Tax Audit Meaning

-A Tax Audit is an audit, made compulsory by the Income Tax Act, if the annual gross turnover/receipts of the assesse exceed the specified limit. Tax audit is conducted in Sec 44AB of the Income Tax Act,1961 by a Chartered Accountant.

-Simply Tax Audit means, an audit of matters related to tax.

Tax Audit Applicability

  • The Following persons need to be liable for tax audit U/s 44AB
    • Business: Rs. 1 Crore
    • It means an assesse need to be audited under Sec.44AB if his annual gross turnover/receipts in business exceeds Rs. 1 Crore.
  • Profession: Rs. 50 Lakh
    • It means an assesse need to be audited under Sec 44AB if his annual gross receipts in profession exceeds Rs. 50 Lakh.

Income Tax Audit

Presumptive Taxation SchemeSec 44AD

  • Businesses, whose annual gross turnover/receipt does not exceeds Rs. 2 Crore are eligible for this scheme.
  • U/s 44AD need not maintain books of Accounts.
  • Net income is estimated to be @ 8% of your gross receipt/turnover.
  • If Gross receipts are received through digital mode of payments,
  • Net income can be calculated as @ 6% and @ 8% of gross receipts are received through cash.
  • If Assesse opt for Presumptive taxation u/s 44AD, then he should be follow same section of audit for next 5 Financial years.
  • You need to file ITR 4 (previously ITR4S) to avail these scheme

Presumptive Taxation SchemeSec 44ADA

  • Professions, whose annual gross receipt does not exceeds Rs. 50 Lakhs are eligible for this scheme.
  • U/s 44ADA need not maintain books of Accounts.
  • Net income is estimated to be @ 50% of your gross receipt.
  • If Assesse opt for Presumptive taxation u/s 44ADA, then he should be follow same section of audit for next 5 Financial years.

Sec 44AB – Audit of Accounts

Sec 44AB - Audit of Accounts

Tax Audit Report Forms U/s 44AB

Tax Audit Report

Form 3CA: Applicable for Companies

Form No. 3CA

 Form 3CB: Applicable for other than Companies

Form No. 3CB

Form 3CD: Parts

Form No. 3CD

 Form 3CD: Clauses 1 to 4

> Form 3CD report has 44 clauses which are discussed as follows:

Clauses Particulars Auditor’s requirements
Part-A
1.

2.

3.

Name of Assesse

Address

Permanent Account Number (PAN)

Branch should be mentioned along with the name of the assesse.

  • Obtain PAN card copy
  • The address should be the same as has been communicated by the Assesse to the Income-tax Department for assessment purposes as on the date of signing of the audit report.
4. Whether the assessee is liable to pay indirect tax like excise duty, service tax, sales tax, goods and services tax, customs duty, etc. if yes, please furnish the registration number or GST number or any other identification number allotted for the same.
  • Auditor is required to mention the registration number or any other identification number, if any allotted, in case the Assesse is liable to pay indirect taxes like excise duty, service tax, sales tax, customs duty, Goods and Service Tax etc.

 Form 3CD: Clauses 5 to 8

Clauses Particulars Auditor’s requirements
5.

6.

7.

8.

Status

Previous Year

Assessment Year

Indicate the relevant clause of section 44AB under which the audit has been Conducted

  • Check the status of assesse as per ITR
  • State the previous year
  • State the relevant assessment year
  • Auditor is required to mention the relevant clause of section 44AB under which the audit has been conducted from a, b, c, d or e

Relevant Clause of 44AB Description
Clause (a) In case the assessee is carrying on business and his total sales, turnover or gross receipts as the case may be, exceeds one crore in the relevant previous year.
Clause (b) If the assessee is carrying on profession and his gross receipts exceed twenty five lakh rupees in the relevant previous year.
Clause (c) If the audit under section 44AB is being conducted by virtue of provisions of section 44AE, 44BB and 44BBB
Clause (d) For audit being conducted by virtue of provisions of section 44ADA
Clause (e) For audit being conducted by virtue of provisions of section 44AD

Form 3CD: Clause 9

Clauses Particulars Auditor’s requirements
Part-B
9 (a) If firm or Association of Persons, indicate names of partners/ members and their profit sharing ratios. Obtain a schedule indicating the names of partners/members and their profit sharing ratios.

Please note that details of partners or members during the entire previous year will have to be furnished.

9 (b) If there is any change in the partners/members or their profit sharing ratios, the particulars of such change.
  • Review the partnership deeds and other relevant documents and take a certified copy of that for record purpose.
  • Enquire whether there has been any change in the partners/ members and/or their profit sharing ratios.
  • All the changes occurring during the entire previous year must be stated.
  • Obtain management representation.

Form 3CD: Clause 11

Clause 11

Form 3CD: Clause 12

Clause Particulars Auditor’s requirements
12 Whether the profit and loss account includes any profits and gains assessable on presumptive basis, if yes, indicate the amount and the relevant section (44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB, Chapter XIIG, First Schedule or any other relevant section.) Obtain an analysis of revenues and ascertain whether the profits and gains arising from such revenues are assessable on a presumptive basis for the following :

  • 44AD- Business profit on estimated basis.
  • 44AE- Business of plying, hiring or leasing goods carriages.
  • 44AF- Retail Business
  • 44B – Shipping business of non-residents.
  • 44BB- Business of exploration of mineral oils.
  • 44BBA – Operation of Aircraft by non-resident.
  • 44BBB – Foreign companies engaged in civil construction, etc. in turnkey power projects.

Other relevant sections e.g. section 172 shipping business of non- residents.

Review assessments completed/ prior year tax returns to examine the basis adopted in earlier years for assessing such profits/gains.

It may be noted that the income assessable under these sections is not required to be disclosed, but as the Assesse may carry on other businesses, profits included in the profit and loss account arising from the business covered by these sections is to be disclosed.

Form 3CD: Clause 13

Clause 13

 Form 3CD: Clause 14

Clause 14 (a)

Method of valuation of closing stock employed in the previous year.

  • Obtain a schedule indicating the method of valuation of closing stock employed during the year.
  • Change in the method of valuation of opening and closing stock, including effect of change.
  • Review the method of accounting prescribed under section 145A.

Clause 14 (b)

Details of deviation, if any, from the method of valuation prescribed under section 145A, and the effect thereof on the profit or loss.

  • Ensure that any deviation from the method of valuation prescribed under section 145A is appropriately disclosed and the effect thereof on the profit/loss is also indicated.

 Form 3CD: Clause 15

Clause Particulars Auditor’s requirements
15 Give the following particulars of the capital asset converted into stock-in-trade:—

a) Description of capital asset

b) Date of acquisition

c) Cost of acquisition

d) Amount at which the asset is converted into stock-in-trade.

  • Description of the capital asset is required to be mentioned for example shares, security, land, building, plant, machinery etc
  • For ascertaining the correct date the tax auditor will have to refer the accounts of the financial year in which such capital asset is acquired. The date assumes importance for the purpose of determining whether the asset is long-term or short-term in nature.
  • The cost of acquisition as per the books of account is to be mentioned. In case of depreciable assets, the carrying cost appearing in the books will be the written down value.
  • The amount recorded in the books of account at which the asset is converted into stock-in- trade should be stated.

Form 3CD: Clause 16

Amounts not credited to the profit and loss account

Clause 16

Form 3CD: Clauses 17 & 18

Clauses Particulars Auditor’s requirements
17 Where any land or building or both is transferred during the previous year for a consideration less than value adopted or assessed or assessable by any authority of a State Government referred to in section 43CA or 50C, please furnish:

  • Details of property
  • Consideration received or accrued
  • Value adopted or assessed or assessable
  • Obtain the list of all properties transferred during the year and their nature whether land or building along with their addresses.
  • Obtain from the Assesse a copy of the registered sale deed in case, the property is registered.
18 Particulars of depreciation allowable as per the Income-tax Act,1961 in respect of each asset or block of assets, as the case may be, in the following form :-

  • Description of asset/block of assets
  • Rate of depreciation.
  • Actual cost or written down value, as the case may be.
  • Additions/deductions during the year with dates; in the case of any addition of an asset, date put to use
  • Depreciation allowable.
  • Written down value at the end of the year.
  • Obtain a schedule providing the relevant details indicated in the aforesaid clause in respect of each asset or block of assets. In particular, ensure that the following have been included :
  • Written down value at the beginning of the year.
  • Rates of depreciation
  • Assets acquired during the year have been segregated between the assets put to use for less than 180 days and those used for more than 180 days
  • Deductions during the year represent the sale proceeds of assets sold.

Form 3CD: Clause 20

Clause 20

Form 3CD: Clause 21(a)

Please furnish the details of amounts debited to the profit and loss account:-

  • Capital expenditure
  • Personal expenditure
  • Advertisement expenditure in any souvenir, brochure, pamphlet etc published by a political party
  • Club entrance fees and subscriptions
  • Cost for club services and facilities used
  • Penalty or fine for violation of any law for the time being force
  • Any other penalty or fine not covered above
  • Expenditure incurred for any purpose which is an offence or which is prohibited by law e.g. Bribes, Smuggling expenses etc.

Form 3CD: Clause 21(b)

Clause 21(b)

Form 3CD: Clause 21(c) to 21(i)

Clause 21(c) to 21(i)

Form 3CD: Clauses 22 to 25

Clauses 22 to 25

Form 3CD: Clause 26

Clause 26

Form 3CD: Clauses 27 & 28

Clauses 27 & 28

Form 3CD: Clauses 29 to 29B

Clause 29 to 29B

Form 3CD: Clauses 30 to 30A

Clauses 30 to 30A

Form 3CD: Clauses 30B to 30C

Clauses 30B to 30C

Form 3CD: Clause 31

Clause 31

Clause 31(1)

Clause 31(2)

Clause 31(3)

Form 3CD: Clause 32

Clause 32

Form 3CD: Clauses 33 & 34

Clause 33 to 34

Form 3CD: Clause 35

Clause 35(a) or 35(b)

Form 3CD: Clauses 36 to 38

Clauses 36 to 38

Form 3CD: Clauses 39 to 41

Clause 39 to 41

Form 3CD: Clauses 42 & 43

Clause 42 to 43

Form 3CD: Clause 44

Clause 44

UDIN – Unique Document Identification Number

UDIN

Tax Audit Filling Procedure

Tax Audit Filling Procedure

Download Tax Audit under Section 44AB

Author Bio

Qualification: CA in Practice
Company: Komal Gupta & Associates
Location: Palwal, Haryana, IN
Member Since: 03 Apr 2020 | Total Posts: 3
A fresher Chartered Accountant starting a new journey with a goal to create more job opportunities rather than looking for employment. View Full Profile

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16 Comments

  1. Salahudheen P says:

    In relevant clauses of 44AB and description table , which is under heading FORM 3CD : 5 to 8 , u mentioned 25 Lakh under clause (b).
    Please correct the same….

  2. Puneet Asija says:

    Great presentation 👍 only point which I have found doubtful that is 40% part rest good. It will be more better if writer can add FY 20-21 tax audit changes as per. Budget so that can be made easily

  3. Akash Agarwal says:

    The heading of your topic “Audit for FY 19-20” and your article content doesnt match. May be u forgot to throw light on the topic which is need of the hour.

  4. CA Komal Gupta says:

    Dear all,

    Sorry for the inconvenience, you all are requested to ignore “If Gross receipts are received through digital mode of payments,Net income can be calculated as @ 40% and @ 50% of gross receipts are received through cash” point as it was just a misunderstanding.
    Presumptive Taxation rate is only 50% u/s 44ADA.
    Sorry again!!

    1. RAJIV KHANNA says:

      “If Assesse opt for Presumptive taxation u/s 44ADA, then he should be follow same section of audit for next 5 Financial years.” – AS PER MY UNDERSTANDING THERE IS STIPULATION FOR THE SAME U/S 44ADA, PLEASE CLARIFY

      1. CA Komal Gupta says:

        Hi Rajiv,
        If assessee opt for 44ADA then it is not mandatory to follow presumptive taxation scheme u/s 44ADA for next 5 years. He can opt out of the scheme in next financial years.

  5. Rohtash kumar says:

    You have mentioned tax on 40% income u/a 44ADA if receipts through digital mode..
    Can you pls recheck or send a link of amendment from 50% to 40% in this regard.

  6. ARPIT PARIKH says:

    Hello,

    Can you please give reference for provision u/s 44ADA wrt income to be consider @ 40% if received through digital mode of Payment.

    Cz there is no provision in Income tax act till Finance Act, 2019 and there is no amendment in the said provision in Finance Act, 2020.

    Thank you in advance.

  7. Shambhuling Patil says:

    In Section 44ADA – declaration of profit is allowed at 50% only. 40% provision not exist i think. Kindly update the same.

  8. CA SHAILESH AGRAWAL says:

    FORM 3CA IS NOT OLY FOR COMPANIES BUT FOR THEM WHO HAS TO GET THEIR ACCOUNTS AUDITED AS PER OTHER ACTS OTHER THAN INCOME TAX ACT LIKE LLP IF THE TURNOVER CROSSES RS. 40 LAKH.

  9. MD KALIMULLAH DHALANI says:

    Hi Komal,

    I could not found this reduced rate of tax for professionals @40% for digital payments as mentioned by you in your article in following words. Pls. through light.

    If Gross receipts are received through digital mode of payments,
    Net income can be calculated as @ 40% and @ 50% of gross receipts are received through cash.

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