Income Tax Audit u/s 44AB: Applicability, Due Date, Form 3CA, 3CB, 3CD & 3CE
Has the Tax Audit due date got you worried? In this blog, we have covered basic things that you need to know about Tax Audit under section 44AB, the applicability, requirements, relevant forms 3CA/ 3CB & 3CD, due dates and penalties.
What is Tax Audit?
The term “audit” essentially refers to inspection or assessment and under various laws and regulations, different audits are required to be performed, such as company audits, cost audits, etc. Under Section 44AB of the Income-Tax Act, a taxpayer is required to undergo an audit of the business accounts on fulfilling certain conditions.
Section 44AB aims to ascertain the compliance of various provisions and the fulfillment of other requirements of the Income-tax Law. As per the provisions of 44AB, a practicing Chartered Accountant is eligible to conduct tax audit.
What are the objectives of Tax Audit?
The primary objective of a Tax Audit is to ascertain the requirements of Form 3CA, 3CB & 3CD,, the underlying purpose being to ensure proper maintenance of books of accounts and other records by the taxpayer with an accurate and true reflection of income and deductions.
Tax audit under section 44AB also helps the authorities to prevent fraudulent practices and saves the time of Assessing Officers in carrying out routine verifications, like checking the correctness and verifying whether purchases and sales are properly vouched for or not.
Who is required to get accounts audited u/s 44AB?
As per section 44AB, the following persons are compulsorily required to get their accounts audited,
Category of Person
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Applicability Criteria
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Business
(Excluding person who has opted for presumptive taxation scheme under Section 44AD)
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Total sales, turnover, or gross receipts in business for the year exceed Rs. 1 crore. (Rs. 2 Cr in case of section 44AD(1).
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Business
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The threshold limit, for a person carrying on business, is increased to Rs. 10 Crores if,
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Receipts in cash does not exceed 5% of all receipts.
- Payment in cash does not exceed 5% of all payment
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Profession
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Gross receipts in profession for the year exceed Rs. 50 lakhs.
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Business Covered U/s 44AD
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If such a person claims that the profits and gains from the business are lower than the profits and gains computed in accordance with the provision of Section U/s 44AD, 44ADA and 44AE then TAX Audit is applicable as per Section 44AB.
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Profession Covered U/s 44ADA
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Transport Business Covered U/s 44AE
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When is Tax Audit u/s 44AB not applicable?
- A taxpayer who declares profits and gains for the previous year in accordance with the provisions of Section 44AD(1) or Section 44ADA(1).
- A taxpayer who derives income of the nature referred to in section 44B or section 44BBA.
What are the components of the Tax Audit Report?
The report of the tax audit conducted by the chartered accountant is to be furnished in the prescribed format in Form 3CA, 3CB & 3CD.
Form 3CA-3CD is applicable in the case of a person who is required to get the accounts audited by or under any law other than the Income Tax Act, 1961.
Form 3CB-3CD is applicable in the case of a person who is not required to get his accounts audited by or under any law other than the Income Tax Act, 1961.
To Know More about Form 3CA, 3CB, 3CD, and 3CE, visit: Tax Audit Form: 3CA, 3CB, 3CD, and 3CE
To Get a detailed overview of Form 3CD, visit: Tax Audit Form 3CD
Due Date and Penalty for Delay in Furnishing Tax Audit Report
A person covered by section 44AB should get his accounts audited and should obtain the audit report on or before 30th September of the relevant assessment year.
According to section 271B, if any person who is required to comply with section 44AB fails to get his accounts audited 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,
- 0.5% of the total sales, turnover in business or gross receipts in profession
- Rs. 1,50,000.
However, according to section 271B, no penalty shall be imposed if reasonable cause for such failure is proved.