What is a Tax Audit Report?
As per the Income Tax Act, Tax Audit as per Sec 44AB of the Income Tax Act is applicable to a business or profession in certain specified situations. Tax Audit Report is the report prepared by a Chartered Accountant in practice after auditing the books of accounts of a business. Under Tax Audit, the CA ensures whether the books of accounts are correctly prepared and the taxable income is accurately calculated as per the provisions of the Income Tax Act.
In the case of an assessee to whom Tax Audit as per Section 44AB of the Income Tax Act is applicable, here are the next steps:
- Appoint a Chartered Accountant in practice to audit the books of accounts
- Chartered Accountant files Audit Report in Form 3CB-3CD or Form 3CA-3CD
- Taxpayer files Income Tax Return in Form ITR 3
Tax Audit Report – Form 3CA, 3CB, 3CD, 3CE
The format of the Audit Report is specified by the Income Tax Department with specified particulars. Form 3CA and 3CB is the statement with auditors’ information while form 3CD is the statement with details of the tax audit.
| Form Name | Description |
| Form 3CA-3CD | Tax Audit Report in the case of a taxpayer having business or profession income who is mandatorily required to get accounts audited under any other Act (other than Income Tax Act) |
| Form 3CB-3CD | Tax Audit Report in the case of a taxpayer having business or profession income who is not required to get accounts audited under any other Act (other than Income Tax Act) |
| Form 3CE | A Tax Audit Report in the case of a taxpayer who is a Non-Resident or Foreign Company receiving a royalty or fee for technical services |
Method to Upload and File Tax Audit Report
Up to FY 19-20
- Taxpayer adds CA from their Income Tax Account
- CA uploads P&L, Balance Sheet & Tax Audit Report from their income tax account
- Taxpayer approves Tax Audit Report
- Taxpayer files ITR using DSC
FY 20-21 Onwards
- Taxpayer adds CA from their Income Tax Account
- Taxpayer uploads P&L and Balance Sheet from their income tax account
- CA approves P&L and Balance Sheet
- CA files Tax Audit Report
- Taxpayer approves Tax Audit Report
- Taxpayer files ITR using DSC
Due Date to Upload Tax Audit Report
The due date to file Tax audit report for FY 2020-21 (AY 2021-22) is 15th Feb 2022. And, the due date to file ITR when tax audit is applicable is 15th March 2022.
Guidance Note on Tax Audit
The Tax Audit Report has 2 parts – Form 3CA/3CB and Form 3CD. While Form 3CA/3CB is the statement with details of auditor, Form 3CD is the Statement with particulars required to be reported as per Sec 44AB of the Income Tax Act.
Form 3CA
| Clause | Information |
| Point no.1 | Name, Address & PAN of taxpayer Name of Auditor Law under which accounts are audited Date of Audit Report Period of P&L Account Date of the Balance Sheet |
| Point no.2 | A declaration that the Audit Report Form 3CD is attached |
| Point no.3 | Audit Observations or Qualifications as per Form 3CD |
| Point no.4 |
Name, Address, Membership Number of Auditor |
Form 3CB
| Clause | Information |
| Point no.1 | Date of Balance Sheet and P&L Statement |
| Name, Address, and PAN of Taxpayer | |
| Point no.2 | Address where books of accounts are kept |
| Address of branches (if books of accounts are kept at branches) | |
| Point no.3 | Observations, Comments, Discrepancies, and Inconsistencies reported by the auditor |
| Declaration by the auditor of: * Obtaining all information required for audit * Confirming that the business has maintained proper books of accounts * Reporting that Balance Sheet and P&L Account reflects a true and fair view of the business |
|
| Point no.4 | Declaration of attaching Form 3CD along with the Audit Report Form 3CB |
| Point no.5 | Details of the Auditor – Name, Address, Membership Number, Firm Registration Number, Date, and Place |
Form 3CD
It is a detailed statement with 44 different clauses filed by the auditor reporting information related to the business and its transactions for the relevant financial year. The IT Department has prescribed Form 3CD format and utility that a CA can use for filing the audit report.
Form 3CE
| Clause | Information |
| Point no.1 | Name, Address & PAN of Non-Resident |
| Financial Year | |
| Point no.2 | Declaration of obtaining all information and explanations for audit |
| Point no.3 | Certification on Permanent Establishment or Fixed Place of a profession in India |
| Point no.4 | Declaration of income from royalty or fees for technical services under Section 44DA |
| Point no.5 | Signature and Name of Auditor with stamp and seal |
In addition to Form 3CE, details of income from royalty or fees for technical services should be mentioned in an Annexure.
Penalty for not filing Form 3CD
An assessee who is liable to get books of accounts audited as per Section 44AB fails to do so, the Assessing Officer i.e. A.O. may impose a penalty under Section 271B. The penalty shall be lower of the following:
- 0.5% of Total Sales / Turnover of business or 0.5% of Gross Receipts of profession
- INR 1,50,000
However, if the assessee can prove a reasonable cause for failure to get a tax audit done, the A.O. may not impose the penalty.
FAQs
Taxpayers like Company or Cooperative Society are required to do audits under their respective laws. The audit conducted under any other law may not provide a confirmation that the requirements of the Income Tax Act have been complied with. In such cases, if Tax Audit as per Section 44AB is mandatory, the audit report should be filed by the Chartered Accountant in prescribed form i.e. Form 3CA-3CD.
Yes. Tax Audit Report already filed can be revised. However, a valid reason for revising the audit report must be specified by the auditor. It must have a reference to the old Audit Report and must be signed in the current date. Generally, an audit report can be revised due to the following reasons:
1. Revision of accounts of the taxpayer
2. Change of law with a retrospective amendment
3. Change in the interpretation of provisions, CBDT circular, CBDT judgment, etc
4. Technical change in system or software
Hi @saik,
Tax audit is applicable when your turnover is above the threshold or you have losses and your total income is above the basic exemption limit.
If your total income is below the basic exemption limit of INR 2.5 lakh and your turnover is below the threshold - Tax audit is not applicable. You can carry forward the losses by reporting them when filing your ITR.
You can use this tool to determine if tax audit is applicable to you.
Learn more about tax audit
Hope this helps
Thanks for the reply, few more doubts…
So I can carry forward as much loss as I want till the time turnover is less than threshold without going through audit?(salary income less than 2.5L )
Is there a way on the e filing website where I can just declare my losses in the above case without wanting to carry them forward?
I’m asking this because this is going to be my first time
Hey @saik
You can carry forward the losses by filing ITR within due date without going through tax audit when your total income from all sources is below 2.5 lakhs and total turnover from trading activities does not cross the threshold limit of 5 crore.
No other way except filing ITR. If you do not want to carry forward the losses while filing ITR, you can make the losses to be carried forward as 0 in “Schedule CFL”, but there is no way to report losses to ITD except filing ITR.
Hope this helps!
Hi @saik,
In case of Income Tax on Trading, since all the trading transactions are digital, the prescribed rate under Sec 44AD would be 6% of the turnover to determine the applicability of tax audit.
And,
You can use this tool to determine if tax audit is applicable to you or not
Hi
For FY 2020-2021
I have made a loss of 2,36,532 with Turnover of 4,56,545 in option Trading
I have a salary income of 1,30,000
Should i pay tax
which ITR should i file
whether Audit is required.
Please help.
Hi @Muru
F&O Income or Loss is a non-speculative business income or loss as per the Income Tax Act. Since you had options trading, ITR form applicable shall be ITR-3.
Since your total income is less than Basic Exemption Limit i.e. INR 2,50,000 there seems to be no tax liability. You can check our Income Tax Calculator.
For audit applicability, you can check the applicability here.
@Kaushal_Soni @Divya_Singhvi @Laxmi_Navlani @AkashJhaveri can you?
Will Tax Audit be applicable if my Trading Turnover is more than INR 2 Crore?
Hi,
As per the section 44AB and 44AD of the Income Tax Act - Tax Audit is applicable if:
Read more for Income Tax Audit Applicability
Check Tax Audit requirement using the Determine Tax Audit Applicability tool
I have a question:
I started F&O trading in the last couple of months of FY 2020-21. My turnover in FY 2020-21 is really small (
Now, I’ve ramped up my trading in FY 21-22. My turnover in the last 3 months is already around 50 lakhs, and profits are in the 2-3% of turnover range. I think my trading style will be high turnover going forward, as a result of which the profits will remain lesser than 6%. As a result I’ll probably have to get an audit done next year.
If I opt for 44AD this year and stop doing so next year, will this be a problem? I know there’s a 5 year limit, but not sure how best to approach this. Will be awesome if one of you folks can give your perspectives before I file my returns in July