Tax Audit under Section 44AB of Income Tax Act
An overview of Tax Audit under Section 44AB of the Income Tax Act.
This post will discuss the Tax Audit according to Section 44AB of the Income Tax Act. Let’s examine each section closely:
What is a Tax Audit?
The word “Audit” means checking, reviewing, and inspecting things. Different types of checks are done for various rules, like looking at a company’s money, containing costs, or reviewing what’s in stock; there’s also a special kind of check called a “Tax Audit” needed by the Income Tax law.
So, if you’re running a business or a profession, the Income Tax law says you need to check your financial records in a certain way to ensure everything is right according to the tax rules. It’s like a detailed look to safeguard your money matches what the law says.
Objective of the Tax Audit
Tax audits are performed to achieve the following objectives:
- Ensure that books of accounts are maintained correctly and have them verified by a tax auditor.
- Report any findings or differences discovered during a careful review of the accounts.
- Provide required information, like tax-related depreciation and adherence to income tax rules.
These actions help tax authorities confirm the accuracy of the tax returns filed by the taxpayer. It also simplifies calculating and checking total income, deductions claimed, and other related details.
Introduction to Section-44AB
Section 44AB is like a set of rules for checking the financial records of a person or company that pays taxes. A particular accountant called a Chartered Accountant (CA) does this check. They ensure that the financial records are correct and follow the rules of the Income-tax Act.
The CA writes a report about the tax check. This report is in Form 3CA or 3CB and Form 3CD for regular tax audits. If the tax check is for a foreign company or someone who doesn’t live in the country, the report is in Form 3CE.
When a charitable or religious group is checked, the report is written in Form 10B. This is how tax checks are done, and reports are made.
Applicability of Section 44AB
The following people or companies are required to undergo an audit by a chartered accountant:
- People or companies engaged in business with a total turnover or receipts of ₹1 crore in the previous year.
- Individuals who earn a gross income or receipts from a profession that’s over ₹50 lakh in the previous year.
- People in business or a profession covered by the Income Tax Department’s presumptive taxation scheme (like 44AD, 44ADA, and 44AE), but declare profits below the limit.
- Individuals or businesses eligible for a special taxation scheme if their sales turnover is up to ₹2 crores.
- People with two or more businesses, where the combined profits from all enterprises make up the gross turnover.
Who can conduct a Tax Audit u/s 44AB?
A Tax Audit is done by Chartered Accountants with a special certificate and working as full-time accountants. The tax auditor (CA) checks the money records in a specific way set by the government.
What constitutes the Tax Audit Report?
The tax auditor shall furnish the report in a prescribed form, which could be Form 3CA, 3CB or 3CE, where:
- Form 3CA is furnished when a person carrying on business or profession is already mandated to get his accounts audited under any other law. This will apply to entities like a company that must be audited under the Companies Act.
- Form 3CB is furnished when a person carrying on business or profession cannot get his accounts audited under any other law. This will apply to entities like individuals who are not required to be audited under any other act.
- Form 3CE is furnished where a person is a non-resident or foreign company who receives royalty or technical service fees from the Indian government or any Indian concern.
Also, in the case of either audit, as mentioned earlier, the tax auditor must furnish the prescribed particulars in Form 3CD, which forms part of an audit report.
Due date for Tax Audit
Any person covered under section 44AB must ensure auditing of their accounts before the due date for filing the income tax return. The due date falls on or before 30th September of the relevant assessment year.
Penalty u/s 44AB
If a taxpayer falling u/s, 44AB fails to get their audit done on or before the due date specified, then they will be liable for a penalty, which may be a sum equal to 0.5% of the turnover or the gross receipts subject to a maximum of Rs. 150,000.
This penalty is applicable under Section 271B of the Income Tax Act.
However, this penalty can be relaxed if there is a reasonable cause for such failure, as per Section 273B. So, the instances that have been accepted as “Reasonable Cause” are as follows:-
- Resignation of the Tax Auditor and Consequent Delay
- Death or physical inability of the partner in charge of the Accounts
- Also, labour Problems such as strikes, lock-outs for an extended period
- Loss of Accounts because of Fire / Theft, etc., beyond the control of the Assessees
- Natural Calamities
And that concludes our discussion on self-assessment tax (SAT). Please share your views and opinions with us in the comment section below.
