Audit of accounts is a crucial compliance requirement for businesses and professionals under the Income Tax Act, 1961. Section 44AB mandates tax audits for certain persons based on their turnover, receipts, or profits. In this article, we will explore the applicability, provisions, limits, and key aspects of tax audits under Section 44AB.
What is a Tax Audit Under Section 44AB?
A tax audit under Section 44AB refers to the examination of accounts of businesses and professionals to verify compliance with income tax laws. The audit ensures the correctness of income, deductions, and calculations, helping the Income Tax Department assess tax liability accurately.
Who is Required to Get a Tax Audit Under Section 44AB?
The requirement to undergo a tax audit applies to businesses and professionals based on specific financial criteria:
1. Businesses (Clause a & e of Section 44AB)
A person carrying on business must get their accounts audited if:
- Their total sales, turnover, or gross receipts exceed ₹1 crore in a financial year.
- However, if the person’s cash receipts and payments (including sales and expenses) do not exceed 5% of total receipts and payments, the audit limit increases to ₹10 crore.
Additionally, businesses opting for presumptive taxation under Section 44AD but declaring lower income than the prescribed 8%/6% and whose total income exceeds the taxable limit must also undergo a tax audit.
2. Professionals (Clause b & d of Section 44AB)
A person carrying on a profession must get their accounts audited if:
- Their gross receipts exceed ₹50 lakh in a financial year.
- If they opt for presumptive taxation under Section 44ADA but declare income lower than the prescribed limit (50%) and their total income exceeds the basic exemption limit, a tax audit is required.
3. Assessees Claiming Lower Income Than Presumptive Taxation (Clause c of Section 44AB)
Businesses opting for Section 44AE (Transporters), Section 44BB (Non-resident oil & gas companies), or Section 44BBB (Foreign turnkey projects) and declaring lower income than deemed profits must undergo an audit.
4. Special Cases (Other Laws and Exceptions)
If an assessee is already required to get their accounts audited under any other law (e.g., Companies Act), then compliance with that audit is sufficient, provided a separate tax audit report is also furnished.
Section 44AB does not apply to persons declaring income under Section 44B (Shipping) or Section 44BBA (Air Transport).
Forms for Filing a Tax Audit Report
The tax auditor must furnish the report in the prescribed forms:
- Form 3CA & 3CD – For persons who are required to get audited under any other law.
- Form 3CB & 3CD – For persons who are only required to get audited under Section 44AB.
Tax Audit Due Date
The tax audit report must be submitted one month before the due date for filing the income tax return (ITR). Generally:
- For individuals and firms (not requiring a transfer pricing report) – 30th September of the assessment year.
- For companies and other entities requiring a transfer pricing audit – 31st October of the assessment year.
Penalty for Non-Compliance with Section 44AB
Failure to conduct a tax audit as per Section 44AB can result in a penalty under Section 271B, which may be:
- 0.5% of total sales, turnover, or gross receipts
- Maximum penalty: ₹1,50,000
- No penalty if a reasonable cause is proven for non-compliance.
Conclusion
A tax audit under Section 44AB of the Income Tax Act is essential for ensuring transparency in financial records and compliance with income tax act. Businesses and professionals should assess their eligibility based on turnover, receipts, and cash transactions to determine whether an audit is required. Timely filing of tax audit reports helps avoid penalties and ensures smooth tax compliance.
For expert guidance on tax audits, consult a Chartered Accountant (CA) to ensure proper filing and compliance.
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