Tax Audit – Section 44ab of income tax act – due date, criteria, limit

Audit – meaning 

Audit is an independent examination of data.

The dictionary meaning of the term “audit” is check, review, inspection, etc. There are various types of audits prescribed under different laws like company law requires a company audit, cost accounting law requires a cost audit. Similarly there are various types of audit which includes statutory audit, internal audit etc.

Tax Audit meaning

The Income-tax Law requires the taxpayer to get the audit of the accounts of his business/profession from the view point of Income-tax Law.  As this is statutory requirement under Income Tax Act, 1961 so this may also be statutory audit.

Section 44ab of income tax act

Section 44AB of Income tax act, 1961 gives the provisions relating to the class of taxpayers who are required to get their accounts audited from a chartered accountant. The audit under section 44AB aims to ascertain the compliance of various provisions of the Income-tax Law and the fulfilment of other requirements of the Income-tax Law. The audit conducted by the chartered accountant of the accounts of the taxpayer in pursuance of the requirement of section 44AB​ is called tax audit. The Chartered Accountant conducting the tax audit is required to give his findings, observation, etc, in the form of audit report. The report of tax audit is to be given by the Chartered Accountant in Form Nos. 3CA/3CB and 3CD. 

The Chartered Accountant conducting the tax audit is required to give his findings, observation, etc, in the form of audit report. The report of tax audit is to be given by the Chartered Accountant in Form Nos. 3CA/3CB and 3CD. 

Tax audit applicability

As per the provisions of income tax act tax audit is applicable or the following persons are required to get their accounts audit.

As per section 44AB, following persons are compulsorily required to get their accounts audited :

  • A person carrying on business, if his total sales, turnover or gross receipts (as the case may be) in business for the year exceed or exceeds Rs. 1 crore. This provision is​ not applicable to the person, who opts for presumptive taxation scheme under section 44AD​ and his total sales or turnover doesnot excceeds Rs. 2 crores.
  • A person carrying on profession, if his gross receipts in profession for the year exceed Rs. 50 lakhs. 
  • An assessee who declaus profit for any previous year in accordance with section 44AD and he decreases profit for any of one 5 assessment year rufuant to the previous year succeding such previous year lower than the profit compused as per section 44AD and his income exceeds the amount which is not chargeable to tax.
  • ​If an eligible assessee opts out of the presumptive taxation scheme, within the oforesaid period, he cannot choose to revert back to the presumptive taxation scheme for a period of five assessment years thereafter.

(*) For provisions of section 44AD​ refer tutorial on “Tax on presumptive basis in case of certain eligible business”.

  • ​A person who is eligible to opt for the presumptive taxation scheme of section 44ADA(*) but he claims the profits or gains for such profession to be lower than the profit and gains computed as per the presumptive taxation scheme and his income exceeds the amount which is not chargeable to tax.

  • ​A This provision is not applicable to the person, who opts for presumptive taxation scheme under section 44AD​ and his total sales or turnover doesnot excceeds Rs. 2 crores.

(*) For provision of section 44ADA​, refer tutorial on “Tax on presumptive basis in case of certain eligible business”

  • A person who is eligible to opt for the presumptive taxation scheme of sections 44AE(*) but he claims the profits or gains for such business to be lower than the profits and gains computed as per the presumptive taxation scheme of sections 44AE.

(*) For provisions of sections 44AE refer tutorial on “Tax on presumptive basis in case of certain eligible business”.

  • A person who is eligible to opt for the taxation scheme prescribed under section 44BB(*) or section 44BBB(*) but he claims the profits or gains for such business to be lower than the profits and gains computed as per the taxation scheme of these sections.

(*) section 44BB is applicable to non-resident taxpayers engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire basis to be used in exploration of mineral oils. section 44BBB​ is applicable to foreign companies engaged in the business of civil construction or erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project.

Sect 44AB of Income Tax Act- Bare Act Language

  • Person carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds Rs. 1 crore in any previous year. Or
  • Person carrying on profession, if his gross receipt of the profession exceed Rs. 50 Lakhs in any previous year. Or
  • Person carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AEor section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; Or
  • Person Carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year;
  • Person carrying on the business shall, if the provisions of sub-section (4) of section 44ADare applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,  

get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed :

Provided that this section shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD and his total sales, turnover or gross receipts, as the case may be, in business does not exceed two crore rupees in such previous year

  • Provided further that this section shall not apply to the person, who derives income of the nature referred to in section 44Bor section 44BBA, on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later :
  • Provided also that in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section.—For the purposes of this section,—
  • (i) “accountant” shall have the same meaning as in the Explanation below sub-section (2) of section 288;
  • (ii) “specified date”, in relation to the accounts of the assessee of the previous year relevant to an assessment year, means the due date for furnishing the return of income under sub-section (1) of section 139.

What is the objective of tax audit?

One of the objectives of tax audit is to ascertain/derive/report the requirements of Form Nos. 3CA/3CB and 3CD. Apart from reporting requirements of Form Nos. 3CA/3CB and 3CD, a proper audit for tax purposes would ensure that the books of account and other records are properly maintained, that they truly reflect the income of the taxpayer and claims for deduction are correctly made by him. Such audit would also help in checking fraudulent practices. It can also facilitate the administration of tax laws by a proper presentation of accounts before the tax authorities and considerably save the time of Assessing Officers in carrying out routine verifications, like checking correctness of totals and verifying whether purchases and sales are properly vouched for or not. The time of the Assessing Officers saved could be utilised for attending to more important and investigational aspects of a case.​

What are Form Nos. 3CA/3CB and 3CD?

The report of the tax audit conducted by the chartered accountant is to be ​furnished in the prescribed form. The form prescribed for audit report in respect of audit conducted under section 44AB​ is Form No. 3CB and the prescribed particulars are to be reported in Form No. 3CD

In case of persons covered under previous FAQ, i.e., who are required to get their accounts audited by or under any other law, the form prescribed for audit report is Form No. 3CA/3CB and the prescribed particulars are to be reported in Form No. 3CD.​

Tax audit due date

A person covered by section 44AB should get his accounts audited and should obtain the audit report on or before the due date of filing of the return of income, i.e., on or before 30th September (*) of the relevant assessment year, e.g., Tax audit report for the financial year 2018-19 corresponding to the assessment year 2019-20 should be obtained on or before 30th September, 2019 The due date for filing of audit report under section 44AB​ has been extended from September 30, 2019 to October 31, 2019 

(*) In case of a taxpayer who is required to furnish a report in Form No. 3CEB​​ under section 92​ in respect of any international transaction or specified domestic transaction, the due date of filing the return of income is 30th November of the relevant assessment year. 

​The tax audit report is to be electronically filed by the chartered accountant to the Income-tax Department. After filing of report by the chartered accountant, the taxpayer has to approve the report from his e-fling account with Income-tax Department

Penalty for non getting tax audit

According to section 271B, if any person who is required to comply with section 44AB fails to get his accounts audited in respect of any year or years as required under section 44AB or furnish such report as required under  section 44AB​, the Assessing Officer may impose a penalty. The penalty shall be lower of the following amounts:

(a) 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such year or years. 

(b) Rs. 1,50,000.

However, according to section 271B​, no penalty shall be imposed if reasonable cause for such failure is proved.