Tax Audit under Section 44AB of Income Tax Act

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Sakshi Shah

Section 44AB
Tax Audit
Last updated on August 3rd, 2023

Tax Audit under Section 44AB of the Income Tax Act is the examination and review of the books of accounts of a taxpayer having income from business or profession. The taxpayer should appoint a practicing CA i.e. Chartered Accountant to audit the books of accounts. The tax auditor would ensure that books of accounts have been maintained correctly, report observations, and required information in the tax audit report. The applicability of tax audit depends upon the turnover/sales/gross receipts of the business or profession along with few more conditions.

The turnover limit for tax audit has been increased from INR 5 Cr to 10 Cr for taxpayers who carry out 95% of their transactions in the digital mode as announced in the budget 2021 by the FM. This limit was initially increased from INR 1 Cr to INR 5 Cr in the Budget 2020.

Tax Audit under Section 44AB for Business

Turnover/ Sales up to INR 1 Cr

Turnover/ Sales between INR 1 Cr to INR 2 Cr

The prescribed rate is 8% for non-digital transactions and 6% for digital transactions.
The prescribed rate is 8% for non-digital transactions and 6% for digital transactions.

Turnover/ Sales between INR 2 Cr to INR 10 Cr

Turnover/ Sales exceeds INR 10 Cr

Tax Audit limit change FY 2020-21 onwards

The limit for turnover under Section 44AB is INR 1 Cr. Under budget 2021, the turnover limit under Sec 44AB has been increased from INR 5 Cr to 10 Cr if the following conditions are satisfied:

  1. Cash Payments do not exceed 5% of the Total Payments in the financial year AND
  2. Cash Receipts do not exceed 5% of the Total Receipts in the financial year

Note: For the taxpayers who do not satisfy the above conditions, the limit under Sec 44AB of INR 1 Cr remains unchanged.

Tax Audit u/s 44AB for Profession

Turnover/ Sales up to INR 50 lakhs

Turnover / Sales of more than INR 50 lakhs

Tax Audit under Section 44AB(c) of the Income Tax Act

If a business is eligible for Presumptive Taxation under Sec 44AE, 44BB, or 44BBB but reports profits or gains lower than the prescribed rate under the relevant section, they are liable to Tax Audit under Section 44AB(c).

Tax Audit in case of Trading Income

Stock Traders trade in shares, securities, commodities, and currency through online trading platforms. Income from trading in Equity Intraday, Equity F&O, Commodity Trading, and Currency Trading is considered Business Income. Thus, it is important to determine if the Tax Audit as per the provisions of the Income Tax Act is applicable to Trading Income.

In the case of Traders, the limit for Tax Audit applicability u/s 44AB would be INR 10 Cr since all transactions are digital. For the taxpayers who do not satisfy the above conditions of digital payments and receipts more than 95% of Total payments/ receipts, the limit under Sec 44AB of INR 1 Cr remains unchanged.

Let us understand the conditions for Tax Audit in the case of Stock Traders who have all their trading transactions online. The presumptive rate is 6% since the transactions are digital. The increased limit of INR 10 Cr is applicable from FY 2020-21 onwards. If the tax audit is applicable the trader should appoint a CA to prepare and file a tax audit report.

Tax Audit of Trading Income – AY 2021-22 Onwards

Trading Turnover up to INR 2 Cr

Trading Turnover between INR 2 Cr and INR 10 Cr

Trading Turnover of more than INR 10 Cr


If a business is liable to get accounts audited under any other law, is Tax Audit under Income Tax Act also required?

Assessee such as Company is liable to Statutory Audit under the Companies Act 2013. As per Section 44AB, if an assessee is required to get audit under any other law, he/she need not get the accounts audited again to comply with Section 44AB. In such a case, the assessee should submit the report as per audit under the other law and also a Tax Audit Report (Form 3CB-3CD) by a Chartered Accountant as prescribed by Section 44AB.

What is the Due Date for Tax Audit as per Section 44AB?

Taxpayer getting tax audit done as per section 44AB of the Income Tax Act have to get their books of accounts audited on or before 30th September of the next financial year. In case of the applicability of tax audit for AY 2019-20, the due date to file the audit report was 30th September 2019.

The assessee should appoint a practicing CA. Once the CA electronically files the tax audit report, the assessee must approve the tax audit report.

What is the penalty if I do not get books of accounts audited as per Section 44AB?

If the assessee does not get accounts audited as per requirements of Section 44AB, the Assessing Officer may impose a penalty under Section 271B. The penalty is lower of the following:
(a) 0.5% of Sales / Turnover / Gross Receipts OR
(b) INR 1,50,000
However, if the assessee can provide a valid justification and prove a reasonable cause for not getting a tax audit, the Assessing Officer may not impose any penalty.

How do I calculate Trading Turnover for Intraday Trading and F&O Trading?

Trading Turnover should be calculated to determine the Tax Audit applicability as per the Income Tax Act. Turnover for Intraday and F&O Trading is Absolute Turnover i.e the sum of the absolute value of profit and loss of each trade during the financial year.

Got Questions? Ask Away!

  1. Last year I filed a return under Presumptive Taxation for my F&O business. This year I have losses. Is audit applicable to me?

  2. Hi @Zainab_Hawa1,

    Yes, since you have losses from F&O business in this year, audit is applicable to you.

    Hope this clarifies!

  3. Hello
    If Turnover is between 2 to 10 Cr and there is loss, then Tax audit is applicable or not ?

  4. Hi @rajat_goyal1,

    No, a tax audit is not applicable if the turnover is ₹2 crores - ₹10 crores and the profit is less than 6% of the turnover (including loss).

  5. Hi @CA_Niyati_Mistry,

    I had an Intraday Trading in the FY22-23 and Total Turnover is -6 P&L is -217 as per Zerodha.

    Now, when I’m filing my return it’s asking for a Tax Audit. Do I need to do a tax audit only for on trading?

  6. @CA_Niyati_Mistry

    Even if I have done it mistakenly :smile: ? I mean it’s just one trade that too a very small amount. Can I file without having it audited?

    Thanks for you response.

  7. Hey @Saurav_Gupta,

    The amount of turnover is small but there might be a certain situation specific to you, because of which it is asking for Audit. I cannot give a view based on incomplete information.

    However you can Ask an Expert and get your queries answered.

    Hope this helps!

  8. Hi Team,

    In F.Y. 2022-23 I started my job and have salary of 10 lakh, and started doing F&O trading (turnover 70k), with a loss of 50k. Is Tax audit applicable to me for this AY 23-24 filing?

  9. Hello @NavalKabra9

    Since you have not opted out of presumptive tax scheme in any of last 5 years and turnover is below 1 crore, tax audit is not applicable.

    You can prepare P & L, Balance sheet and file ITR 3.

    In case you need any expert assistance for filing ITR 3, you can book a MEET using the below link:

    Book a MEET


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