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What is an income tax audit under section 44AB?

In India, various laws govern different types of audits like statutory audit, stock audit, cost audit. The core purpose of these audits is to ensure that the books of accounts are free from any error mentioned in the particular law. Similarly, Income Tax Act provides for tax audit under section 44AB.

Applicability of Tax Audit

A taxpayer must undergo a tax audit of his books of accounts if the sales, turnover, or gross receipts exceeds Rs 1 crore in a financial year.

The threshold limit of Rs 1 crore for a tax audit is proposed to be increased to Rs 5 crore with effect from AY 2020-21 (FY 2019-20) if the taxpayer’s cash receipts are limited to 5% of the gross receipts or turnover, and if the taxpayer’s cash payments are limited to 5% of the aggregate payments.

Income Tax Audit

A taxpayer might have to comply with tax audit provisions in other scenarios as well. The following are all such scenarios in which an income tax audit is mandatory:

Category Of Person Threshold
Carrying on business ( not opting for presumptive taxation scheme) Total sales, turnover or gross receipts exceed Rs 1 crore in the FY
A person who is carrying on a business that is eligible for presumptive taxation under Section 44AD


The taxpayer declares taxable income that is less than the presumptive scheme and has income exceeding the basic threshold limit.
Carrying on business  –  The business is eligible for presumptive taxation under Section 44AE, 44BB or 44BBB The taxpayer claims profits or gains which is less than the prescribed limit.
Carrying on the business and is not eligible to claim presumptive taxation under Section 44AD due to opting out for presumptive taxation in any one financial year of the lock-in period i.e. 5 consecutive years from when the presumptive tax scheme was opted If income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for.
Carrying on business which is declaring profits as per presumptive taxation scheme under Section 44AD Total sales, turnover or gross receipts is less than Rs 2 crore in the financial year
Carrying on Profession Total gross receipts exceed Rs 50 lakh in the financial year
Carrying on Profession. The business is eligible for presumptive taxation under Section 44ADA The taxpayer claims profits or gains which is less than the prescribed limit u/s 44ADA and The total income exceeds the basic exemption limit.

Penalty for non-compliance to tax audit provisions u/s 44AB

If any taxpayer who is required to get the tax audit done but fails to do so, the least of the following may be levied as a penalty:

  • 5% of the total sales, turnover or gross receipts
  • Rs 1,50,000

However, if there is a reasonable cause of such failure, no penalty shall be levied under section 271B.

The reasonable causes that are accepted by Tribunals/Courts are:

  • Natural Calamities
  • Resignation of the Tax Auditor and Consequent Delay
  • Labour problems such as strikes, lock-outs for an extended period
  • Loss of Accounts because of situations beyond the control of the Assesses
  • Physical inability or death of the partner in charge of the accounts

Due Date of Filing Tax Audit Report

The due date to furnish the tax audit report for FY 20-21 is extended to 31st Oct 2021 (extended from 30th September 2021), the audit report for transfer pricing cases is extended to 30th Nov 2021.

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One Comment

  1. Jothi Ramalingam says:

    To confirm whether books of accounts are maintained or not? Even in TAX AUDIT cases books are not maintained. By editing the previous year’s Excel work sheet with current year”s figures the statement of accounts are prepared. BECAUSE THERE IS NO SCRUITINY.

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May 2024