The basic concept of section 44AB

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. The compulsion of getting a tax audit done is to check the accuracy of the information given by the assessee regarding his income and tax. This section helps in the reduction of fraud practices. The audit is conducted by relevant authorities or by a practicing chartered accountant. The audit report is reported to income tax department along with the income tax return.


Meaning of Tax Audit

Examination and assessment of books of accounts of an organization carrying business or profession are called 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 return for taxation purpose. Tax audit is done by a chartered accountant and reported to the income tax department in a prescribed format.


Who can do a tax audit under section 44AB?

Every person who earns income by any business or profession has to maintain his books of accounts get a tax audit done except those who opted for presumptive taxation under section 44AD, 44ADA, 44AE of the income tax act 1961.

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

  • An assessee carrying the business with the total turnover that exceeds Rs. 1 crore during the previous year.
  • 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:

  • Any assessee who derive income from section 44B.
  • Any assessee who derive income from section 44BBA.
  • Where any assessee get their books of accounts audited by other laws, they are not required to get another tax audit done under section 44AB. Particular a tax report is to be prepared in either Form 3CA or Form 3CB or Form 3CD.

Aim of tax audit

The major objectives for conducting tax audit are:

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

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 following cases:

  • 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.
  • 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 asses the details of his chartered accountant in his login portal and accept the audit report that is uploaded by his auditor.
The auditing of reports as well as tax report is filed on or before the due date of filing the return of income. For all taxpayers, the due date is 30th September of the assessment year. For an international transaction, the due date is 30th November of the assessment year.


Non-compliance of 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 the least of the following:

The tax auditor shall furnish the report in a proper manner either in Form 3CA or Form 3CB in following cases:

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

Accounts audited any other law

If in any case 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 purpose. 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?

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


Q- Who conducts tax audit?

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


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

Ans. 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.


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.