Audit is the foundation of any tax law to check on the taxpayer whether they are complying with the taxation laws. Professionals like CA/CPA and revenue authorities can conduct audits, which are generally called assessments.
The dictionary meaning of the term “audit” is check, review, inspection, etc. In India, various types of audits are prescribed under different laws. For example, company law requires a statutory audit and secretarial audit, cost audit, GST audit, etc. Similarly, The Income-tax Act 1961 also mandates an audit called ‘Tax Audit’.
Section 44AB
Section 44AB requires taxpayers with a turnover limit to get their accounts audited by a chartered accountant in practice. The audit under section 44AB aims to ascertain the compliance of various provisions of the Income-tax Law. It also require fulfillment of other requirements of the Income-tax Law like timely payment of TDS, no cash expenses above Rs.10000, depreciation rates, payment of statutory dues etc.
The chartered accountant conducting the tax audit is required to provide his findings, observations, etc., in the prescribed form of the audit report, i.e., Form Nos. 3CA/3CB and 3CD.
Below table will explain the requirements of Tax Audit under section 44AB of Income Tax Act, 1961:
| Business/Profession | Tax Audit Applicable if |
| Business | 1. Total Revenue or Turnover exceeds Rs.1 crore in the previous year 2. Aggregate cash receipt exceeds 5% of the total gross receipts and; 3. Aggregate cash payment exceeds 5% of the total payments during the previous year |
| Business | 1. Total Revenue or Turnover exceeds Rs.10 crore in the previous year 2. Aggregate cash receipt does not exceeds 5% of the total gross receipts and; 3. Aggregate cash payment does not exceeds 5% of the total payments during the previous year In other words, more than 95% of business transactions should be done through banking channels, then the threshold limit for applicability of Tax Audit will be Rs. 10 crore instead of Rs.1 crore. |
| Profession | if his gross receipts in profession for the year exceed Rs. 50 lakhs during the previous year |
| Business of the nature referred in Section 44AE or section44BB or section 44BBB | Taxpayer eligible to opt for presumptive taxation under 1. Section 44AE (profits and gains of business of plying, hiring or leasing goods carriages) or 2. Section 44BB (Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils) or 3. Section 44BBB (Special provision for computing profits and gains of foreign companies engaged in the business of civil construction, etc., in certain turnkey power projects), however, claims the profit and gains lower than the deemed profit and gains, as specified, in any previous year. |
| Profession covered under section 44ADA | The taxpayer has opted for presumptive taxation under section 44ADA, however, claims the profit and gains lower than the deemed profit and gains; and Income exceeds the maximum amount not chargeable to tax in any previous year. |
| Business covered under section 44AD(4) Presumptive business income if turnover is upto Rs.2 crore | An assessee who declare profit for any previous year in accordance with section 44AD and he decreases profit for any of one 5 assessment year relevant to the previous year succeeding such previous year lower than the profit computed as per section 44AD and his income exceeds the amount which is not chargeable to tax. Note: If an eligible assessee opts out of the presumptive taxation scheme, within the aforesaid period, he cannot choose to revert back to the presumptive taxation scheme for a period of five assessment years thereafter. |
| Note: With effect from 01st April 2024, the limit of Rs.2 crore under section 44AD has been increased to Rs.3 crore, provided that more than 95% of the receipts are through banking channels like NEFT, RTGS, Cheque, Bank Draft. Cheques and Bank drafts which are not account payee shall be deemed as cash receipt. | |
Situations in which Tax Audit under section 44AB is not required
- This section shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD and his total sales, turnover or gross receipts, as the case may be, in business does not exceed two crore rupees in such previous year
- Taxpayer having income of the nature as specified in section 44B (profits and gains of shipping business in the case of non-residents) of Income Tax Act, 1961;
- Taxpayer having income of the nature as specified in section 44BBA (profits and gains of the business of operation of aircraft in the case of non-residents) of Income Tax Act, 1961;
- Taxpayer required by or under any other law to get his accounts audited, if:
- Account of business/ profession is audited under other law before the specified date (i.e. 30th September); and
- An audit report as required under other law is furnished; and
The Chartered Accountant furnishes a report in the prescribed form (i.e. Form No. 3CA and Form No. 3CD) as per Section 44AB.
Report Format for Tax Audit under Section 44AB
Rule 6G of Income Tax Rules prescribes the formats for the Report of Tax Audit under Section 44AB, as follows:
| Taxpayer Type | Form for furnishing audit report and particulars |
| Taxpayers who are required by or under any other law to get his accounts audited (Eg. Companies, societies etc.) | Audit report in Form No. 3CA; and Particular to be furnished under section 44AB in Form No. 3CD. |
| Taxpayers who are required by or under any other law to get his accounts audited (Eg. Proprietors, Partnership Firm, HUF) | Audit report in Form No. 3CB; and Particular to be furnished under section 44AB in Form No. 3CD. |
Due date of Tax Audit Report under Section 44AB
The taxpayer who is liable for audit under Section 44AB should get his accounts audited and obtain the audit report on or before 30th September of the relevant assessment year.
e.g., The taxpayer should obtain the tax audit report for the financial year 2022-23 corresponding to the assessment year 2023-24 on or before 30th September 2023.
After obtaining the tax audit report, the Income-tax Department requires the chartered accountant to electronically file the same.
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 https://www.incometax.gov.in/iec/foportal).
Penalty for not getting the accounts audited as required by section 44AB
If any taxpayer is required to get the tax audit done but fails to do so, the least of the following may be levied as a penalty:
(a) 0.5% of the total sales, turnover or gross receipts
(b) Rs. 1,50,000.
However, according to section 271B, no penalty shall be imposed if reasonable cause for such failure is proved.
