Background :
Welcome to the blockbuster world of Tax Audit — where every figure has a backstory, every expense a mystery, and every In the ever-evolving landscape of business and taxation, Tax Audit stands as a crucial checkpoint between enterprise performance and regulatory compliance. It bridges the world of figures and fairness, ensuring that what businesses report truly reflects their economic reality. Mandated under Section 44AB of the Income Tax Act, and detailed through Rule 6G with Forms 3CA, 3CB, and 3CD, it examines whether books of accounts present a true and fair view of income and expenditures. Conducted only by a Chartered Accountant, a tax audit evaluates parameters like turnover, profitability, and adherence to tax laws.
Entrepreneurs often ask — Who is liable? What limits apply? How is the audit conducted? — questions that form the core of every compliance journey. Beyond a legal requirement, the tax audit is an analytical tool — converting raw financial data into meaningful insights that promote transparency, accountability, and fiscal discipline in India’s growing economy.
1. What is tax audit?
The dictionary meaning of the term “audit” is check, review, inspection, etc. 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. Section 4AB gives the provisions relating to the class of taxpayers who are required to get their accounts audited from a chartered accountant.
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 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 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.-
2. What is the due date by which a taxpayer should get his accounts audited?
A person covered by section 44AB should get his accounts audited and should obtain the audit report on or before 30th September of the relevant assessment year, e.g., Tax audit report for the financial year 2025-26 corresponding to the assessment year 2026-27 should be obtained on or before 30th September, 2026.
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-fling account with Income-tax Department (i.e., at https://www.incometax.gov.in/iec/foportal).
3. 44AB : Audit of accounts of certain persons carrying on business or profession.
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 ₹1 crore in any previous year :
Provided that in the case of a person whose—
(a) aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed 5% of the said amount; and
(b) aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent of the said payment,
this clause shall have effect as if for the words “₹1 crore“, the words”₹10 crore” had been substituted:–
Provided further that for the purposes of this clause, the payment or receipt, as the case may be, by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the payment or receipt, as the case may be, in cash; or
(b) carrying on profession shall, if his gross receipts in profession exceed ₹50 lakh 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:
Following first proviso shall be substituted for the existing first proviso to section 44AB by the Finance Act, 2023, w.e.f. 1-4-2024:
Provided that this section shall not apply to a person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD or sub-section (1) of section 44ADA:
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 date one month prior to the due date for furnishing the return of income under sub-section (1) of section 139.
Section 288(2) → Explanation.—
In this section, “accountant” means a chartered accountant as defined in section 2(1)(b) of the Chartered Accountants Act, 1949 who holds a valid certificate of practice u/s 6(1) of that Act, [ but does not include → you can refer Section 288 ]-
4. Rule 6G : Report of audit of accounts to be furnished under section 44AB.
Rule 6G : Report of audit of accounts to be furnished under section 44AB.
(1) The report of audit of the accounts of a person required to be furnished under section 44AB shall,—
(a) in the case of a person who carries on business or profession and who is required by or under any other law to get his accounts audited, be in Form No. 3CA;
(b) in the case of a person who carries on business or profession, but not being a person referred to in clause (a), be in Form No. 3CB.
(2) The particulars which are required to be furnished under section 44AB shall be in Form No. 3CD.
(3) The report of audit furnished under this rule may be revised by the person by getting revised report of audit from an accountant, duly signed and verified by such accountant, and furnish it before the end of the relevant assessment year for which the report pertains, if there is payment by such person after furnishing of report under sub-rules (1) and (2) which necessitates recalculation of disallowance under section 40 or section 43B.
5. Audit Report:
The audit report would be either as per the Form 3CA or Form 3CB. Form 3CA is for those persons whose accounts have been audited under any law other than the Income Tax laws, like the Companies Act, 2013. Form 3CB is for those persons whose accounts have not been audited under any other law. So we can say, this is for the people who are audited under the provisions of the Income Tax Act, 1961.-
6. Statement of Particulars:
The statement of particulars would be as per Form 3CD and is also the focus of our article. This Form has a total of 44 clauses where the auditor has to report on the various matters contained therein. These clauses have been divided into two parts – Part A covers the basic factual details about the assessee Part B contains the particulars of various compliances under the income tax laws that need to be furnished.
7. 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 or furnish such report 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 271B, no penalty shall be imposed if reasonable cause for such failure is proved.-
8. The practical process of a tax audit
The practical process of a tax audit begins with appointing a Chartered Accountant under Section 44AB, who examines whether the taxpayer falls within audit limits. The auditor collects books of accounts, bank statements, invoices, bills, contracts, and financial statements. Key focus areas include income recognition, allowable expenses, tax deductions, TDS compliance, and adherence to accounting standards.
Using the Income Tax Department’s e-filing utility, the CA prepares Form 3CD, which captures turnover, nature of business, loans, related-party transactions, cash receipt limits, compliance with GST, accounting policies, and deviations. Depending on the case, Form 3CA (when accounts are audited under any other law) or Form 3CB (when not audited under any other law) is used. The utility performs automated validations, reducing errors and ensuring compliance with Rule 6G.
During the audit, the CA may analyze ratios, verify receipts, reconcile bank accounts, and check for unrecorded income or cash transactions exceeding 5%. Observations are documented, and any non-compliance or misstatements are highlighted. After thorough review, the auditor signs the report electronically and submits it via the Income Tax e-filing portal, generating an acknowledgment. Practically, tax audit is both a compliance requirement and analytical tool, converting raw financial data into verified, law-compliant information.
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