What is Income Tax Audit & what does different section indicates under Income Tax Audit (Section like 44AB OR 44AD OR 44ADA)

WHAT IS TAX AUDIT?

There are different types of audit under different laws such as company audit, statutory audit, cost audit conducted under Companies Act, 2013, Income Tax Act etc. In Income Tax there is ‘Tax Audit’.

In Tax Audit, as it suggests it is the examination of accounts of business or any person liable to pay tax. It helps to calculate return of income easier .

OBJECTIVES OF TAX AUDIT:

There are various objectives of tax audit which are as follows:

1. To ensure proper exactness of books of accounts by the tax auditor.

2. Reporting the finding by tax auditor on the examination of the books of account.

3. To disclose all the information such as tax liability and to ensure compliance all the provision of Income Tax etc.

What is Income Tax Audit and what does different section indicates

SECTION 44AB:

Section 44AB deals with the applicability of Tax Audit. It talks about the persons who has to conduct audit by Chartered Accountant on meeting certain criteria.

So in simple words, if any individual who meets such criteria specified under Section 44AB, then such individual has to ensure that his/her accounts are being audited by the Tax Auditor (i.e. Chartered Accountant). It makes easier for Assessing Officer to calculate the tax liability of such individual.

APPLICABILITY OF SECTION 44AB:

Section 44AB is applicable in following situations:

1. If total income or turnover of any individual is more than the limit permitted, regardless of their turnover for previous financial years.

2. If the income of any individual is lower than the taxable limit but income from business is more than the taxable limit.

3. If the taxable limit of any individual is in limit but the Assessing Officer wants to conduct tax audit of such individual.

PRESCRIBED LIMIT

1. In case of business Tax Audit is applicable if you carry

  • Normal (in case of a company) – Limit is Rs. 1 Cr.
  • Presumptive Business (in case of individual HUF or Firm) – Limit is Rs. 2 Cr.

2. In case of profession – where the gross receipts exceed Rs. 50 lacs

SECTION 44AD:

This section works as a benefit to the individual, it provides relief to the taxable person so that they don’t need to get an audit.

It is benefitted to small tax payers especially, it eases the tax burden on them. Individual who opts for scheme under this section does not require to maintain any books or accounts or is not liable to show books, even they don’t need to get an audit done.

APPLICATION OF SECTION 44AD:

  • Any business can opt scheme under this section, except business which deals in leasing, plying or renting of goods.
  • Any individual or Hindu Undivided Family who is resident can also opt scheme under this section.
  • LLP is not eligible to get any deductions under this section.
  • Any assesse who want to file return under this section then the return shall be filed at 8% or above.
  • Section 44AD is not applicable to the assesse who carry on the profession mentioned in Section 44AA.

SECTION 44ADA:

This section was introduced in FY 2016-2017 as a scheme for presumptive taxation. This section provides simple taxation method to small professionals. Section 44ADA offers a scheme to professions mentioned under section 44AA of Income Tax Act, 1961.

The benefit under this section can only be taken if annual gross receipts are under Rs. 50 lakh.

ASSESSEES ELIGIBLE FOR THE SECTION 44ADA:

Following Indian assesse are eligible for the section 44ADA:

1. Individual;

2. HUF;

3. Partnership firms (except LLP).

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Author- Adv.Shivam Kumar | Legal and content Executive, Taxblock India Pvt. Ltd

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Taxblock India Private Limited, founded in 2019, is a fintech startup located in Pune, Maharashtra. We are enrolled as an E-Return Intermediary with Income Tax Department & have established an In-House team of Technology & Tax Experts to build a “Financial Compliance Ecosystem” for Indi View Full Profile

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