Tax Audit under Section 44AB of Income Tax Act

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Sakshi Shah

Section 44AB
Tax Audit

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.

Check Tax Audit Applicability u/s 44AB
Check Income Tax Audit applicability u/s 44AB to file Tax Audit Report Form 3CB - 3CD with your Income Tax Return.
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Check Tax Audit Applicability u/s 44AB
Check Income Tax Audit applicability u/s 44AB to file Tax Audit Report Form 3CB - 3CD with your Income Tax Return.
Explore

Tax Audit under Section 44AB for Business

Turnover / Sales up to INR 1 Cr

Check which ITR Form to file?
Income Tax Return Forms to file depends on your Income Source, Residential Status, and other financial situation. Know which ITR Form you should file.
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Check which ITR Form to file?
Income Tax Return Forms to file depends on your Income Source, Residential Status, and other financial situation. Know which ITR Form you should file.
Explore

Turnover / Sales more than INR 1 Cr and up to INR 2 Cr

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Turnover / Sales more than INR 2 Cr

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

Tax Audit under Section 44AB of Income Tax Act
Tax Audit Due Date
Refer to this article to know all the important due dates related to tax audit
Read More
Tax Audit Due Date
Refer to this article to know all the important due dates related to tax audit
Read More

Tax Audit limit change FY 2019-20 onwards

The limit for turnover under Section 44AB is INR 1 Cr. Under Budget 2020, the turnover limit under Sec 44AB has been increased from INR 1 Cr to 5 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, limit under Sec 44AB of Rs. 1 Cr remains unchanged.

Tax Audit of Trading Income
Turnover limit for Tax Audit is increased from Rs. 1 Cr to Rs. 5 Cr in Budget 2020. Read about tax audit applicability for trading income.
Read More
Tax Audit of Trading Income
Turnover limit for Tax Audit is increased from Rs. 1 Cr to Rs. 5 Cr in Budget 2020. Read about tax audit applicability for trading income.
Read More

Tax Audit u/s 44AB for Profession

Turnover / Sales up to INR 50 lacs

Turnover / Sales more than INR 50 lacs

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

If a business 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).

FAQs

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 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?

Assessee liable to tax audit as per section 44AB of the Income Tax Act should get the 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.

AY 2020-21 onwards, the due date to file the Tax Audit Report has been amended to 31st October of the next financial year. The assessee should appoint a practicing CA. Once the CA electronically files the tax audit report, the assessee must approve the tax audit report from the account on incometaxindiaefiling.gov.in.

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.

  • Krishna Tibrewal says:

    Some of the facts presented in this article is not correct. Tax audit is not mandatory if the profit is less than 6% of the turnover. There’s no provision which states that. Tax audit is applicable if the turnover during the FY exceeds Rs. 1 Crore (Rs. 5 Crore from AY 2020-21). If an assessee has opted for presumptive taxation, and his profit is less than 6% of the turnover, he can opt out of Presumptive Taxation. In such a case, where the assessee opts out of Presumptive Taxation, Tax Audit is Mandatory.

    • Anushka Shah says:

      On reading Section 44AB with Section 44AD, the conditions for Tax Audit in the article have been listed down. While the turnover limit for Sec 44AB is INR 1 Cr, turnover limit for Sec 44AD is INR 2 Cr. If the turnover exceeds INR 1 Cr (INR 5 Cr from AY 20-21), tax audit is applicable as per Section 44AB(a). However, tax audit may be applicable under clause (b), (c), (d) & (e) when Sec 44AB is read with Sec 44AD. Under the article, we have tried to simplify the conditions for applicability of Tax Audit. For further questions, you can drop in your contact details at help@quicko.com. One of our experts can get in touch with you to resolve your queries.

  • Krishna Tibrewal says:

    44AB(e) is applicable to a person
    “carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,”
    and 44AD(4) is applicable to a person a person who is opting out of 44AD (i.e., presumptive income) by declaring a income less than what is stated in subsection (1) i.e., 6% or 8%. In those cases Tax Audit is mandatory u/s 44AB(e).

    • Anushka Shah says:

      On reading Section 44AB with Section 44AD, the conditions for Tax Audit in the article have been listed down. While the turnover limit for Sec 44AB is INR 1 Cr, turnover limit for Sec 44AD is INR 2 Cr. There is a condition under Section 44AB which mentions that if the taxpayer has profits less than 6% of turnover, total income is more than basic exemption limit and has not complied with provisions of Sec 44AD(4) i.e. the five year rule, Tax Audit is applicable. We have tried to simplify the conditions for applicability of Tax Audit. For further questions, you can drop in your contact details at help@quicko.com. One of our experts can get in touch with you to resolve your queries.

  • Tushar Mody says:

    My Turnover for Fin yr 2019-20 is 1.1 crore.

    I do only short term cash buy sell of share and some intra day trading ( No Futuures and Options )at Less then 3 percent profit.

    I have no other income.

    yet income is Below my Taxable limit of Rs 3,00,000. ( I am senior citizen )

    Do i need an Audit.

    I believe that if income is Below Taxable limit then a Tax Audit is not Applicable.

    is that TRUE ???

    • Quicko Support says:

      Hey Tushar,
      If the trading turnover is upto INR 2 Cr and the total income is below the basic exemption limit, Tax Audit is not applicable. You must report the trading transactions as business income, prepare financial statements and file ITR-3.

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