Broadly speaking, a ‘tax audit’ is a method to verify the correctness of books of accounts prepared by the taxpayer. It ensures that books of accounts and other records are duly maintained and, accordingly, income of the taxpayer is correctly computed. It also enables keeping a check on fraudulent practices.
Notably, tax audit under section 44AB of the Income Tax Act gets applicable as and when any taxpayer crosses the specified threshold limit or meets other specifications. Consequently, a tax audit is to be undertaken by an appointed Chartered Accountant.
The present article tries to simplify all the provisions related to tax audit under section 44AB of the Income Tax Act.
Page Contents
- Applicability of tax audit as per provisions of section 44AB of the Income Tax Act –
- Non-applicability of provisions of section 44AB of the Income Tax Act –
- Audit report of accounts to be furnished under section 44AB of the Income Tax Act –
- Due date of furnishing of a tax audit report –
- Penalty for non-compliance with the provisions of section 44AB of the Income Tax Act –
- Frequently Asked Questions (FAQs) on Section 44AB of Income Tax Act – Tax Audit
Applicability of tax audit as per provisions of section 44AB of the Income Tax Act –
The following table summarizes the applicability of provisions of section 44AB of the Income Tax Act –
|
Business/ profession |
Section 44AB applicability criteria |
| Business | Total sales, turnover or gross receipts exceed/ exceeds INR 1 Crore in any previous year. |
| Business | Total sales, turnover or gross receipts exceed/ exceeds INR 10 Crore in any previous year, if the following conditions are satisfied –
1. Aggregate cash receipts (including receipts for sales/ turnover/ gross receipts) don’t exceed 5% of total gross receipts; and 2. Aggregate cash payments (including payment incurred for expenditure) don’t exceed 5% of total payments. |
| Business covered under section 44AE/ section 44BB/ section 44BBB | Taxpayer eligible to opt for presumptive taxation under section 44AE or section 44BB or section 44BBB, however, claims the profit and gains lower than the deemed profit and gains, as specified, in any previous year. |
| Business covered under section 44AD(4) | The income of the taxpayer exceeds the maximum amount not chargeable to tax in any previous year. |
| Profession | Gross receipts in profession exceed INR 50 Lakhs in any previous year. |
| Profession covered under section 44ADA |
|
Non-applicability of provisions of section 44AB of the Income Tax Act –
Tax audit provisions under section 44AB will not be applicable under the following circumstances –
1. Taxpayer declaring profit and gains in accordance with the provisions of section 44AD(1) of the Income Tax Act and total sales/ turnover/ gross receipts doesn’t exceed INR 2 Crores in the previous year.
2. Taxpayer deriving income of nature referred to in section 44B of the Income Tax Act.
3. Taxpayer deriving income of nature referred to in section 44BBA of the Income Tax Act.
4. Taxpayer, by or under any other law, is required to get his accounts audited. Provided –
a. Account of business/ profession is audited under other law before the specified date (i.e. 30th September); and
b. An audit report as required under other law is furnished; and
c. A report by the Chartered Accountant in the prescribed form (i.e. Form No. 3CA and Form No. 3CD) as per section 44AB is furnished.
Audit report of accounts to be furnished under section 44AB of the Income Tax Act –
As per rule 6G of the Income Tax Rules, 1962, the report of an audit of accounts and particulars required to be furnished under section 44AB is to be furnished via the following forms –
| Particulars | Form for furnishing audit report and particulars |
| Taxpayer carrying on business or profession who is required to get his accounts audited by or under any other law. | Audit report in Form No. 3CA; and
Particular to be furnished under section 44AB in Form No. 3CD. |
| Any other taxpayer | Audit report in Form No. 3CB; and
Particular to be furnished under section 44AB in Form No. 3CD. |
Due date of furnishing of a tax audit report –
The taxpayer is required to get his books of accounts audited and furnish the tax audit report on or before the ‘specified date’.
As per explanation (ii) to section 44AB of the Income Tax Act, ‘specified date’ means the date one month prior to the due date of furnishing of the income tax return under section 139(1) of the Income Tax Act [date of furnishing of ITR is 31st October].
Accordingly, the due date of getting books of accounts audited and furnishing of the tax audit report will be 30th September [i.e. date one month prior to 31st October].
Penalty for non-compliance with the provisions of section 44AB of the Income Tax Act –
As per provisions of section 271B of the Income Tax Act, in case the taxpayer fails to comply with the provisions of section 44AB. Then, the lower of the following amounts will be leviable as a penalty –
1. 5% of the total sales/ turnover/ gross receipts;
2. INR 1,50,000.
Importantly, penalty u/s 271B will not be levied if reasonable cause is shown for the failure in complying with the provisions of section 44AB.
Frequently Asked Questions (FAQs) on Section 44AB of Income Tax Act – Tax Audit
Important relevant Frequently Asked Questions with regard to provisions of section 44AB of the Income Tax Act are highlighted hereunder –
Q.1 What is 44AB?
Ans. 44AB of the Income Tax Act covers the provisions relating to an audit of accounts. The person covered under the provision will be required to have his books of accounts audited by a Chartered Accountant.
Q.2 Who comes under 44AB?
Ans. Following taxpayers exceeding the specified limit comes under 44AB –
- Total sales, turnover or gross receipts of business of the taxpayer exceeds INR 1 Crore;
- Total sales, turnover or gross receipts of business of the taxpayer exceeds INR 10 Crore provided aggregate cash payment and aggregate cash receipts don’t exceed 5% of such payments;
- Taxpayer covered under sections 44AE, 44BB, 44BBB or 44ADA claim lower profit or gains or income of the taxpayer covered under section 44AD(4) exceeds the maximum amount not chargeable to tax;
- Gross receipts of the profession of the taxpayer exceed INR 50 Lakhs.
Q.3 What is section 44AB limit?
Ans. The limit of section 44AB is based on the business or profession carried on by the taxpayer. If the taxpayer carries on the business, then the 44AB limit is INR 1 Crore (or INR 10 Crores). Whereas, if the taxpayer carried on the profession, then the 44AB limit is INR 50 Lakhs.
Tax audit provisions u/s 44AB will get applicable once the above limit is crossed.
Q.4 What is 10 crore limit for tax audit?
Ans. In the case of business, the 44AB limit is INR 1 Crore. However, the said limit for tax audit will be 10 Crores if the following two conditions are satisfied –
- Aggregate of all the amounts received in cash doesn’t exceed 5% of such receipts; and
- Aggregate of all the amounts paid in cash doesn’t exceed 5% of such payment.
It is important to note that the 10 crore limit for a tax audit is available only to the taxpayer carrying on business and the same is not available to the taxpayer carrying on profession.
Q.5 Who is not liable for audit under section 44AB?
Ans. Following persons are not liable for audit under section 44AB of the Income Tax Act –
- Person declaring income in accordance with section 44AD(1) and total sales/ turnover/ gross receipts doesn’t exceed INR 2 Crores;
- Person deriving income under section 44B or section 44BBA;
- Person who is required to get his accounts audited under any other law.
Q.6 What is form 3CA and 3CD?
Ans. As and when the books of accounts of the taxpayer are required to be audited under any other law, a tax audit report is to be furnished in Form 3CA (i.e. Form for Audit Report) and in Form 3CD (i.e. Annexure to Audit Report).
Q.7 What is 3CB and 3CD in income tax?
Ans. All the taxpayer (other than taxpayer who is required to get their accounts audited under any other law), is required to furnish a tax audit report in Form 3CB (i.e. Form for Audit Report) and in Form 3CD (i.e. Annexure to Audit Report).
Q.8 What is the due date of 44AB audit?
Ans. Due date of 44AB audit is 30th September.
Q.9 What is the penalty for tax audit?
Ans. Penalty for tax audit under section 271B is lower of 0.5% of total sales/ turnover/ gross receipts or INR 1,50,000.
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