INCOME TAX AUDIT UNDER SECTION 44AB
INCOME TAX AUDIT UNDER SECTION 44AB
INCOME TAX AUDIT UNDER SECTION 44AB
Before Understanding what, a tax audit is one must know the meaning of audit. Audit means that it is an official inspection of an organization’s accounts and production of report, typically by an independent body.
WHAT IS A TAX AUDIT?
As the name itself suggests, tax audit is an assessment or review of accounts of any business or profession carried out by taxpayers from an income tax viewpoint. Any company or an Individual exceeding certain limits of turnover is liable to get its accounts audited within the Income Tax Act, 1961.
WHAT ARE THE OBJECTIVES OF TAX AUDIT?
Tax Audit is conducted to achieve the following objectives:
- Ensure proper maintenance and correctness of books of accounts and certification of the same by a chartered accountant.
- Reporting observations/ discrepancies noted by the tax auditor after a methodical examination of the books of accounts.
- To report prescribed information such as depreciation, compliances under various provisions of various laws.
- Computation of tax and deductions becomes easy with auditing.
- The major role is to verify the correctness of income tax return regarding income tax, and deductions by the taxpayers.
These enable tax authorities to verify the correctness of income tax returns filed by the taxpayer. Calculating and verifying total income, claims for deductions etc also become easier.
WHAT IS THE TURNOVER LIMIT OF INCOME TAX AUDIT?
A taxpayer is required to have a audit carried out if the sales, turnover or gross receipts of business exceeds Rs. 1crore in a financial year or Rs. 10 crores in case cash transactions exceeds 5% of the total transactions. In case of professions, a tax audit is mandatory if gross receipts exceed Rs. 50 lakhs in a financial year. However, a taxpayer may be required to get their account audited in certain other circumstances also. We have categorized the various circumstances in the table below:
|
Category of Person |
Limit for income tax audit |
|
Business |
|
|
Carrying on business (not opting for presumptive taxation scheme) |
Total sales, turnover or gross receipts exceeds Rs. 1 crore in the F.Y. If cash transactions are up to 5% of total gross receipts and payments, the threshold limit of turnover for tax audit is Rs. 10crores (w.e.f. F.Y 2020-21) |
|
Carrying on business eligible for presumptive taxation under Section 44AE, 44AB or 44BBB and opted for the same in the previous year |
Claims profits or gains lower than the prescribed limit under the presumptive taxation schemes. |
|
Carrying on business eligible for presumptive taxation under Section 44AD and opted for the same in the previous year |
Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic exemption limit. |
|
Carrying on business and is not eligible to claim presumptive taxation under 44AD due to opting out for presumptive taxation in any of the financial year of the lock-in-period i.e. 5 consecutive years from when the presumptive tax scheme was opted |
If the income exceeds the basic exemption limit in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was opted. |
|
Profession |
|
|
Carrying on profession |
Total gross receipts exceed Rs. 50 lakhs in a year. |
|
Carrying on profession eligible for presumptive taxation under Section 44ADA |
|
|
Business Loss |
|
|
In case of loss from carrying on of business and not opting for presumptive taxation scheme |
Total sales, turnover or gross receipts exceeds Rs. 1 crore. |
|
If taxpayer’s total income exceeds basic exemption limit but he has incurred a loss from carrying on a business (not opting for presumptive taxation) |
In case of loss from business when sales, turnover or gross receipts exceeds Rs. 1 crore, the taxpayer is subject to Audit under 44AB. |
WHAT CONSTITUTES AN AUDIT REPORT?
Taxpayer shall furnish his report in a prescribed form which could be either Form 3CA of Form 3CB or Form 3CE where:
- From No. 3CA is furnished when a person carrying on business or profession is already mandated to get his accounts audited under any other law.
- From No. 3CB is furnished when a person carrying on business or profession is not required to get his account audited under any other law.
- Form No. 3CE is furnished when Non-resident and foreign companies receive royalties or fees for technical services from the government or an Indian concern.
In case of either of the aforementioned audit reports, the tax auditor must furnish the prescribed particulars in Form No. 3CD, which forms part of the Audit Report.
WHAT IS THE INCOME TAX AUDIT LAST DATE?
The due date to file Income Tax Audit report for every year will be 30th September of the Assessment year and in case of assessee covered by the provisions of transfer pricing audit, last date for completion of tax audit will be 31st October of Assessment year.
WHAT IS THE PENALTY OF NON-FILING OR DELAY IN FILING TAX AUDIT REPORT?
If any taxpayer is required to get the tax audit done but fails to do so, the least of the following may be levied as a penalty:
- 0.5% of the total sales, turnover or gross receipts.
- Rs. 1,50,000.
However, if there is reasonable cause of such failure, no penalty shall be levied under section 271B.
So far, the reasonable cause that are accepted by Tribunal/ Courts for delay in filing tax audit reports are:
- Natural Calamities.
- Resignation of the Tax Auditor and Consequent Delay.
- Resignation of Accountant/ key employees.
- Labour problems such as strikes, lock-outs for an extended period.
- Loss of accounts because of situation beyond the control of the asseesse.
- Physical inability or death of the partner in charge of the accounts.
