Audit of Accounts of Certain Persons Carrying on Business or Profession (Section 44AB)
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 fulfillment 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.
Who is required to get Tax Audit
It is obligatory in the following cases for a person carrying on business or profession to get his accounts audited by a Chartered Accountant:
→ 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 exceeds Rs. 2 crores.
Note: w.e.f. Assessment Year 2020-21, the threshold limit, for a person carrying on business, is increased from Rs. 1 Crore to Rs. 5 crore in case when cash receipt and payment made during the year does not exceed 5% of total receipt or payment, as the case may be. In other words, more than 95% of the business transactions should be done through banking channels.
→ A person carrying on profession, if his gross receipts in profession for the year exceed Rs. 50 lakhs.
→ Where the person is covered under section 44AE, (44BB or 44BBB) and claims that the profits and gains from business are lower than the profits and gains computed on a presumptive basis. In such cases, the normal monetary limits for tax audit in respect of business would not apply.
→ Where the person is carrying on a notified profession under section 44AA, and he claims that the profits and gains from such profession are lower than the profits and gains computed on a presumptive basis under section 44ADA and his income exceeds the basic exemption limit.
→ A person who declared profit on presumptive basis under section 44AD for any previous year and thereafter, declares profits for any five consecutive assessment years not in accordance with presumptive tax provisions of section 44AD(1).
In such case, income cannot be computed on the basis of presumptive tax provisions under section 44AD for five assessment years subsequent to the assessment year relevant to the previous year in which profits have not been declared under section 44AD(1) and income exceeds the basic exemption limit in that year.
Accounts audited under other laws
Section 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.
If 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 tax audit report report by the chartered accountant.
Thus, for example, the provision regarding compulsory audit does not imply a second or separate audit of accounts of companies whose accounts are already required to be audited under the Companies Act, 2013.
Audit Report Format
The report of the tax audit conducted by the chartered accountant is to be furnished in the Forms 3CA/3CB and 3CD.
Where the person are required to get their accounts audited by or under any other law, the form prescribed for audit report is Form No. 3CA and 3CD.
In all other cases Form No. Form No. 3CB and 3CD.
Due Date of Tax Audit
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.
For example – tax audit report for the financial year 2019-20 corresponding to the assessment year 2020-21 should be obtained on or before 30th September, 2020.
Note: due date for furnishing tax audit report for A.Y 2020-21 has been extended to 30th November, 2020.
How to get/file Tax Audit Report
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 (i.e., at www.incometaxindiaefiling.gov.in).
Penalty for not getting Tax Audit
If any person who is required to comply with section 44AB and fails to get his accounts audited or fails to furnish tax audit report , 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.
(b) Rs. 1,50,000.
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