The government is always concerned about tax evasion. The quantum of tax evasion is high in cases where income is high. Therefore, the I-T laws make it mandatory for certain high income businesses and professions to maintain books of accounts under section 44AA and get those books audited under section 44AB by a Chartered Accountant. The audit ensures that the books of accounts are proper. As a proof of audit, an audit report is prepared, certified by a Chartered Accountant and submitted at the time of filing I-T returns. This guide will help you understand the audit requirements.
There is a list of professions specified under section 44AA(1) who needs to maintain books of accounts for I-T purpose if they satisfy any of the following two conditions:
The list of such professions is given below. Such professions include:
Note: If the profession does not satisfy any of the two conditions mentioned above, they still need to maintain some books of accounts but such books have not been specified in the I-T Act.
Such businesses or professions which are not specified above, the rules regarding maintenance of books of accounts are covered under section 44AA(2). As per that section, it is mandatory to maintain books of accounts in the following cases:
Note: The limit of Rs 1,20,000 has been replaced by Rs 2,50,000 and Rs 10 lakhs by Rs 25 lakhs from AY 2018-19 effectively. This change is applicable only to individuals and HUF.
Table Showing Taxpayers Requiring Compulsory Audit
Type of Taxpayer
Audit is Compulsory when
|A person carrying on a business||The total sales / turnover / gross receipts exceed Rs 1 crore|
|A person carrying on a profession||The gross receipts exceed Rs 25 lakhs (revised to Rs 50 lakhs from FY 2016-17)|
|A person covered under presumptive income scheme under section 44AD||If the income from the business is lower than the presumptive income but exceeds the minimum income which is exempt from tax|
|A person covered under presumptive income scheme under section 44AE||If income from the business is lower than the presumptive income|
There are 4 cases where a business or profession needs to get his books audited compulsorily before the specified date:
Case 1: Audit is compulsory for a taxpayer carrying on a business if the gross receipts or turnover of such business exceeds Rs 1 crore.
Case 2: Audit is compulsory for a taxpayer carrying on a profession if the gross receipts of such profession exceed Rs 50 lakhs.
Case 3: Audit is compulsory for a taxpayer covered under presumptive income scheme of section 44AD if his income falls below the presumptive income but exceeds the minimum exemption limit.
Case 4: Audit is compulsory for a taxpayer covered under presumptive income scheme of section 44AE if the taxpayer falls below the presumptive income but exceeds the minimum exemption limit.
All the taxpayers who need to get the audit done are required to submit audit report in Form 3CA and Form 3CD.
Audit reports, i.e. Form 3CA and Form 3CD need to be submitted by 30th of September of the Assessment Year.
|Taxpayer||Audit Form||Statement Form||Due date for Audit||Due date for submission of report|
|A person carrying on business/ profession requiring a compulsory audit.||Form 3CA||Form 3CD||30th of September of the AY||30th of September of the AY|
|A person other than those mentioned above||Form 3CB||Form 3CD||30th of September of the AY||30th of September of the AY|
Note: The deadline for audit and submission of the report is November 30 in case of international or specified domestic transactions.
Section 44AA and Rule 6F of the Income Tax Act prescribe the books of accounts to be maintained by the taxpayers for the purpose of Income Tax.
A Cash book: It is a book of accounts where day to day cash transactions, i.e. cash payments and receipts are recorded.
A journal: A profession should maintain a journal as per the mercantile system of accounting. In this journal, day to day transactions are recorded using double entry system of accounting.
Persons carrying out medical profession like physicians, surgeons, dentists, pathologists, radiologists, etc. need to maintain additional books along with the books mentioned above. Such books include:
Note: All the books mentioned above need to be maintained at the Head Office or each of the offices.
The I-T laws require businesses and professions to maintain books of accounts for a period of 6 years from the end of the year to which the book belongs.
Penal provisions for not maintaining books of accounts as per the requirements of section 44AA are covered under section 271A of the I-T Act.
The audit requirements are covered in section 44AB. The taxpayer who fails to get his accounts audited as per the requirements of section 44AB may get penalised if he does not provide a good reason for failure to the Assessing Officer.
Case 1: Income does not exceed Rs 1,20,000 or total sales / turnover / gross receipts do not exceed Rs 10,00,000 in the preceding 3 years in case of non-specified professions.
Case 2: New business or profession with expected income not exceeding Rs 1,20,000 or total sales / turnover / gross receipts not expected to exceed Rs 10,00,000 in case of non-specified professions.
Case 3: Businesses and professions covered under section 44AD and 44AE. Such taxpayers do not need to maintain any books of accounts if they do not claim their income to be lower than the presumed income.
Note: The limit of Rs 1,20,000 and Rs 10,00,000 have been replaced by Rs 2,50,000 and Rs 25,00,000 respectively from AY 2018-19 effectively. This change is applicable only to individuals and HUF.