SECTION 44AB OF INCOME TAX ACT – TAX AUDIT
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Understanding Tax Audit under Section 44AB of the Income Tax Act
A ‘tax audit’ is a process designed to verify the accuracy of a taxpayer’s books of accounts, ensuring proper maintenance of records, and correct computation of income. This practice acts as a deterrent against fraudulent activities. Section 44AB of the Income Tax Act mandates a tax audit when a taxpayer crosses specific thresholds or meets certain criteria, requiring the services of a Chartered Accountant.
Applicability of Tax Audit under Section 44AB
The following table summarizes the applicability criteria for tax audit under Section 44AB:
Business/Profession Section 44AB Applicability Criteria Business Total sales, turnover, or gross receipts exceed INR 1 Crore in any previous year. Total sales, turnover, or gross receipts exceed INR 10 Crore, and specific conditions related to cash transactions are met. Business covered under section 44AE/44BB/44BBB Taxpayer eligible for presumptive taxation under these sections but declares profits lower than deemed profits. Business covered under section 44AD(4) Income exceeds the maximum amount not chargeable to tax in any previous year. Profession Gross receipts in a profession exceed INR 50 Lakhs in any previous year. Profession covered under section 44ADA Taxpayer opts for presumptive taxation but declares profits lower than deemed profits, and income exceeds the maximum amount not chargeable to tax. Non-Applicability of Section 44AB
Tax audit provisions under Section 44AB do not apply under the following circumstances:
- Taxpayer opting for presumptive taxation under Section 44AD(1) with total sales/turnover/gross receipts below INR 2 Crores.
- Taxpayer deriving income under Section 44B or Section 44BBA.
- Taxpayer required to get accounts audited under any other law, provided certain conditions are met.
Audit Report Forms under Section 44AB
As per rule 6G of the Income Tax Rules, the audit report and particulars required under Section 44AB are furnished in the following forms:
- For businesses or professions audited under other laws: Form No. 3CA and Form No. 3CD.
- For other taxpayers: Form No. 3CB and Form No. 3CD.
Due Date for Furnishing Tax Audit Report
The taxpayer must get books audited and furnish the tax audit report on or before the ‘specified date,’ which is one month prior to the due date for filing income tax returns (i.e., 30th September).
Penalty for Non-Compliance
Failure to comply with Section 44AB may result in a penalty under Section 271B, which is the lower of 5% of total sales/turnover/gross receipts or INR 1,50,000. The penalty is not levied if a reasonable cause for non-compliance is demonstrated.
Frequently Asked Questions (FAQs) on Section 44AB
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What is Section 44AB?
- Section 44AB of the Income Tax Act pertains to the audit of accounts, requiring individuals to have their books audited by a Chartered Accountant.
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Who comes under Section 44AB?
- Taxpayers exceeding specified limits, such as business turnover or gross receipts, fall under Section 44AB.
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What is the Section 44AB limit?
- The limit varies based on the type of business or profession. For businesses, it’s INR 1 Crore (or INR 10 Crores under specific conditions), while for professions, it’s INR 50 Lakhs.
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What is the penalty for tax audit?
- The penalty under Section 271B is the lower of 5% of total sales/turnover/gross receipts or INR 1,50,000, with exceptions for reasonable causes.
Understanding these provisions is crucial for taxpayers to ensure compliance and avoid penalties.
