Income Tax Audit under Section 44AB: Criteria, Procedure & Due Dates
Income Tax Audit under Section 44AB: Criteria, Procedure & Due Dates
Tax audit refers to verifying the books of accounts maintained by a taxpayer. The purpose of tax auditing is to validate the income tax computation made by the taxpayer and to ensure compliance with tax laws. Under Section 44AB of the Income Tax Act, a tax audit is mandatory for businesses with a turnover above Rs.1 crore and professions with gross receipts exceeding Rs.50 lakhs in a financial year. Auditing of books of accounts must be carried out by a certified Chartered Accountant. In this article, we discuss the concepts of tax audit , Section 44AB of the Income Tax Act and the legal provisions governing the appointment of a tax auditor.
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File ITR Now!What is Section 44AB of the Income Tax?
Section 44AB of the Income Tax Act of 1961 deals with mandatory tax audits for certain taxpayers in India. It requires taxpayers whose business or professional income (turnover or gross receipts) exceeds a specified limit in a financial year to get their accounts audited by a chartered accountant. This audit verifies the accuracy of their income and deductions reported in the tax return, ensuring compliance with tax regulations.
Who is liable to do a tax audit under Section 44AB of the Income Tax?
The Income Tax Act, Section 44AB, mandates tax audits for two categories of taxpayers:
- Businesses: A tax audit becomes compulsory if a business’s gross turnover exceeds Rs. 1 crore in the preceding financial year.
- Professionals: Professionals whose gross receipts surpass Rs. 50 lakh in the preceding financial year are liable for a tax audit.
In the table below, we have given the other circumstances that taxpayers need to get their tax audits done,
| Category of Person | Threshold for Tax Audit |
| Business | |
| – Businesses not opting for presumptive taxation scheme | Exceeding Rs. 1 crore in total sales, turnover, or gross receipts during the fiscal year. If cash transactions represent up to 5% of total gross receipts and payments, the turnover threshold for a tax audit is raised to Rs. 10 crores (effective from FY 2020-21). |
| – Businesses eligible for Presumptive taxation under Sections 44AE, 44BB, or 44BBB | If profits or gains fall below the prescribed limit under the presumptive taxation scheme. |
| – Businesses eligible for Presumptive taxation under Section 44AD | Declaring taxable income below the prescribed limits under the presumptive tax scheme while having income exceeding the basic threshold limit. |
| – Businesses not eligible for presumptive taxation under Section 44AD due to opting out during the lock-in period | If income exceeds the maximum amount not subject to tax in the subsequent 5 consecutive tax years from the fiscal year when opting out of presumptive taxation. |
| – Business under the presumptive taxation scheme (Section 44AD) | Tax audit exemption if total sales, turnover, or gross receipts do not exceed Rs. 2 crore in the fiscal year. |
| Profession | |
| – Non-presumptive taxation scheme | Crossing Rs. 50 lakh in total gross receipts during the fiscal year. |
| – Presumptive taxation under Section 44ADA | 1. If profits or gains are lower than the prescribed limit under the presumptive taxation scheme. 2. If income surpasses the maximum amount, it is not subject to income tax. |
| Business Loss | |
| – Business loss without opting for presumptive taxation | Crossing Rs. 1 crore in total sales, turnover, or gross receipts. A tax audit is required if the taxpayer’s total income exceeds the basic threshold limit but incurs a loss from business operations (without opting for presumptive taxation). |
| – Business loss with presumptive taxation (Section 44AD) and income below the basic threshold limit | No tax audit is required. |
| – Business loss with presumptive taxation (Section 44AD) and income exceeding the basic threshold limit | Declaring taxable income below the prescribed limits under the presumptive tax scheme and having income exceeding the basic threshold limit. |
Who should Prepare Tax audit reports?
A Chartered Accountant or a firm of Chartered Accountants can conduct a tax audit. If it is performed by the latter, the name of the signatory who has signed the report on behalf of the firm must be stated in the audit report. The signatory must provide his/her membership number while registering in the e-filing portal. It can also be performed by the Statutory Auditor. It is important to note that Chartered Accountants have a limit on the number of tax audit reports that can be filed. The maximum number of audits that can be undertaken by a Chartered Accountant is limited to 60. In the case of a firm, the restriction on tax audit limit will be applicable for each partner.
Forms Required to Furnish Tax Audit Report
Any person who is required to get a tax audit would be required to furnish the following forms:
Form 3CA-3CD: This form is applicable for the person who is required to conduct an audit under any other law, like the Companies Act 2013
Form 3CB-3CD: This form is applicable to the person who is not mandated to conduct an audit under any other law.
How to File Your Tax Audit Reports?
Filing a tax audit report requires collaboration between a taxpayer and their Chartered Accountant (CA).
The process begins with the taxpayer assigning Form 3CA-3CD to their CA through the e-filing portal. Once assigned, the CA will electronically accept the form and then use an offline utility to complete it. After filling out the form, the CA will upload it and any supporting documents back to the e-filing portal for the taxpayer’s review.
Finally, the taxpayer will electronically verify the completed form using a digital signature certificate, which signifies their acceptance of the report. Upon successful submission, both the taxpayer and the CA will receive confirmation messages.
Due Date for Filing Tax Audit Report
The due date for completing and filing the tax audit report under section 44AB of the Income Tax Act is 30th September of the assessment year. Hence, if a taxpayer is required to obtain a tax audit, the assessee must file the income tax return on or before 30th September along with the tax audit report. If the taxpayer is also liable for transfer pricing audit, the due date for filing audit is 30th November of the assessment year.
Penalty for not filing a Tax audit report
If a taxpayer required to obtain a tax audit does not get the accounts audited, a penalty could be levied under Section 271B of the Income Tax Act. The penalty for not completing the tax audit is 0.5% of the turnover or gross receipts, subject to a maximum of Rs.1,50,000.
While failing to comply with audit requirements typically incurs a penalty, there are exceptions for reasonable causes. Tribunals and courts have recognized the following as reasonable causes:
- Natural disasters or calamities
- Resignation of the tax auditor, leading to a delay in completing the audit
- Extended labour issues such as strikes or lockouts
- Loss of accounting records due to circumstances beyond the taxpayer’s control
- Physical inability or death of the partner responsible for managing the accounts
How to Appoint a Tax auditor in your company?
The board of directors is responsible for appointing tax auditors to a company. The Board may also delegate this responsibility to any other officer, such as the CEO or CFO. Auditors in a firm or proprietorship can be appointed by a partner, proprietor or a person authorized by the assessee. Moreover, a taxpayer can appoint two or more chartered accountants as joint auditors for the tax audit. In this case, all the joint auditors must sign the audit report if all of them concur with the report. In case of any differences in opinion, the auditors must express their opinion separately through another report.
Who is not eligible for Tax auditor?
There are certain prohibitions on the appointment of tax auditors, which are enumerated below:
- Any member in part-time practice is not eligible to perform audit.
- A chartered account cannot audit the accounts of a person to whom he is indebted for more than Rs.10,000.
- A statutory auditor will be deemed to be guilty of professional misconduct if he/she accepts the appointment of a Public Sector Undertaking/Government Company/Listed Company and other Public Companies having turnover of Rs 50 crores or more in a year and accepts any other work, assignment or service regarding the same undertaking/company on a remuneration which in total exceeds the fee payable for carrying out the statutory audit of the same undertaking/company.
- The chartered accountant assigned the task of writing and maintaining the assessee’s books of account, who should not audit such accounts.
- Any partner or employee of a professional firm of Chartered Accountants cannot perform the audit of its accounts.
- An internal auditor of the assessee cannot be appointed as a tax auditor.
- An auditor cannot accept more than 45 audit assignments in a particular financial year.
Conclusion
Understanding tax audit requirements is crucial for businesses and professionals in India. Section 44AB of the Income Tax Act mandates audits for those exceeding specific turnover or gross receipt thresholds. The article details who needs a audit, how to appoint a qualified Chartered Accountant, and the filing process. Remember, timely completion avoids penalties and reasonable causes for delay exist.
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