Before diving into whether you need your books to be audited under Section 44AB, let’s understand the meaning of Tax Audit. Tax audit refers to the examination of a taxpayer’s accounts. This examination of books of accounts is conducted for ensuring that such taxpayer has maintained his books of accounts as well as other records in a proper manner. This audit also ensures that the books of accounts of such taxpayer truly reflect the income earned by him. A tax audit is basically a measure initiated to check fraudulent tax practices.
An individual is subjected to a tax audit if the sales, gross receipts, or turnover from his business is more than INR 1 crore in the financial year (this limit was increased to INR 5 crore, subject to the condition that cash payments and receipts during the financial year doesn’t exceed 5 percent of the taxpayer’s total receipts and payments). Also, refer to the Budget 2021 update below.
However, an individual might be required to get his books of accounts audited in certain other circumstances listed below:
If you’re required to get your books of accounts audited under Section 44AB, you need to file the income tax audit report by 30th September of the relevant assessment year. You need to mandatorily e-file your income tax audit report and furnish all the relevant details as required.
If you are required to get your books of accounts audited under Section 44AB and you fail to do so, you will be liable to pay a penalty of 0.5 percent of your total turnover which you would have earned in the relevant financial year. However, this penalty cannot exceed INR 1.5 lakhs.
In case you’re able to provide that you have a legitimate reason, then no penalty would be levied as per the provisions contained in Section 271B.
In Budget 2021 session, the Indian Finance Minister, Mrs. Nirmala Sitharaman offered a major relief for the companies transacting digitally. In a bid to curb non-cash transaction and incentive digital payments while reducing the compliance burden of SMEs, the union government has now extended the threshold limit from earlier INR 5 crore to INR 10 crore.