Form 3CB – 3CD – Income Tax

Forms 3CB and 3CD are reporting formats that should be used by auditors who are auditing the books of accounts of taxpayers who are subject to tax audits. The provisions of the Income Tax Act that govern tax audits require a Chartered Accountant to provide an audit report in the specified format. This article provides a brief overview of Form 3CB and Form 3CD, the purpose of which is to introduce a standardized audit report reporting format for audits conducted to meet the requirements of Section 44AB.

Form 3CD

The limit for a ‘Tax Audit’ under Section 44AB is Rs 5 crore (the threshold limit is Rs 10 crore where a minimum of 95 percent of business transactions are done in digital mode). If the taxpayer is subject to an audit, the process becomes even more complicated because one must submit not only a return but also a tax audit report to the Income Tax authorities. 

Form 3CB – 3CD – Income Tax

Components of Form 3CB

Section 44AB requires the chartered accountant to specify the following components in the forms after conducting the audit:

  • Personal information about the taxpayer
  • Audit observations and comments, including any discrepancies or consistency issues.
  • A declaration stating that the financial statements, such as the Balance Sheet, Profit, Loss Account, and Income and Expenditure Statement, are by the books of accounts kept at the entity’s headquarters.
  • A declaration stating that the provided information depicts a fair and accurate outline of the entity’s balance sheet and other aspects.
  • Form 3CB includes a declaration stating that the details specified in the audited report are included.
  • Declarations of chartered accounts indicating that the balance sheet, profit and loss account, or income, and expenditure account have all been reviewed.
  • Declaration of a Chartered Accountant on the proper upkeep of the books of accounts.
  • Form 3CD annexure
  • The chartered accountant’s name, address, and signature.

Components of Form 3CD

Form 3CD is split into two sections. Its numerous components are as follows:

Part A

  • The taxpayer’s name and address
  • Account Number (Permanent) (PAN)
  • If applicable, the taxpayer’s obligation to pay indirect taxes such as excise duty, service tax, sales tax, customs duty, and so on.
  • The  Tax Return’s Status
  • The previous year in question Assessment year
  • The relevant section 44AB clause under which the audit was carried out.

Part B

  • If the entity is a corporation or a group of individuals, the names of the partners/members and their profit-sharing ratios must be specified.
  • The nature of one’s business or profession. If the nature of a business or profession changes, the specifics of that change.
  • Whether or not books of account are required under section 44AA, and if so, a list of the books required.
  • If the profit and loss account contains any profits and gains that can be assessed on a presumptive basis, indicate the amount and the relevant section.
  • An accounting method was used the previous year.

According to section 44AB of the Income Tax Act, tax audits must be conducted by a professional auditor who has been approved by the Income Tax Department. This professional could be a Chartered Accountant (CA) with a full-time certificate of professional practice, or it could be a company that specializes in this field. The tax audit ensures that the taxpayers’ books of account are accurate and correct and that their income is calculated by the applicable Income Tax Rules. Form 3CB is one of the important forms used to submit an audit report generated under section 44AB of the Income Tax Act of 1961.

What is Form 3CB?

This form is required when the taxpayer, who is a professional or a business, is not required by law to have the book of accounts audited. When an individual, partnership firm, or proprietorship entity has a turnover of more than Rs. 1 crore and does not elect the presumptive taxation scheme, no audit of books of account is required under any law other than the Income Tax Act.  In addition to Form 3CB, the tax auditor may also provide Form 3CD.

Form 3CB – 3CD – Income Tax

File Form 3CB

Form 3CB is an audit report provided by a professional CA on behalf of a tax assessee who works as a self-employed professional or runs a business. The assessee who is being audited must obtain the report in Form 3CB by September 30 of the applicable assessment year. For example, if the relevant assessment year or financial year is 2017-18, they must obtain the audit report by September 30, 2020.

Key Fields in Form 3CB

The following are the key fields in Form 3CB that the auditor must fill out after conducting the audit of the books of account under Section 44AB.

  • Personal information about the assessee.
  • The auditor’s observations and comments, as well as any consistency or discrepancies.
  • A declaration stating the Books of Accounts such as Profit and Loss Account, Balance Sheet, Income and Expenditure Statements, as well as the Books of Accounts kept at the entity’s headquarters.
  • A declaration stating that the information provided is correct and provides a fair overview of the entity’s major financial aspects.
  • Form 3CB includes a declaration stating that the details mentioned in the audited report are also included.
  • CA declaration(s) stating that the profit and loss account, income and expenditure account, and balance sheet have all been thoroughly reviewed.
  • Form 3CD annexure.
  • CA information, such as name, address, and signature.

Sections in Form 3CB

The key sections of Form 3CB, as well as the key fields within each section, are as follows::  

Section 1

  • Balance-sheet Date
  • The Income and Expenditure Account/Profit and Loss Account’s Duration (beginning and end date)
  • Name and address of the taxpayer, as well as Permanent Account Number information

Section 2 

  • Provide information about where the books of accounts are kept.
  • Address information for the branches, if the books are kept in branches as well.

Section 3 (a)

  • This section contains various observations, qualifications, comments, and discrepancies discovered during the audit.

Section 3 (b)

  • The auditor’s declaration is included in this section.

Section 4

  • Form 3CD declaration and audit report

Section 5

  • Observations and discrepancies discovered, including relevant details

Section 6

  • Date and location of audit report signature
  • Name, address, and membership number of the auditor
  • The auditor’s seal or stamp

Penalty for Non-Filing Tax Audit Report

If a Tax Audit Report is not filed, a minimum penalty of 0.5 percent of total sales, turnover, or gross receipts, with a maximum penalty of Rs. 1,50,000, is imposed. However, no penalty will be imposed if the taxpayer provides reasonable cause for noncompliance.

What are the main distinctions between Forms 3CA, 3CB, and 3CD?

The main distinction between Form 3CA and Form 3CB is in their applicability. While Form 3CA must be submitted by individuals who are required to be audited under Section 44AB of the Income Tax Act, Form 3CB applies to those who are audited under other sections as well. While Forms 3CA and 3CB are both single-page documents, Form 3CD is a much more detailed document that shows details of the auditor’s audit. Form 3CD is a supporting document that must be submitted along with Forms 3CA and 3CB to demonstrate the completion of a mandatory audit.

Conclusion

It is the taxpayer’s responsibility to have their accounts audited. A Chartered Accountant is required to cross-examine the taxpayer’s books of accounts and report the findings in the tax audit report. To avoid any proceedings, it is critical to submitting details with accuracy.