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Tax Audit under Section 44AB of Income Tax Act

Last Update Date : May 19, 2018

Audit under section 44ab

The term audit is derived from the Latin word “audire” which means to hear, it is basically concerned with verification of data, determining the accuracy and reliability of reports. There are several types of audits that reveal the true and fair statement of the reports. Tax audit is compulsory for businesses under section 44AB of the Income Tax Act, 1961. Let us have a look below for deeper understanding.

What is Tax Audit?

Tax Audit as described under section 44AB of Income Tax Act 1961 deals in examining the books of accounts of business or profession from Income Tax point of view. It is done by a chartered accountant and a mandatory audit to be carried out. It reviews the incomes, deductions, compliances, procedure related to Income Tax Act.

Objectives of Tax Audit u/s 44AB

  • Tax audit makes the income computation for filing the returns more efficient.
  • The main intention behind tax audit is to assist the tax authorities in determine correct tax liability.
  • Tax audit also restricts the fraudulent practices.
  • Tax audit facilitates proper maintenance of books of accounts and revenue / expense.
  • Tax audits ensure proper administration of tax laws presentation and submission before the prescribed authorities.

Tax Audit Applicability under section 44AB

Tax audit is applicable to certain classes of individuals which are mentioned under section 44AB of the I-T Act. Thus, as per the regulations of section 44AB of the Income Tax Act, 1961, following is the list which outlines the classes of people who have to compulsorily follow the income tax audit procedures and get their accounts audited:

  • An individual who is engaged in business and the annual turnover of his/her business is Rs 1 crore and above.
  • An individual, who is a professional, i.e. engaged in any profession and his income receipts in a year aggregate Rs 50 lakhs and above as per notification 2017-18.
  • This is also applicable in case the income on record is more than the amount which is tax-free or not chargeable for taxation i.e. Any individual who qualifies for the presumptive taxation scheme under section 44AD but later claims that the profits for said business is lower than the profits calculated in accordance with the presumptive taxation scheme.
  • If the assesse who is qualified under the presumptive taxation scheme but opts out of it after a specified period, he would lose the ability to revert back to the presumptive taxation scheme for a continuous term of 5 assessment years after the decision to opt out is taken.
  • An individual who qualifies to choose the presumptive taxation scheme of selection under section 44AE but then claims that the profits for such business are lower than the profits calculated in accordance with the presumptive taxation scheme of section 44AE.
  • An individual who qualifies to choose the presumptive taxation scheme of selection under section 44BBB but then claims that the profits for such business are lower than the profits calculated in accordance with the presumptive taxation scheme of section 44BBB.

Required Tax Audit Forms by Section 44ab of Income Tax Act

The following forms are required to be used by the individual or person in question when an audit is conducted on their accounts. These forms are specifically mentioned in Rule 6G of the Income Tax Act with regards to income tax audits conducted as per section 44AB.

For persons or individuals carrying on a business or a profession whose accounts are to be audited as per the provisions stated under any kind of law, the following forms are applicable:

  • Form Number 3CA – Audit Form
  • Form Number 3CD – Statement showing relevant particulars

For persons or individuals whose accounts are not required to be audited as per the provisions stated under any kind of law, with the exception of income tax laws, then the forms mentioned below are applicable:

  • Form Number 3CB – Audit Form
  • Form Number 3CD – Statement showing relevant particulars

Due Date for Filing Tax Audit Reports

The Due date of filing tax audit report under section 44AB is 30th September of the assessment year. However, if the assessee is liable for transfer pricing audit, the due date for filing the tax audit is 30th November of the assessment year. Filing of tax audit report is mandatory from the AY 2013-14 onwards.

Tax Filing for Businesses

Penalty for Non-Compliance under sec. 44AB

The non-compliance of the provision of this act can attract penalty under section 271B of the Income Tax Act. If the taxpayer who is required to get his books audited fails to do so then, he is liable for paying penalty of 0.5% of his turnover / gross receipts subject to a maximum of Rs 1,50,000. However, in case a reasonable cause is established, then no penalty will be imposed.

Tax Audit Limit for CA’s

Chartered Accountants are like the back bones of the economic system and the burden of auditing financial accounts lies on them. There are several statutory rights enjoyed by them but there are certain limitation to everything. The maximum number of tax audits have increased from 45 to 60 by the ICAI Council in its 31st meeting in 2014.

Revision of Audit Report under Section 44AB

In general it is not possible to conduct a revision of a tax audit report that has already been filed under this section. However, a revision can only take place if an amendment in the income tax law allows it. The audit report can then be revised by an authorised auditor, and a reason for the revision of the same must be stated.

It is better to ask question than to remain ignorant, Tax Audit is crucial requirement for individuals carrying out business or profession. Failure to comply with the compliances of Income Tax rules would lead to penalty so it’s better to avoid unwanted situation and reduce your burden.

How H&R Block can help you?

Looking forward for more details on maintaining books of accounts for different business or confused on Tax Planning and Tax Filing? Visit TaxForum by H&R Block where our tax advisors would get immense pleasure to be your helping hand for all your tax related queries.

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