimed such income to be 
lower than the profits and gains so deemed to be the profits and gains of his profession and his income 
exceeds the maximum amount which is not chargeable to income-tax in any previous year; or
(e)  carrying on the business shall, if 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,
get his accounts of such previous year audited by an accountant before the specified date and furnish by that date 
the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth 
such particulars as may be prescribed :
Provided that this section shall not apply to the person, who declares profits and gains for the previous year 
in accordance with the provisions of sub-section (1) of section 44AD and his total sales, turnover or gross receipts, 
as the case may be, in business does not exceed two crore rupees in such previous year:
Provided  further that this section shall not apply to the person, who derives income of the nature referred to in 
section 44B or section 44BBA, on and from the 1st day of April, 1985 or, as the case may be, the date on which the 
relevant section came into force, whichever is later :
Provided also that in a case where such person is required by or under any other law to get his accounts audited, 
it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such 
business or profession audited under such law before the specified date and furnishes by that date the report of 
the audit as required under such other law and a further report by an accountant in the form prescribed under this section.
Explanation.—For the purposes of this section,—
 (i)  "accountant" shall have the same meaning as in the Explanation below sub-section (2) of section 288;
(ii)  "specified date", in relation to the accounts of the assessee of the previous year relevant to an assessment year, 
means the due date for furnishing the return of income under sub-section (1) of section 139

Applicability of Section 44AB

The following persons are required to perform a tax audit with the assistance of a chartered accountant:

  1. Any person pursuing business and whose total turnover or gross receipts exceed a sum of 2 crore rupees in any previous year (However, this provision is not applicable to the persons who opts for presumptive taxation scheme).
  2. Any person pursuing a profession and whose gross profits exceed fifty lakh rupees in any previous year.
  3. A person who is considered eligible for the presumptive taxation scheme, and who claims that the profits and gains for the respective business is lower than what is computed in accordance with the presumptive taxation scheme and his/her income exceeds the amount that is taxable. This provision is applicable to the taxpayers who opt for presumptive taxation scheme other than the one who choose the scheme under Section 44AD and whose sale or turnover is limited to Rs 2 crores.

Taxpayers should note that certain entities like a company or co-operative society must get their accounts audited under specific laws. Such entities are not required to undergo another tax audit under Section 44AB. Given this scenario, the concerned taxpayer merely needs to obtain and furnish the particular audit report, supported by a report of a chartered accountant in either Form 3CA or 3CB. The particulars for the same must be reported in Form 3CD.

Tax Audit under Section 44AB

The audited accounts must be reported by a Chartered Accountant in the prescribed forms.  The audit report should be inclusive of the findings, observations and so on. Audit report in respect of audit conducted under Section 44AB must be prepared in Form No. 3CB and the particulars of the audit must be reported in Form 3CD. Tax audit reports for those persons who are necessitated to get their accounts audited by or under any other law must be prepared in Form 3CA/3CB and the particulars for the same must be reported in Form 3CD. The tax audit report must be electronically filed by the chartered accountant, after which the taxpayer is required to approve the submitted reports using the e-filing account.

Due Date for Tax Audit

The auditing of accounts, as well as the submission of reports, must be completed on or before the 30th of September of the particular financial year.

Penalty under Section 44AB

Any person who does not get the accounts audited will be imposed with a penalty of:

  • 0.5% of the total sales in business or 0.5% of the total receipts in the profession of the current financial year.
  • A sum of Rs 1,50,000

The lower among the above will be levied as a penalty.

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