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Section 44AB: Tax Audit under Income Tax Act

by TeamFinodha | Apr 27, 2024 | Income Tax | 0 comments

Section 44AB ITR
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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.

Frequently Asked Questions

1. When is a tax audit mandatory under Section 44AB for businesses?
Answer: A tax audit is mandatory if a business’s turnover exceeds ₹1 crore in a financial year. If digital transactions exceed 95% (cash ≤ 5%), the threshold increases to ₹10 crore.

2. Is a tax audit required if I opt for the presumptive taxation scheme under Section 44AD?
Answer: No. If you declare profits as per the presumptive taxation scheme and comply with its conditions, a tax audit is not required.

3. What if my business turnover is between ₹2 crore and ₹10 crore, with all transactions digital? Do I need a tax audit?
Answer: No. Tax audit is not applicable if turnover is between ₹2 crore and ₹10 crore and digital transactions are 95% or more, regardless of profit or loss.

4. When must a tax audit be done for professionals under Section 44AB?
Answer: Professionals must get a tax audit if their gross receipts exceed ₹50 lakh in a financial year or if presumptive profits are not declared and income exceeds the basic exemption limit.

5. What is the due date for filing the tax audit report (Form 3CB-3CD)?
Answer: The tax audit report must be filed electronically by 30th September following the end of the financial year.

6. What happens if I miss the tax audit or filing deadlines?
Answer: A penalty under Section 271B may be imposed up to 0.5% of turnover or ₹1,50,000 (whichever is lower), unless a reasonable cause is shown.

7. Are traders subject to tax audit under Section 44AB?
Answer: Yes, traders must undergo a tax audit if turnover exceeds ₹10 crore and majority transactions are digital (≥ 95%).

8. What forms are filed after the tax audit is completed?
Answer: Chartered Accountants file Form 3CB-3CD digitally signed, and the taxpayer files their Income Tax Return by 31st October of the assessment year.

Read More: Section 44ADA: Presumptive Taxation for Profession

Web Stories: Section 44ADA: Presumptive Taxation for Profession

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