Income Tax Audit Due Date is nearing: All you need to Know about Tax Audit u/s 44AB including Penalty

In accordance with Section 44AB of the Income Tax Act, 1961, specific taxpayers must perform an audit of their financial records for income tax purposes. The deadline for submitting the income tax audit report for the Assessment Year 2023-24 is September 30, 2023.

Tax Audit

The Income-tax Law requires taxpayers to get the audit of the accounts of his business/profession done from the view point of Income-tax Law. The Section 44AB of Income Tax Act marks 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.

Is it mandatory for someone who already has their accounts audited as per another law to undergo a separate audit to meet the Section 44AB requirement?

Taxpayers like company or co-operative society are required to get their accounts audited under their respective law. S​ection 44AB provides that, if a person is required by or under any other law to get his accounts audited, then he need not again get his accounts audited to comply with the requirement of Section 44AB.

In such a case, it shall be sufficient if such person gets the accounts of such business or profession audited under such law and obtains the report of the audit as required under such other law and also a report by the chartered accountant in the form prescribed under section 44AB, i.e., Form No. 3CA and Form 3CD (refer to next FAQ for relevance of these forms). ​

Chartered Accountant and Tax Audit Report

The Chartered Accountant conducting the tax audit is required to give his findings, observations, etc., in the form of an audit report. The report of tax audit is to be given by the chartered accountant in 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 who are required to get their accounts audited by or under any other law, the form prescribed for audit report is Form No. 3CA​ and the prescribed particulars are to be reported in Form No. 3CD.​

Who is required to get Tax Audit done

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

1. 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 doesn’t exceed Rs. 2 crores.

Note: The threshold limit, for a person carrying on business, is increased from Rs. 1 Crore to Rs. 10 crores in case when cash receipt and payment made during the year do not exceed 5% of total receipt or payment, as the case may be. In other words, more than 95% of business transactions should be done through banking channels.

2. A person carrying on profession, if his gross receipts in profession for the year exceed Rs. 50 lakhs.

3. An assessee who declare profit for any previous year in accordance with Section 44AD​ and he decreases profit for any of one 5 assessment year relevant to the previous year succeeding such previous year lower than the profit computed as per Section 44AD​ ​ and his income exceeds the amount which is not chargeable to tax.

4. If an eligible assessee opts out of the presumptive taxation scheme, within the aforesaid period, he cannot choose to revert back to the presumptive taxation scheme for a period of five assessment years thereafter.

5. A person who is eligible to opt for the presumptive taxation scheme of Section 44ADA, but he claims the profits or gains for such a 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.

6. 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.

7. 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.

Tax Audit Due Date

​​A person covered by Section 44AB of the Income Tax Act should get his accounts audited and should obtain the audit report on or before 30th September of the relevant assessment year, e.g., Tax audit report for the financial year 2022-23 corresponding to the assessment year 2023-24 should be obtained on or before 30th September, 2023.

​The tax audit report is to be electronically filed by the chartered accountant to the Income-tax Department. After filing a report by the chartered accountant, the taxpayer has to approve the report from his e-fling account with the Income-tax Department (i.e., at https://www.incometax.gov.in/iec/foportal).

Penalty

​​According to Section 271B of Income Tax Act, 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:

1. 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.
2. Rs. 1,50,000.

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

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