Section 44AB of the Income Tax Act stipulates provisions pertaining to the tax audit under the Income Tax Audit. A tax audit is conducted to ensure that the taxpayer has properly maintained the books of accounts and other records, and they truly reflect the income of the taxpayer. Moreover, it is intended to verify whether the assesse has complied with various requirements like filing of income tax returns, accurate specification of claim and income tax deductions, etc. In short, tax audit is a measure which is initiated to curb fraudulent tax practices. The audited accounts must be reported by a Chartered Accountant in the prescribed forms. The audit report in respect of audit conducted under Section 44AB must be prepared in Form No. 3CB and the particulars of audit must be reported in Form 3CD. Tax audit reports for those persons who are necessitated to get their accounts audited by or under any other law must be prepared in Form 3CA / 3CB and the particulars for the same must be reported in Form 3CD. The tax audit report must be electronically filed by the chartered accountant, after which the taxpayer is required to approve the submitted reports using the e-filing account.
Objectives of tax audit
Tax audit is conducted to achieve the following objectives:
- Ensure proper maintenance and correctness of books of accounts and certification of the same by a tax auditor
- Reporting observations / discrepancies noted by tax auditor after a methodical examination of the books of account
- To report prescribed information such as tax depreciation, compliance of various provisions of income tax law etc.
- All these enable tax authorities in verifying the correctness of income tax returns filed by the taxpayer. Calculation and verification of total income, claim for deductions etc. also becomes easier.
Who is mandatorily subject to tax audit?
Following categories of taxpayers are required to get tax audit done:
|Category of person||Threshold|
|Carrying on business (not opting for presumptive taxation scheme*)||Total sales, turnover or gross receipts exceed INR 1 crore in the FY|
|Carrying on business eligible for presumptive taxation under Section 44AE, 44BB or 44BBB||Claims profits or gains lower than the prescribed limit under presumptive taxation scheme|
|Carrying on business eligible for presumptive taxation under Section 44AD||Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit|
|Carrying on the business and is not eligible to claim presumptive taxation under Section 44AD due to opting out for presumptive taxation in any one financial year of the lock-in period i.e. 5 consecutive years from when the presumptive tax scheme was opted||If income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for|
|Carrying on business which is declaring profits as per presumptive taxation scheme under Section 44AD||If the total sales, turnover or gross receipts does not exceed INR 2 crore in the financial year, then tax audit will not apply to such businesses.|
|Carrying on profession||Total gross receipts exceed INR 50 lakh|
|Carrying on the profession eligible for presumptive taxation under Section 44ADA||1. Claims profits or gains lower than the prescribed limit under the presumptive taxation scheme
2. Income exceeds the maximum amount not chargeable to income tax
|In case of loss from carrying on of business and not opting for presumptive taxation scheme||Total sales, turnover or gross receipts exceed INR 1crore|
|If taxpayer’s total income exceeds basic threshold limit but he has incurred a loss from carrying on a business (not opting for presumptive taxation scheme)||In case of loss from business when sales, turnover or gross receipts exceed INR 1crore, the taxpayer is subject to tax audit under 44AB|
|Carrying on business (opting presumptive taxation scheme under section 44AD) and having a business loss but with income below basic threshold limit||Tax audit not applicable|
|Carrying on business (presumptive taxation scheme under section 44AD applicable) and having a business loss but with income exceeding basic threshold limit||Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit|
Due Date for Tax Audit
The auditing of accounts, as well as the submission of reports must be completed on or before the 30th of September of the particular year.
Penalty under Section 44AB
Any person who doesn’t get the accounts audited will be imposed with a penalty of:
- 0.5% of the total sales in business or 0.5% of the total receipts in profession of the current financial year.
- A sum of INR 1,50,000
- The lower among the above will be levied as penalty.
Any failure to file tax audit may attract heavy fines and penalty. Thus, being vigilant regarding the financial declarations and filings is important for the smooth running of the business as well as business owner’s mental peace.
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