Articles deals with Income Tax Audit Provisions in India. It explains What is tax audit, objective of tax audit, who is compulsorily required to get his accounts audited, What are Form Nos. 3CA/3CB and 3CD, Due Date for Tax Audit, penalty for not getting the accounts audited as required by section 44AB.

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 44AB 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.

What is the objective of tax audit?

One of the objectives of tax audit is to ascertain/derive/report the requirements of Form Nos. 3CA/3CB and 3CD. Apart from reporting requirements of Form Nos. 3CA/3CB and 3CD, a proper audit for tax purposes would ensure that the books of account and other records are properly maintained, that they faithfully reflect the income of the taxpayer and claims for deduction are correctly made by him. Such audit would also help in checking fraudulent practices. It can also facilitate the administration of tax laws by a proper presentation of accounts before the tax authorities and considerably save the time of Assessing Officers in carrying out routine verifications, like checking correctness of totals and verifying whether purchases and sales are properly vouched for or not. The time of the Assessing Officers saved could be utilised for attending to more important and investigational aspects of a case.

As per section 44AB, who is compulsorily required to get his accounts audited, i.e., who is covered by tax audit?

As per section 44AB, following persons are compulsorily required to get their accounts audited :

  • A person carrying on business, if his total sales, turnover or gross receipts (as the case may be) in business for the year exceed or exceeds Rs. 1 crore.
  • A person carrying on profession, if his gross receipts in profession for the year exceed Rs. 50 lakhs.
  • A person who is eligible to opt for the presumptive taxation scheme of section 44AD (*) but claims the profits or gains for such business to be lower than the profits and gains computed as per the presumptive taxation scheme of section 44AD and his income exceeds the amount which is not chargeable to tax.
  • If an eligible assessee opts out of the presumptive taxation scheme, after specified period, he cannot choose to revert back to the presumptive taxation scheme for a period of five assessment years thereafter.
  • A person who is eligible to opt for the presumptive taxation scheme of section 44ADA (*) but he claims the profits or gains for such profession to be lower than the profit and gains computed as per the presumptive taxation scheme and his income exceeds the amount which is not chargeable to tax.
  • A person who is eligible to opt for the presumptive taxation scheme of sections 44AE (*) but he claims the profits or gains for such business to be lower than the profits and gains computed as per the presumptive taxation scheme of sections 44AE.
  • A person who is eligible to opt for the taxation scheme prescribed under section 44BB (*) or section 44BBB (*) but he claims the profits or gains for such business to be lower than the profits and gains computed as per the taxation scheme of these sections.
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(*) section 44BB is applicable to non-resident taxpayers engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire basis to be used in exploration of mineral oils. section 44BBB is applicable to foreign companies engaged in the business of civil construction or erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project.

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. Section 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 Form Nos. 3CA/3CB and 3CD?

The report of the tax audit conducted by the chartered accountant is to be furnished in the prescribed form. The form prescribed for audit report in respect of audit conducted under section 44AB is Form No. 3CB and the prescribed particulars are to be reported in Form No. 3CD.

In case of persons covered under previous FAQ, i.e., who are required to get their accounts audited by or under any other law, the form prescribed for audit report is Form No. 3CA and the prescribed particulars are to be reported in Form No. 3CD.

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 the due date of filing of the return of income, i.e., on or before 30th September (*) of the relevant assessment year, e.g., Tax audit report for the financial year 2013-14 corresponding to the assessment year 2014-15 should be obtained on or before 30th September, 2014.

(*) In case of a taxpayer who is required to furnish a report in Form No. 3CEB under section 92 in respect of any international transaction or specified domestic transaction, the due date of filing the return of income is 30th November of the relevant assessment year.

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 www.incometaxindiaefiling.gov.in).

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.

 

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21 responses to “Income Tax audit under section 44AB​: FAQs”

  1. Ankit says:

    1) What if share trading is more than 2crore in a year.
    2) Dairy receipts is more than 2crore in a year but whatever money he is collected paid to amul (from he purchased milk) and remaining commission is only 250000 a year.

  2. Rishabh says:

    What will happen if we Didn’t pay our audit penalty ?? ( don’t have that much money 1/2% of turnover.. We worked as a commission agent but according to agreement we are falling into section 44ab )

  3. Anmol Agrawal says:

    Under which section or rule of income tax act 1961 the following is specified.
    “while audit report become valid on acceptance by assessee, date of upload would be treated as date of filing”

  4. Abhrakesh Mankad says:

    If I was required for Tax Audit us 44AB in AY 1516 as turnover was above Rs 1 Crore. Now in AY 1617 Turnover was 80 lacs and AY 1718 my turnover is less than Rs 2 crore is it mandatory for Tax Audit US 44AB on the ground that I was covered us 44AB once in AY 1516?

    • ashish kochar says:

      I an having a turnouvr less than 1 r.but in this financil year m selling my property can i fill itr in 44ad .itr 4sugam farm

  5. SURESH JAIN ADV says:

    MY BUSINESS PROFIT IS LESS THAN 8%. UNDER WHICH SECTION OF 44AB CA WILL AUDITED THE ACCOUNTS BECAUSE U/S 44AB THE WORD PROFESSION IS INSERTED AND WORD BUSINESS IS INSERTED.

  6. Rani says:

    Sir/madam,

    we have recently started partnership firm we have not yet applied for S.Tax number but we have got TAN and PAN Number .
    We are into event management company, we have done two small event to client and raised an invoice of 1,20,000/- two different invoice without adding s.tax.
    we have spent money on place permission charges around 90,000/-rs and remaining on promoters and our charges.
    client has done 50% advance without and TDS deduct but after completing he has done payment by deducting 12,000/-rs ()10% of total invoice) and said its TDS which was not informed before or at the time of part payment done now its more then 20 days no TDS certificate is given.
    But my question how TDS can be deducted on total value of invoice because my cost is only 1 lack spent my margin is 12-15k not more then that since its been started in month of January 2017 we have note done more business bank turnover is not more then 2.5 lack.
    please let me know what to do in this case. TDS should be deducted on my contract payment or on my expenses? TDS is applicable for us or not? with in how many days should client give that TDS certificate?

    Client has not taken our TAN number how he can deduct TDS.
    please let me know what to do next.

  7. MURALIDHARAN says:

    Dear Mr Sereen

    What is your turn over

  8. Sreen says:

    Last FY 2015-16, I had intrady trading of stocks LOSS of 16 lcs and had filed through CA with Audit report.

    This Financial I have ntraday stock trades loss -13,000/.

    Intraday Stocks Trurnover = 43,00./-
    —-
    So, please advise if I still need Tax Audi this year (FY:2016-17) as well, because profit is less than
    8% of Turnover that less than a 1 Cr.

    Which ITR can I use if no Tax Audit for self filing.

    Thanks in advance.

  9. Jigar Samani says:

    Dear Professional Colleagues, For Financial Year 2016-17, i have filed Tax Audit Report on say 17/05/2017. As on this date TDS for F.Y. 2016-17 was outstanding and not paid by assessee as he has applied for TAN, so While filing of Tax Audit Report we have shown dat TDS is not paid. Now after filing Tax Audit Report but before filing of ITR (Within Due Date i.e. 30/09) TDS has been paid. Is there any consequences?

  10. Radhakrishnan says:

    What constitute “gross receipt” u/s 44AB in the case of an employees credit co-operative Society? Is It the interest income or net interest income?

  11. saurabh says:

    I am medical doctor working for an instutution . I am on consultancy basis and my TDS is deducted . In which category of taxation do I fall. My yearly income is less than 50 lacs Rs.

    • MURALIDHARAN says:

      Dear Mr Saurabh
      You should file your return as a consultant only. If you are also in receipt of salary from an entity that can be classified as salary. ITR 4 should be filed.

  12. ptnair says:

    my turnover for last two previous year was above the limit of audit,but now it is not in the limit whether I am liable to get my books audited

  13. akash vajpai says:

    TAX PROBLEM ??? CALL 9711904919

  14. Dinkar Pagare says:

    How is profit determined on presumptive basis under Sec. 44AD, 44AE, 44AF? Please!

  15. KALPESH says:

    Our TDS Deducted u/s 194 H total Turnover of our Bill above 25 lakhs for run the CNG Pump Adani Gas Ltd.whether audit compulsory or not?

  16. Kanhaiya Chaudhary says:

    K L Salawat Says

    You can choose the method valuation of inventory at market price but you will have to mention the change valuation in inventory in audit report U/s 44AB

  17. k l salawat says:

    sir for valuation of inventory method of valuation if we are adopting on market value is it acceptable.

  18. C,C,Dayal says:

    Sir,
    If a Partnership firm of professionals get their accounts audited under S.44AB, and the remuneration of each Partner is less than Rs.25 lakhs but the share of profit (tax paid by the firm) of each of the Partners is more than Rs. 25 lakhs, are the Partners individually required to get their accounts audited under S. 44AB?
    many thanks.
    C. C. Dayal.

  19. akash vajpai says:

    If you have any tax related query you can mail me at akashvajpai24@gmail.com. Answer will be given in 24 hours.

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