Income Tax audit under section 44AB

The term ‘Audit’. Dictionary meaning of the term ‘Audit’ suggests that it is an official inspection of an organization’s accounts and production of report, typically by an independent body. In this blog, let us understand the following about Income tax audit:

Meaning of Tax Audit
Objectives of Tax Audit
Turnover Limit for Tax Audit
Tax Audit Requirement under other laws
Applicable forms for furnishing Tax Audit Report
Last Date for Income Tax Audit
How and When to furnish Tax Audit Report
Penalties for Non-filing or delay in filing Tax Audit Report

What is Tax Audit?

Tax audit is an assessment or survey of records of any business or profession completed by citizens from a income tax perspective. It makes the course of income calculation for documenting of return of income simpler.

Assessment and examination of books of accounts of an association conveying business or profession are called Tax Audit. Tax audit helps in the review of transactions identified with pay, costs, allowances, and tax of the company. It backs out the most common way of filing income tax return for taxation purposes. A tax audit is performed by a sanctioned bookkeeper and answered to the income tax department division in a prescribed format.

A citizen is needed to have a tax audit completed if the business, turnover or gross receipts of a business surpass Rs 1 crore and Profession surpasses Rs. 50 Lakhs in the financial year. Section 44AB of the Income Tax Act, 1961 sets out specific conditions for relevance of tax audit in the arrangements of Section 44AB(a); Sec 44AB(b); Sec 44AB( c) and Sec44AB(d).

What are the Objectives of Tax Audit

Ensure proper maintenance and correctness of books of accounts and certification of the same by a Chartered Accountant(tax auditor)
Reporting observations/discrepancies noted by the tax auditor after a methodical examination of the books of account
To report prescribed information such as tax depreciation, compliance of various provisions of income tax law, etc.
Computation of tax and deductions becomes easy with auditing.
The major role is to verify the information filed in the income tax return regarding income, tax, and deductions by the taxpayer.

What is the Turnover Limit for Income Tax Audit

A taxpayer is required to have a tax audit carried out if the sales, turnover or gross receipts of business exceed Rs 1 crore in a financial year or Rs 10 crore in case cash transactions do not exceed 5% of the total transactions (i.e., Cash receipts/payments does not exceed 5% of the total receipts/total payments). In case of profession, a tax audit is mandatory if gross receipts exceeds Rs 50 lakhs in the financial year. However, a taxpayer may be required to get their accounts audited in certain other circumstances also. We have categorized the various circumstances in the tables mentioned below:

Under section 44AB of the Income Tax Act, 1961, Categories of taxpayers who are mandatorily required to conduct tax audit of their records:

Category of person	Limit for Income Tax Audit
Business
Carrying on business (not opting for presumptive taxation scheme*)	Total sales, turnover or gross receipts exceed Rs.1 crore in the FY (or) If cash transactions are up to 5% of total gross receipts and payments, the threshold limit of turnover for tax audit is Rs.10 crores (w.e.f. FY 2020-21)
Carrying on business eligible for presumptive taxation under Section 44AE, 44BB or 44BBB and opted for the same in previous year	Claims profits or gains lower than the prescribed limit under the presumptive taxation scheme.
Carrying on business eligible for presumptive taxation under Section 44AD and opted for the same in previous year	Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic exemption limit (i.e., Rs. 2.5 lakhs).
Carrying on the business and is not eligible to claim presumptive taxation under Section 44AD due to opting out for presumptive taxation in any one financial year of the lock-in period i.e. 5 consecutive years from when the presumptive tax scheme was opted	If income exceeds the basic exemption limit in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted.
Profession
Carrying on profession	Total gross receipts exceeds Rs 50 lakh in a year
Carrying on the profession eligible for presumptive taxation under Section 44ADA	1. Claims profits or gains lower than 50% of the total receipts from such profession and 2. Income exceeds the basic exemption limit
Business loss
In case of loss from carrying on of business and not opting for presumptive taxation scheme	Total sales, turnover or gross receipts exceed 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 scheme)	In case of loss from business when sales, turnover or gross receipts exceed 1 crore, the taxpayer is subject to tax audit under 44AB

Forms to be submitted for income tax audit under section 44AB

Under Section 44AB, the accompanying forms are needed to be utilized by the individual or individual being referred to when an audit is led on their accounts. These forms are explicitly referenced in Rule 6G of the Income Tax Act concerning income tax audit led according to Section 44AB.

For people carrying on a business or a profession, and whose accounts are to be audited according to the provisions expressed under any sort of law, then, at that point, the forms referenced beneath are needed to be utilized:

Form Number 3CA – Audit Form
Form Number 3CD – Statement showing important particulars

For people or people whose records are not needed to be audited according to the provisions expressed under any sort of law, except for income tax laws, then, at that point, the forms referenced underneath are needed to be utilized:

Form Number 3CB – Audit Form
Form Number 3CD – Statement showing important particulars

FAQs

What Constitutes an Audit report?

ax auditor shall furnish his report in a prescribed form which could be either Form 3CA or Form 3CB where:

Form No. 3CA is furnished when a person carrying on business or profession is already mandated to get his accounts audited under any other law.
Form No. 3CB is furnished when a person carrying on business or profession is not required to get his accounts audited under any other law.
Form No. 3CE is furnished when Non-residents and foreign companies receive royalties or fees for technical services from the government or an Indian concern.

What is the Income Tax Audit Last Date?

The government has extended the last date for completion of income tax audit by 7 days i.e. 7th October 2024 from 30th September 2024 for the FY 2023-24. In case of assessees covered by the provisions of transfer pricing audit, last date for completion of tax audit will be 31st October 2024.

Practice area's of B K Goyal & Co LLP

Company Registration Services in major cities of India

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What is Tax Audit?

What are the Objectives of Tax Audit

What is the Turnover Limit for Income Tax Audit

Forms to be submitted for income tax audit under section 44AB

FAQs

What Constitutes an Audit report?

What is the Income Tax Audit Last Date?

Practice area's of B K Goyal & Co LLP

Company Registration Services in major cities of India

Most read resources

Related Posts

Practice area's of B K Goyal & Co LLP

Company Registration Services in major cities of India

Most read resources