Tax audit aims to ensure accurate bookkeeping, certification by a tax auditor, report discrepancies, and compliance with tax laws.
To ensure compliance with taxation laws, the Income Tax Department requires certain taxpayers to audit their books. Section 44AB of the Income Tax Act, 1961, states the threshold limit for businesses or professionals to get their tax accounts audited by a certified Chartered Accountant.
The Government of India introduced this section to help the assessing officers compute the total taxable income quickly.
Not submitting the Income Tax Audit Report under Section 44AB has a penalty of 0.5% on the total annual turnover. The maximum penalty you have to pay is ₹1.5 Lakhs for non-compliance.
For a valid reason for non-compliance with the Income Tax Audit Report, the I-T department of India cannot ask you to pay the penalty. The following are the reasons for non-compliance are taken into consideration by the department:
If there is a delay in the audit from the side of the authorised CA
If there is a delay in submitting the audit report by you due to the unfortunate demise of the auditor or CA
If the auditor or CA does not have access to operate your account due to riots, strikes, theft, etc.
If there is a delay in the report due to unforeseen disasters or a natural calamity
The provisions of Section 44AB are applicable under the following conditions:
If the total receipts of a business exceed ₹1 Crore
If the income of a professional is over ₹50 Lakhs in a year
Here is the list of the forms you have to submit under Section 44AB. These forms are submitted according to rule 6G of the Income Tax Act:
Form Number 3CA: Audit form
Form Number 3CD: This form reflects the statements showing various particulars
Individuals not in the taxable limit may still need to audit accounts by order of the Assessing Officer, filing specified forms.
Form Number 3CB: Audit form
Form Number 3CD: This form reflects the statements showing various particulars
Individuals who submit the tax audit report under Section 44AB must do so by the 30th of September of each assessment year. However, you need to furnish a report of Transfer Pricing (TP) in Form No. 3CEB by the 30th of October.
Here are the details of the amendments made to the threshold for filing an Income Tax Audit:
1. Business
Category |
Threshold |
Running a business without the presumptive taxation scheme |
Total receipts, sales, and turnover exceeds ₹1 Crore in the preceding FY |
Businesses meeting the eligibility criteria under Section 44AE, 44BBB, and 44BB |
Claiming profit or any gains that are less than the prescribed limit set |
Businesses eligible for presumptive taxation under Section 44AD |
Declaring taxable income lesser than the limits prescribed under the presumptive taxation scheme |
A business becomes ineligible for the benefits of presumptive taxation under Section 44AD if it chooses to opt out of the scheme in any of the preceding financial years |
If the income has exceeded the maximum amount but is not chargeable for the subsequent five years from the financial year after opting out |
A business making profit declaration as per the presumptive taxation scheme under Section 44AD |
If income exceeds the prescribed amount but not considered as tax in the continuous five years when the presumptive taxation was not opted for |
Running a business that is making a declaration of profits under Section 44AD |
The total receipts or sales made from business or annual turnover is less than ₹2 Crores in the financial year. |
2. Profession
Category |
Threshold |
If you are in a profession |
Gross receipts must not be above ₹50 Lakhs in the FY |
If you are in a profession meeting the eligibility criteria of presumptive taxation under Section 44ADA |
|
FAQs on Section 44AB of the Income Tax Act
Can individuals revise the already submitted income tax audit report even if it is carried out according to Section 44AB of the Income Tax Act?
No, there is no provision for revising the Income Tax Audit report after being submitted. One can only modify the income tax audit report if the I-T department issues any amendments. Moreover, in such cases, only the authorised auditor or CA can alter the report.
Who is liable to furnish an audit report under Section 44AB?
Section 44AB mandates the threshold limit for those taxpayers who need to get their books audited by a certified Chartered Accountant.
How to file the tax audit report?
The Chartered Accountant needs to submit the audit report on the Income Tax portal.
What is the difference between sections 44AB and 44AD?
Section 44AB requires certain taxpayers to submit an audit of their tax reports. However, Section 44AD exempts those taxpayers who have opted for a presumptive taxation scheme from filing the audit report.
Who is subject to audit under Section 44AB?
Under Section 44AB, businesses must undergo an audit if their gross receipts exceed ₹1 crore, while professionals are subject to audit if their gross receipts exceed ₹50 lakh.
How is Section 44AB calculated?
Section 44AB requires an audit if a business's turnover exceeds ₹1 crore or if a professional's gross receipts exceed ₹50 lakh. For businesses with cash transactions below 5%, the threshold is ₹10 crore.
Is Section 44AB applicable to salaried employees?
No, Section 44AB is not applicable to salaried employees unless they have other income sources like professional fees. It applies to tax audits for businesses and professionals with turnover exceeding specified limits.
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