The Tax Audit in India relates its history back to year 1984 when it was introduced with a view to check the accuracy of the books of accounts which are infact the basis while assessing the income of the assesses belonging to business class. During past so many years a lot of changes have been done in the methodology of the Tax Audit along with numerous amendments in the statutory provisions as well as in the Guidance Note of tax Audit issued by ICAI, the latest being released on 20th July 2018. 

The Central Board of Direct Taxes had issued a notification no 33/2018 dated 20th July 2018 wherein amendments were done in the Form 3 CD of the Tax Audit Report as contained in the Appendix II of the Income Tax Rules 1962.  

Sec 44 AB of the Income tax Act 1961 deals with the various provisions applicable for audit of certain persons carrying on business or profession. As per sec 44 AB of the Act, 44AB. 

Every person,—

(a)  carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year; or

(b)  carrying on profession shall, if his gross receipts in profession exceed fifty lakh rupees in any previous year; or

(c)  carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or

(d)  carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year; or

(e)  carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,

get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.

The different types of Tax Audit Report forms which are applicable to various assesses are summarized as follows-

Tax Audit Report Form Assessee
Form 3CA In respect of a tax payer carrying on a business or profession and who is already mandated to get his accounts audited under any other law.
Form 3CB In respect of a tax payer carrying on a business or profession and who is not mandated to get his accounts audited under any other law.
Form 3CD It is a detailed statement comprising of different clauses
Form 3CE In respect of the assesses who are non residents and foreign companies receiving royalty or fees for technical services from the Government or Indian concerns, who are required to get their accounts audited

Key Points the assess must keep in mind for preparation of Tax Audit

  • Proper maintenance and correctness of books of accounts be ensured
  • The books so maintained have to be certified in line with the requirements of the applicable laws by the tax auditor
  • Proper methodical examination of books of accounts be done by the assesse before submitting the same to Tax Auditor
  • The prescribed information such as tax depreciation, related compliances etc must be ensured by the assesee

Rule 6 F prescribes the types of books of accounts which are required to be maintained by the assesee under the different applicable criteria 

Taxpayer Profit/Loss Applicable taxing section Whether books as per section 44AA applicable
Business

Income > Rs 1,20,000

Profit Normal provisions Yes
Business

Sales, turnover, gross receipts > Rs 25 Lakh

Profit/Loss Normal provisions Yes
Business

Sales, turnover, gross receipts </= Rs 25 Lakh

Profit/Loss Presumptive taxation – Section 44AD No
Business

Sales, turnover, gross receipts </= Rs 25 Lakh

Profit/Loss Normal Provisions No
Business

Turnover </= 2 Crore

Profit Presumptive taxation – Section 44AD No
Business

Turnover </= 2 Crore

Loss Presumptive taxation – Section 44AD No
Business

Turnover </= 2 Crore

Profit/Loss Normal provisions Yes
Profession

Gross receipts </= 50 Lakh

Profit/Loss Presumptive taxation – Section 44ADA No
Profession

Gross receipts </= 50 Lakh

Profit/Loss Normal provisions Yes

 Significant points to be taken care of while filling the Form 3 CD 

  1. GSTIN & GSTIN number to be mentioned
  2. Allowances under Section 32 AD to be reported(Additional Depreciation, Investment Allowance etc)
  3. Deemed Gains under section 32 AD to be reported
  4. Reporting of any sum payable to Railways under section 43 B(g) which is not allowable as deduction for non payment
  5. Details of repayment of loans in addition to taken or accepted
  6. Reporting details of transactions no disclosed / specified in form 61/ 61 A/ 61 B
  7. Reporting of Amount Chargeable under section 56(2)(ix) as income from other sources
  8. Reporting of Amount Chargeable under section 56(2)(x) as income from other sources
  9. Reporting details of Primary Adjustment to Transfer Price under Sec 92 CE(1)
  10. Reporting details of interest expenditure incurred exceeding one crore rupees as referred u/s 94B(1)
  11. Reporting of impermissible avoidance arrangements as referred in Section 96
  12. Reporting details of each cash receipt or payment in excess of the limit specified under section 269 ST
  13. Reporting details of transactions not disclosed/ specified in Form No. 61/ 61A/ 61B
  14. Reporting whether assessee or its parent entity or alternate reporting entity is liable to furnish the report (CBCR) u/s 286(2)
  15. Reporting Break-up of total expenditure into expenditure with registered or not registered entities under the GST

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