Are you wishing to form a start-up or a small business? 

No matter what, as per section 44AB of the income tax act. If you fall under a  certain class of taxpayers then you are required to get your accounts audited from a chartered accountant. The report of the tax audit is to be submitted by the Chartered accountant. 

In this blog, you will gain knowledge about Income tax audits under section  44AB of the Income Tax Act. Just before getting into further details about  Section 44AB, let us understand the term “Audit”. 

Google Dictionary meaning of the term “audit” suggests it is an official inspection of an organization’s accounts, typically by an independent body. 

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What Is A Tax Audit? 

There are numerous types of tax audits prescribed under different laws for both businesses and individuals. 

For example, 

•The company law requires a company audit, cost accounting law requires a cost audit, etc. 

•The Income-tax Law requires the taxpayer to get an audit of the accounts of his business/profession. 

What Are The Objectives Of The Tax Audit? 

A regular audit of accounts of a business or a profession for tax purposes is essential to ensure that the books of account are properly maintained. 

The chartered accountant conducting the tax audit is required to submit his findings, observations, etc., in the particular forms prescribed by the CBDT.  It helps the tax department to keep a check on fraudulent practices. At the same time, reporting the audit in a format will assist the assessing officers in verifying the correctness of the audit report. 

Who Is Required To Get His Accounts Audited? 

As per Section 44AB, there are various categories of taxpayers with different threshold limits who are required to get a tax audit. 

Here is the list of taxpayers who need to get the tax audit done: 

1. A person who is doing business with total sales, turnover or gross receipts in business for the year exceeding Rs 1 crore.

2. A person who is doing the business and its profits and gains are considered as the profits and gains of that person under Section  44AE or Section 44BB or Section 44BBB of the Income-tax act and he claimed his income to be lower than the taxable limit prescribed for the profits and gains of his business in any previous year.

3. One who is doing business and its profits and gains are considered as the profits and gains of that person under Section 44AD of the  Income-tax act and he claimed his income to be lower than the taxable limit prescribed for the profits and gains of his business but his income is more than the maximum limit exempted from paying income tax for any previous year.

4. This provision is not applicable if he is conducting business and furnishing all tax details as per the presumptive taxation scheme under Section 44AD and his total sales or turnover doesn’t exceed  Rs 2 Crores. 

Section 44AB Of Income -Tax Act

Profession: 

1. A person in a particular profession needs to get his account audited if the gross receipts in the profession exceed 25 lakhs in any previous year. 

2. A person in a particular profession who is eligible for a presumptive  taxation scheme under Section 44ADA, but he claims the profits  and gains for such profession to be lower than the profit and gains  computed as per the presumptive taxation scheme and his income  exceeds the amount which is not chargeable to tax

NOTE: This provision does not apply to the person who derives income as per  Section 44B and Section 44BBA, on and from the 1st of April, 1985.

If a person has already audited his accounts under any other law, then is it compulsory to get his accounts audited again to comply with Section 44AB?

As per Section 44AB, if a person has already audited his accounts under any other law, then he need not get his accounts audited to comply with the requirement of this section. 

In this case, it is sufficient to report the details of the audit as required by the chartered accountant in the form prescribed under section 44AB, i.e.,  Form 3CA and Form 3CB. 

What Are The Forms Used To Report The Tax Audit? 

The tax audit report has to be submitted by the chartered accountant in a  particular form prescribed by the Income-tax department.

Form 3CA: 

If a person is carrying on a business or profession and who has already  audited his accounts under any other law other than Income-tax law. 

Form 3CB: 

If a person is carrying on a business or profession and is not required  to get his accounts audited under any other law. 

Form 3CD: 

It is a detailed statement of particulars which has to be filled along either of  the above-mentioned forms. 

What Is The Due Date To Submit The Tax Audit Report? 

A person covered by section 44AB should get his accounts audited and should obtain the audit report on or before the due date of filing of the return of income, e.g. on or before 30th Sept. of the relevant assessment year. 

The tax audit report is to be electronically filed by the chartered accountant to the Income-tax Department. After filing the report by the chartered accountant, the taxpayer has to approve the report from his e-fling account with the Income-tax Department ). 

What is the penalty for not getting the audited account? 

If the taxpayer fails to submit the audit report, the Assessing Officer may impose a penalty according to Section 271B. 

1. 5% of the total sales, turnover or gross receipts or 

2. 1,50,000, whichever is lower. 

However, no penalty will be imposed if a valid reason is provided for such failure under Section 271B.