Tax Audit Under Income Tax Act 1961

The Income-tax Law requires the taxpayer to get the audit of the accounts of his business/profession from the viewpoint of Income-tax Law.

Section 44AB 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 an audit report. The report of tax audit is to be given by the chartered accountant in Form Nos. 3CA/3CB and 3CD.

Who is required to get his books Audited Under Section 44AB?

Under section 44AB of the Income Tax Act 1961, every person carrying on business is required to get his accounts audited,

1. If his total sales, turnover or gross receipts, in business exceed or exceeds 1 Crore rupees in any previous year.

   Exception 1:

   In order to reduce the compliance burden on small and medium enterprises, Finance Act 2020, amended section 44AB to increase the threshold limit for a person carrying on business from 1 Crore rupees to 5 Crore rupees in cases where, -

   1. the aggregate of all receipts in cash during the previous year does not exceed five percent of the total amount and
   2. the aggregate of all payments in cash during the previous year does not exceed five percent of total payment.

   In other words, if a “Person” has turnover below Rs.5 Crores he need not get the books of account audited under section 44AB if his aggregate amount of cash outflows and inflows are less than five percent of the aggregate outflows and inflows during the previous year.

   Exception 2:

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

2. In case of a person carrying on profession he is required to get his accounts audited, if his gross receipt in profession exceeds, 50 Lakh rupees in any previous year.
3. An assessee who declares 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 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 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.

Consequence of Non-Compliance of Tax Audit Requirement

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:

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.

Our Team with Qualified Chartered Account will assist our clients in complying with Audit and Filing requirement of Section 44AB of the Income Tax Act 1961.