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Income Tax Audit Under Section 44AB of Income Tax Act

Updated on: 27 Apr, 2022 05:37 PM

The Section 44AB of the Income-tax Act, 1961 states the regulations for the tax audit of a firm or entity. The tax audit is conducted to ensure that the taxpayer has provided complete and accurate information regarding his income, deductions and taxes. This is to be conducted by a Chartered Accountant. The entity has to maintain proper books of accounts that are to be audited by a Chartered Accountant. The books of accounts should comply with the rules and regulations of the Income Tax Act 1961.

What is Section 44AB of Income Tax Act, 1961?

The provisions related to tax audit are stated under section 44AB in the Income Tax Act 1961. This section reflects the rules to maintain books of accounts and other financial records by the taxpayer properly. This helps in maintaining complete information regarding tax, income, and deductions of the taxpayer.. This section helps in the reduction of fraudulent practices. The audit is conducted by a practicing chartered accountant. The audit report is reported to the income tax department along with the income tax return.


What is Income Tax Audit under section 44AB?

Examination and assessment of books of accounts of an organization carrying business or profession are called a Tax Audit. Tax audit helps in review of transactions related to income, expenses, deductions, and taxes of the organization. It eases out the process of filing the income tax for taxation purposes..


Who are liable to get tax audit done under section 44AB?

Every person who earns income by any business or profession has to maintain his books of accounts and get a tax audit done except those who opted for presumptive taxation under section 44AD, 44ADA, 44AE of the income tax act 1961 or if their turnover stands behind certain threshold limits . The taxpayers who need to get a tax audit done are:

The taxpayers who need to get a tax audit done are:

  • Provided, if (a) aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent of the said amount; and
    (b) Aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent of the said payment: Threshold limit would be 10 crores instead of 1 crore (from 1/4/21, for FY 2021-22 - 5 crores)
  • An individual involved in the profession with a gross receipt that exceeds Rs. 50 lakh during the previous year.
  • Any assessee who has opted for section 44ADA and 44AD but claims his income lower than the profits that are computed under presumptive taxation and income exceeds the amount that is taxable according to the Income Tax Act.
  • Any assessee who has opted for section 44AE, 44BB, 44BBB but claims his income lower than the profits that are computed under the said sections in any previous year.

Who is not required to get a tax audit done?

Following persons are not required to get tax audit done:

  1. Any assessee who derive income from section 44B.
  2. Any assessee who derive income from section 44BBA.
  3. Where any assessee gets their books of accounts audited by other laws, they are not required to get a tax audit done under section 44AB. Particularly, a tax report is to be prepared in Form 3CA or Form 3CB or Form 3CD.
  4. Where Assessee declares profit under section 44AD(1) and his total sales/turonover/gross receipts as the case may be does not exceeds Rs. 2crores.

What are the objectives for the Income tax Audit?

The major objectives for conducting tax audit are:

  1. Proper maintenance of books of the account without fraud activities and certification of the same by an auditor.
  2. For reporting discrepancies that are noted by proper examination of the books of accounts.
  3. For reporting various information such as tax depreciation, compliance with the provision of income tax law and so on.
  4. Computation of tax and deductions becomes easy with the auditing.
  5. The major role is to verify the information filed in the income tax return regarding income, tax, and deductions by the taxpayer.

What constitutes an Audit report?

The report that shows the end result of the entire auditing procedure is called an audit report. The audit report comes under Rule 6G of the Income Tax Rules.The tax report is prepared and electronically filed by a chartered accountant. The tax auditor furnishes the audit report according to the particulars in Form 3CD.
The tax auditor shall furnish the report in a proper manner either in Form 3CA or Form 3CB in the following cases:

  1. Form 3CA is prepared when it is mandatory to get books of accounts audited under any other law for an assessee who is carrying on a business or profession.
  2. Form 3CB is prepared when it is not mandatory to get books of accounts audited under any other law for an assessee who is carrying on a business or profession.

The time period to get a tax audit report furnished

A chartered accountant with his login details can furnish a tax audit report as a tax auditor. The taxpayer has to assess the details of his chartered accountant in his login portal and accept the audit report that is uploaded by his auditor.
For all taxpayers, the due date is 30th September of the assessment year. For an international transaction, the due date is 31st october of the assessment year.
(However for AY 2021-22 , the due dates have been extended to 15.01.22 & 31.01.22 respectively)


What is Non-compliance of Income Tax Audit?

If a taxpayer who is liable to get a tax audit done but defaults in doing so, a penalty is charged on the taxpayer. The penalty that is levied on him or her is of the following:

  • 0.5% of the total sales or gross receipts or turnover
  • Rs 1,50,000

Accounts audited any other law

If a taxpayer is required to get his books of accounts audited under any other law for example, statutory audit of companies under company law provisions; the individual need not to conduct his audit again for taxation purposes. The taxpayer just has to get the audit report furnished according to the income tax law before the due date of filing of the return.


Conclusion

If you are a taxpayer, you have to comply with the provisions of the section 44AB of the income tax act 1961. This section states that all the taxpayers have to get audit report furnished after conducting an audit for your books of accounts. This is to truly reflect the income related activities, deductions and taxes of the taxpayers.

Frequently Asked Questions

Q- What provision is stated in section 44AB?

This section states that taxpayers have to conduct an audit of their business or profession to furnish an audit report for the purpose of taxation.


Q- Who conducts tax audits?

Tax audit is done by a practicing chartered accountant or relevant authorities.


Q- What is the penalty charged for non compliance of section 44AB?

For non compliance of section 44AB you will be charged a penalty of 0.5% of total sales or turnover or gross receipts or Rs. 1.5 Lakh, whichever is less.


Q- What is section 44AA and section 44BB?

44AA deals with when books are required to be mained by assessee whereas 44AB deals with the situations or circumstances under which Audit is required to be conducted or when audit report is required to be furnished.


Q- What is the penalty for the non filing or delay in auditing?

For non compliance of section 44AB you will be charged a penalty of 0.5% of total sales or turnover or gross receipts or Rs. 1.5 Lakh, whichever is less.


Q- What triggers Tax Audits?

Turnover and profit percentage on turnover are the factors which leads to tax audit.


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CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.

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