Important Keyword: Section 44AB, Tax Audit.

Section 44AB: Tax Audit under Income Tax Act

An audit serves as a meticulous examination of financial records to verify their accuracy and compliance with regulations. Various types of audits are mandated by different laws, including company audits under company law, cost audits, stock audits, and tax audits governed by income tax law. Specifically, a tax audit entails the scrutiny and review of a taxpayer’s financial statements and books of accounts related to their business or profession. Chartered accountants perform this audit in accordance with the provisions outlined in Section 44AB of the Income Tax Act.

Tax Audit Applicability u/s 44AB

Tax audit under Section 44AB of the Income Tax Act is crucial for meticulously examining the books of accounts to detect any discrepancies, errors, or potential instances of tax evasion.

Here’s how it applies to different scenarios:

1. Businesses under the normal scheme of taxation:
   • Tax audit is mandatory if turnover or sales exceed INR 1 crore in a financial year.
   • If the majority of transactions are conducted digitally (cash payments/receipts are less than 5% of total), the turnover limit for tax audit increases to INR 10 crores.
2. Businesses under the presumptive scheme of taxation:
   • Tax audit is required if the business opts out of the presumptive taxation scheme before 5 years and total income exceeds the basic exemption limit.
3. Professions under the normal scheme of taxation:
   • Tax audit is mandatory if gross receipts exceed INR 50 lakhs in a financial year.
4. Professions under the presumptive scheme of taxation:
   • Tax audit is required if the prescribed profit of 50% of turnover is not reported and total income exceeds the basic exemption limit.
5. Specified businesses:
   • Tax audit is applicable if a goods carriage business eligible for Presumptive Taxation reports profit lower than the prescribed rate.
6. Trading income:
   • For traders, the turnover limit for tax audit applicability is INR 10 crore since all transactions are digital.
7. Non-applicability:
   • Tax audit is not required if profits are reported as per the presumptive taxation scheme.
   • If turnover is between 2 crores to 10 crores, irrespective of profit/loss, tax audit is not applicable.

After the tax audit, the CA must file Form 3CB-3CD digitally signed, with the due date being 30th September of the relevant assessment year. The due date to file the ITR where tax audit is done is 31st October of the relevant assessment year. Failure to comply may result in a penalty of 0.5% of total sales/turnover or INR 1,50,000, whichever is lower, unless a valid reason is provided.

Read More: Section 44ADA: Presumptive Taxation for Profession

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Official Income Tax Return filing website: https://incometaxindia.gov.in/