Here’s All You Need To Know About Tax Audit Under Section 44AB Of Income Tax Act

Income Tax

Tax evasion and fraud are major problems India often goes through. In a country where only around 1.46 crore citizens are taxpayers, income tax evasion can hamper the overall financial system significantly. This is why the Government of India has introduced Section 44AB of Income Tax Act to audit individuals and businesses suspected of tax fraud. 

Read on to acquire a clear understanding of this law!

Applicability of Section 44AB 

Tax audit refers to the process of evaluating taxpayers’ books of accounts or the total income earned by them. This is done to ensure that all the records have been maintained properly. IT officials also check whether the taxpayer has complied with specific requirements such as an accurate specification of claim, filing of ITR, etc. 

Section 44AB of Income Tax Act consists of provisions attributed to an income tax audit. It helps to maintain all the details regarding income, tax and deductions of every assessee, further reducing the scope of fraudulent practices. 

Persons liable to perform a tax audit under this particular section of ITA are as follows:

• Taxpayers having businesses that have gross receipts or annual turnover of more than Rs. 2 crore will be required to get the tax audit done under Income Tax Section 44AB. However, if such individuals opt for a presumptive taxation scheme, this law will not be applicable to them.
• In case a taxpayer is pursuing a profession that possesses gross receipts of more than Rs. 50 lakh during the preceding year, the person needs to perform a tax audit. 
• Some assessees choose Section 44AD and 44ADA yet claim that their overall income is below the profit amount computed under presumptive taxation and the earnings cross the amount that is taxable as per the norms of IT Act. Such taxpayers have to get a tax audit done.
• Some taxpayers opt for Section 44BB, 44AE, and 44BBB yet claim that the total revenue they have earned is below the profit amount computed under the aforementioned sections. They need to perform a tax audit under Section 44AB of Income Tax Act.

Note that certain organisations or co-operative societies also need to get their tax audit done under certain laws of ITA. However, Section 44AB of Income Tax Act does not apply to them in that case. In accordance with specific laws applicable to them, they need to collect and furnish audit reports along with their chartered accountants’ reports in form 3CA or 3CB. 

Forms Required to be Submitted under Section 44AB 

Under Section 44AB of Income Tax Act, there are certain forms assessees need to use when IT officials are carrying out a tax audit.

The following are applicable to individuals who are involved in a profession or a business for which the accounts will be audited according to provisions related to any type of law. 

• Form no. 3CA 
• Form no. 3CD

These are the two forms that IT officials must use to audit individuals whose accounts can only be audited under Income Tax laws. 

• Form no. 3CB
• Form no. 3CD

Keep in mind that such persons cannot undergo audits under any other law.

Also read: How To Income Tax Return For Mutual Funds On New Tax Portal?

Filing of Income Tax Audit Report under Section 44AB 

The purpose of conducting a tax audit under Section 44AB is to maintain books of accounts and eliminate fraudulent activities. This way, the books of accounts will be free of discrepancies as well. The objectives of this tax audit also include reporting tax depreciation details, verifying information filed in ITR, etc.    

Assessees who are liable to perform tax audit under Section 44AB should file Income Tax Audit Report by 30^th September of the AY. It is mandatory for them to e-file the audit reports of income tax, including their ITR. Note that apart from these IT officials might ask for additional documents or information too. 

Non-compliance of Income Tax Audit under Section 44AB 

Individuals who are liable to perform a tax audit under Section 44AB of Income Tax Act but are not able to do that will have to face penalties. They need to pay a penalty fee of 0.5% of their annual revenue for that particular financial year. Note that the amount they will be paying as a penalty should not exceed Rs. 1.5 lakh. 

However, if a person cannot perform this tax audit under Section 44AB for a valid reason, as per Section 271B, they will be free from penalty. The following reasons will be allowed in this regard:

• If the taxpayer fails or delays in performing the tax audit because the chartered accountant authorised under his/her name is resigning from the duty 
• In case the delay or failure of tax audit is due to the demise of the authorised CA of that particular assessee 
• If the chartered accountant is not able to access that taxpayer’s accounts

Other than these, due to natural calamities or disasters, events like riots, theft, etc., there can be a delay or the non-performance of tax audit under section 44AB. In such cases, the taxpayer will not have to bear any penalty charges.  

Also Read: How To File Income Tax Return-2?

Final Word

Being aware of the aforementioned intricacies related to Section 44AB of Income Tax Act should help taxpayers stay on the right side of the law. Make sure you comply with all the income tax rules to avoid penalties. 

Frequently Asked Questions 

Who are exempt from a tax audit under Section 44AB of ITA?

The following taxpayers are exempted from tax audit under Section 44AB:

• Any individual earning under Section 44B. 
• Any individual earning under Section 44BBA.
• Any individual whose books of accounts undergo an audit under other laws. In such a case, that individual must produce form 3CB, form 3CA or form 3CD. 

Can I make any changes or revisions to a tax audit report?

Under normal circumstances, Section 44AB does not allow tax audit report amendment. However, such a revision may take place in the following cases:

1. Any change in the law’s interpretation
2. Revision of the law itself

As a chartered accountant, how many tax audit reports can I sign?

A chartered accountant can sign up to 60 tax audit reports in any financial year. This means that any report beyond this number that a CA signs will be invalid. Keep in mind that the upper limit of 60 audits is related to only those auditees whose turnovers are more than the limit set in Section 44AB. 

What documents should I keep to comply with books of accounts maintenance?

You should keep the following documents handy when trying to maintain books of accounts:

• Ledgers
• If you are following the commercial accounting method, maintain an accounting journal.
• Cash register
• Original receipts and invoices
• When invoices and receipts are unavailable, you must keep signed vouchers.

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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.