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Pankaj Tyagi
| Updated: 27 May, 2021 | Category: Taxation

Tax Audit under Section 44AB- Everything You Need to know

Tax Audit under Section 44AB

There is a multifarious audit that takes place under different laws such as statutory audit/company audit conducted under company law provisions, stock audit, cost audit etc. Likewise, income law also necessitates an audit called Tax audit. 

As the name suggests, a tax audit is a scrutinization of accounts of any profession or business carried out by the individuals from an income tax standpoint. It makes the filing process easier through the process of income computation.

Objectives of tax audit

Tax audit serves the following objectives for the taxpayers: 

  • Ensure legit maintenance of books of accounts & certification of the same.
  • Reporting discrepancies identified by the tax auditor after extensive scrutiny of the books of account. 
  • To report prescribed detail such as compliance with the various provision of IT law, tax depreciation etc. All these allow authorities to validate the legitimacy of the Income Tax returns filed by the taxpayer. 
  • Calculation and validation of aggregate income, claim for deductions etc., also become less tedious. 

Who is liable for tax audit?

A taxpayer must carry out a tax audit if the sale or gross receipts of a business surpass INR 1 crore in the given financial year. However, a taxpayer might need to get their account audited on other scenarios. We have clubbed the different scenarios in the tabular form given below:

Note: The maximum limit of INR 1 crore for the tax audit is projected to be escalated to INR 5 crore w.e.f 2020-21 if the taxpayer’s cash receipts are not greater than 5% of the turnover and if the taxpayer’s payment is capped @ 5% of the total payments.
Category of person Threshold
Business
Carrying on business (excluding presumptive taxation scheme*) Total sales or gross receipts surpass Rs 1 crore in the FY
Carrying on business which stands eligible for presumptive taxation u/s 44AE, 44BB or 44BBB Claims profits or gains lying under the  prescribed limit under presumptive taxation scheme
Carrying on business which stands eligible for presumptive taxation under Section 44AD  Discloses taxable income under the limits prescribed as per presumptive tax scheme and has income more than the basic threshold limit
Carrying on the business and stands ineligible for presumptive taxation u/s 44AD due to presumptive taxation in any one financial year of the lock-in-period when the presumptive tax scheme was opted. If income surpasses the max. amount non-taxable in the 5 consecutive tax years from the FY when the presumptive taxation was not chosen.
Carrying on business and declaring profit as in line with presumptive taxation scheme under Section 44AD If the total sales gross receipts lies under Rs 2 crore in the FY, then tax audit is non-applicable to businesses.
Profession
Carrying on profession  Total gross receipts is higher than Rs 50 lakh in the FY 
Carrying on the profession which stands eligible for presumptive taxation u/s 44ADA 1. Claims profits or gains lesser than the given limit as per presumptive taxation scheme   2. Income exceeds the max amount which is non-taxable.
Business loss
In case of loss from carrying on of business and not opting for presumptive taxation scheme Total sales, turnover or gross receipts surpass Rs 1 crore
If taxpayer’s gross income surpasses threshold limit but he has encountered a loss from a business (in the absence of presumptive taxation scheme) In case of loss from business when sales and gross receipts surpassed 1 crore, the taxpayer is tax audit u/s 44AB
Carrying on business with presumptive taxation scheme u/s 44AD& having a business loss but income lies below basic threshold limit. Tax audit not applicable
Carrying on business (presumptive taxation scheme u/s 44AD applicable) and confronting a business loss but with income surpassing basic threshold limit Declares taxable income lesser the limits given as per presumptive tax scheme & has income surpassing the basic threshold limit

What if there is a compulsion for an individual to get his accounts audited under any other law? 

In such cases, auditing will not be subjected to such taxpayers. It is more than enough for taxpayers to get their account audited under other law prior to the due date of return filing. The taxpayer can submit the audit report under IT law. 

Read our article:CBDT Amends the Tax Audit Report Form 3CD, ITR 6, Form No 10-IE and 10-IF

What creates an Audit report?

Tax auditor is required to submit his report in a given format which could be Form 3CB or 3CA where: 

  • Form No. 3CA is submitted when an individual carrying on profession or business is under obligation to get his accounts audited under any other law.
  • Form No. 3CB is submitted when an individual carrying on a profession or business is not obligated to get his accounts audited under any other law.
  • In case of either of these audit reports, the tax auditor should submit the given details in Form No. 3CD.  

How & when tax audit report should be submitted?

The tax auditor must submit a tax audit report online via login credentials in the capacity of CA, ‘Chartered Accountant[1]’. The taxpayer is also required to add CA info in the portal. As soon as the auditor submits the audit report, the same must either be rejected/accepted in the login portal. 

In case of rejection, re-follow all the procedures till the audit report is accepted by the taxpayer. You must fill report of the tax audit on or before the ITR’s filing due date. 

It is 30 Nov of the subsequent year if the taxpayers have entered into a cross-border transaction & 30 Sep (extended to 31 Oct for AY 2020-21) of the subsequent year for other taxpayers. 

Conclusion

It should be noted that in the case of non-filing, a penalty of 0.5% of the total sales or Rs 1,50,000 will be imposed accordingly on the defaulter. Therefore, being aware of the filing date is the best way of preventing such happening. 

Read our article:An Insight on Income Tax Audit under Section 44AB of Income Tax Act

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Pankaj Tyagi

Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.

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