A tax audit, as required under Section 44AB of the Income-tax Act, mandates certain taxpayers to have their accounts audited by a chartered accountant. This audit aims to ensure compliance with tax laws and accurate reporting of income and deductions. Taxpayers who exceed specified thresholds, such as those with business turnovers exceeding ₹1 crore or professional receipts over ₹50 lakhs, must undergo this audit. Exemptions exist for those covered by other statutory audits, provided they comply with Section 44AB’s reporting requirements using Forms 3CA/3CB and 3CD. The audit report must be obtained by September 30 of the assessment year and filed electronically. Failure to comply with the audit requirements can result in a penalty of up to ₹1,50,000 or 0.5% of total turnover, whichever is lower, though penalties may be avoided if reasonable cause is demonstrated.
Q1. What is tax audit?
Ans: 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.
Q2. What is the objective of tax audit?
Ans: 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 truly 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.
Q3. As per section 44AB, who is compulsorily required to get his accounts audited, i.e., who is covered by tax audit?
Ans: 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. This provision is not applicable to the person, who opts for presumptive taxation scheme under section 44AD and his total sales or turnover doesn’t exceed Rs. 2 crores.
Note: The threshold limit, for a person carrying on business, is increased from Rs. 1 Crore to Rs. 10 crores in case when cash receipt and payment made during the year do not exceed 5% of total receipt or payment, as the case may be. In other words, more than 95% of business transactions should be done through banking channels. - A person carrying on profession, if his gross receipts in profession for the year exceed Rs. 50 lakhs.
- An assessee who declare profit for any previous year in accordance with section 44AD and he decreases profit for any of one 5 assessment year relevant to the previous year succeeding such previous year lower than the profit computed as per 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, within the aforesaid period, he cannot choose to revert back to the presumptive taxation scheme for a period of five assessment years thereafter.
(*) For provisions of section 44AD refer tutorial on “Tax on presumptive basis in case of certain eligible business”.
- 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.
- This provision does not apply to the person, who opts for presumptive taxation scheme under section 44AD/ section 44ADA
(*) For provision of section 44ADA, refer tutorial on “Tax on presumptive basis in case of certain eligible business”
- 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.
(*) For provisions of sections 44AE refer tutorial on “Tax on presumptive basis in case of certain eligible business”.
- 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.
(*) 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.
Q4. 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?
Ans: 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 (refer to next FAQ for relevance of these forms).
Q5. What are Form Nos. 3CA/3CB and 3CD?
Ans: 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.
Q6. What is the due date by which a taxpayer should get his accounts audited?
Ans: 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 2022-23 corresponding to the assessment year 2023-24 should be obtained on or before 30th September, 2023.
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).
Q7. What is the penalty for not getting the accounts audited as required by section 44AB?
Ans: 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.
My turnover is 93 lakh, I have receipts and payment in cash above 5 percent. My gross taxable income is more then exempted limit. My net profit percentage is 3 percent. Am I required to get my accounts audited
I am related to IT , GST return and accounts work and finalisation of a/cs in Tally Prime . My contact number 8017272965 . Please do call me for IT return or GST filing or finalistion of books of account .
What is tax audit limit for ay 2021-22 if more than 95% through banking channel
If tax audit was done in previous year and there was a turnover greater than 1 cr. But this year, there is net loss, is it required to do tax audit?
You require tax audit if turnover is above 1crore even then is loss. (I am assuming your aggregate payment or receipt in cash exceed 5% of total receipt or payment.)
If turnover is less than 1 cr. and opted out of presumption taxation, and done audit during FY 2019-20, whether during FY 2020-21 audit is compulsory. Audited Business Income/profit is below taxable limit but other income bank intrest cross the Income above 5lac on FY 2019-20? Please Suggest.
I am reporting my Income under 44AD. Due to corona, hospitality industry is in doldrums. Now we are incurring lossess.In normal years my turnover is below 50 lacs.But for the F.Y. 2020-21 I have incurred huge losses. If I report loss than I have to get my accounts audited and at the same time for next five years I can not use presumptive taxation. On the one hand it’s killer corona and on the other the audit fee for next five years @30000+gst+ yearly increase .I have a submission that small taxpayers woos are not reflected in any discussuions whether at any forums or at govt. level. I request you to raise this issue with CBDT and Government . If they can not give any help ,atleast they can consider this problem, so that in future I may be able to fill my return under 44AD.
@Ramesh Chandra Pandey.. If you income is below taxable limit (loss is below taxable) you need not get your account audited.
Previous years accounts audited u/s 44AB current year below audit limit still tds to be deducted for this year
TDS liability does not depend on audit but it depends on Turnover. So if you had required turnover in preceding year you have to deduct TDS in current year irrespective of Audit.
If the assessee turnover exceeds 1cr but assessee declare prifit above 8%. Can assessee is liable to get his account audited.
@Anuj Kumar.. If your turnover is below Rs. 2 cr need not get your books of account audited if you declare 8% or more.
Is Tax Audit applicable , if company has no turnover during the year and also during the year preceding the previous year and sold all its asset for a lumpsum consideration ?
I Have Agriculture related firm and my turnover for last 3 years more than 2 crore and also i have audited my account from CA for last 3 years, but this year our firm turnover is below 35 lakhs shall i audit the accounts with CA’s or go to 44AD for presumptive taxation ?
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My business is transportation by road and Proparitor ship firm it is required to audit,
turn over 1.53 Cr
i need income tax book Ay 2019-2020 as free download from where i can get it? reply or send a copy to [email protected]
Thanks
Giri
I had a lot of trouble last year in tax returns because of my investments. This was helpful thanks.
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Dear Sir, my father has a medicine wholesale business, his previous year turnover is below 1 crore. As the net profit margin is 3-4 %, so, can he file ITR-3 without audit under 44AB as turnover is less than 1 crore and declare an income less than 6-8%.
I want as question: If any Pvt. Ltd. co. is not formed balance sheet previous three years and not filled ITR what will be penalty.
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.
Aisa to kahin nhi likha h section 44AD amended by finance act 2017 me.
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form BB is applicable for individual if individual do not comes in sec 44AB
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.
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 )
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”
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?
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.
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.
Dear Mr Sereen
What is your turn over
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.
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?
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?
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.
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
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How is profit determined on presumptive basis under Sec. 44AD, 44AE, 44AF? Please!
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?
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
sir for valuation of inventory method of valuation if we are adopting on market value is it acceptable.
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.
If you have any tax related query you can mail me at [email protected]. Answer will be given in 24 hours.