A tax audit is an exercise where certified auditors assess the books of accounts of an assessee. This is to ensure that the assessee has maintained the books of accounts accurately, as per law, to reflect the true income earned during the particular Financial Year (FY). Tax calculations can also be verified here.
Section 44AB of the Income Tax Act consists of the provisions related to the audit of accounts of specified assessees carrying out business or profession. In this article, we will discuss the provisions mentioned u/s 44AB in brief.
As per Section 44AB of the Income Tax Act, every person who is:
- Carrying out any business shall get his accounts audited if his/her total sales/turnover/gross receipts in the previous financial year exceeds INR one crore;
- Carrying out any profession needs to get his/her accounts audited if the gross receipts from this profession in the previous financial year exceeds INR 50 lakhs;
- Claiming that his/her profits/gains are lower than the prescribed limit under the presumptive taxation scheme mentioned in 44AE/44BB/44BBB, in the previous financial year, needs to get their accounts audited;
- Declaring taxable income lower than the limits mentioned u/s 44AD and 44ADA in the previous financial year needs to get their accounts audited. However, the audit here is applicable only if the income is exceeding the basic threshold limit;
- Not eligible to claim the benefits of the provisions mentioned in section 44AD will have to get his/her books of accounts audited under this section.
- Declaring a business loss, even when sales/turnover/gross receipts exceed INR 1 crore is subject to the tax audit.
After a thorough review of the books of accounts, a Chartered Accountant (CA) furnishes a tax audit report for the assessee. This tax audit report needs to be filed/submitted electronically by the CA to the Income-tax Department. Once filed, the taxpayer has to approve the report from his income tax e-filing account.
The report generally points out the observations of the Auditor perceived while auditing the assessee’s books of accounts.
Tax auditor can furnish audit report either in:
- Form No. 3CA: This form is furnished by the tax auditor when the assessee needs to get his accounts compulsorily audited under any other law*. Example: Companies Act
- Form No. 3CB: This form is furnished by the tax auditor when an assessee is required to get his accounts audited under the Income Tax Act.
In addition to this, the tax auditor must furnish the statement of particulars in Form No. 3CD, which is also a part of the audit report.
*If an assessee needs to be audited under any other law in force, audit procedures need not be repeated. That means it will be sufficient if such person gets the accounts of their business or profession audited under such other law. However, a report by the chartered accountant in the form prescribed under section 44AB, i.e., Form No. 3CA and Form 3CD will be required, to comply with the provisions of section 44AB.
The tax audit report should be filed on or before the due date of filing the Income Tax Return (ITR). Generally, 30 of September of the relevant Assessment Year is the due date to file Income Tax Returns. However, for the AY 2020-21 (FY 2019-2020), the due date to file the applicable ITR (tax audit cases) is extended to 31 October 2020.
If an assessee who is supposed to undergo a tax audit u/s 44AB, fails to file the Audit Report, he/she will be liable to pay:
- 5% of the total sales in business or 0.5% of the total receipts in the profession of the relevant financial year; or
- A sum of INR 1.5 Lakhs; whichever is lesser as a penalty** (as imposed by the assessing officer).
**However, no penalty will be imposed if a reasonable cause for such failure is shown.