Information

Tax Audit is an independent verification of books of accounts of an assessee with business or profession to form an opinion on the matters related to taxation compliances carried out by the assessee. The income tax law enforces the taxpayers to get audit of accounts of their business or profession to be done according to provision of income tax law. Tax Audit facilitate the process of income computation for filing of return of income and also save time & efforts of tax authorities in verifying the correctness of income tax return filed by the taxpayer such as total income, claim for deductions etc.

Features of Tax Audit :-

  1. Reporting of observations/discrepancies noted by tax auditor
  2. Ensures proper maintenance of books of accounts
  3. Ensure verification the accounts
  4. Adherence to Income Tax Law
  5. Prevention from Fraud
  6. Provides assurance that management has presented Audited accounts which shows true and fair picture of state of business
  7. Determine whether legal liability of the assessee have been discharged fully and timely
  8. Independent opinion on the financial statements of a company

Applicability Of Tax Audit :-

Section Assessee Description
44AB Business Taxpayer with total sales, turnover or gross receipt exceeding Rs 1 crore in business (not opted for presumptive taxation scheme) or
Profession Taxpayer whose gross professional income is over Rs 50 lakhs.
44AD Business Taxpayers is required to undertake Tax Audit compulsorily if such person claims that the profits and gains from the business are lower than the profits and gains computed in accordance with the provisions of section 44AD(1) & section 44ADA(1) respectively and if his income exceeds the maximum amount which is not changeable to tax (i.e. basic exemption limit). ​**Presumptive Taxation scheme - This provision is not applicable to the person, who opts for above scheme his total sales or turnover does not exceeds Rs. 2 crores.
44ADA Profession
44AE Small businesses engaged in the business of plying, hiring or leasing goods carriages Taxpayer is required to get his books of account compulsorily audited u/s 44AB if such person claims that the profits and gains from the business are lower than the profits and gains computed under these sections (irrespective of the turnover)
44BB Non Resident engaged in the business of extraction or Production of Mineral Oil
44BBA Non Resident engaged in the business of operation of aircraft
44BBB Foreign company, engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government

**If an eligible assessee opts out of the presumptive taxation scheme, after specified period, he cannot choose to revert back to the presumptive taxation scheme for a period of five assessment years thereafter.

Penalty :-

  • Penalty Under Section 271B
    If any person fails to get his accounts audited as required under the provisions of section 44AB before the due date u/s 139(1), the AO may impose penalty which may be a sum equal to 0.5% of the total sales, turnover or gross receipts subject to a maximum of Rs. 1.5 Lakh.
  • No Penalty U/S 271B If Audit Report Furnished Within Due Date But Return Filed After Due Date
    If the assessee gets his account audited u/s 44AB and furnish the said report as required, than penalty u/s 271B shall not be levied though the return of income is filed after the due date specified u/s 139(1).

FAQ :-

​What is tax audit?

Section 44AB gives the provisions relating to the class of taxpayers who are required to get their accounts audited from a chartered accountant. The audit under section 44AB aims to ascertain the compliance of various provisions of the Income-tax Law and the fulfillment of other requirements of the Income-tax Law. The audit conducted by the chartered accountant of the accounts of the taxpayer in pursuance of the requirement of section 44AB is called tax audit. The chartered accountant conducting the tax audit is required to give his findings, observation, etc. in the form of audit report. The report of tax audit is to be given by the chartered accountant in Form Nos. 3CA/3CB and 3CD.

What is the objective of tax audit?

One of the objectives of tax audit is to ascertain/derive/report the requirements of Form Nos. 3CA/3CB and 3CD. Apart from reporting requirements of Form Nos. 3CA/3CB and 3CD, a proper audit for tax purposes would ensure that the books of account and other records are properly maintained, that they faithfully reflect the income of the taxpayer and claims for deduction are correctly made by him. Such audit would also help in checking fraudulent practices. It can also facilitate the administration of tax laws by a proper presentation of accounts before the tax authorities and considerably save the time of Assessing Officers in carrying out routine verifications, like checking correctness of totals and verifying whether purchases and sales are properly vouched for or not. The time of the Assessing Officers saved could be utilized for attending to more important and investigational aspects of a case.

​If a person is required by or under any other law to get his accounts audited, then is it compulsory for him to once again get his accounts audited to comply with the requirement of section 44AB?

Persons like company or co-operative society are required to get their accounts audited under their respective law. Section 44AB provides that, if a person is required by or under any other law to get his accounts audited, then he need not again get his accounts audited to comply with the requirement of section 44AB. In such a case, it shall be sufficient if such person gets the accounts of such business or profession audited under such law and obtains the report of the audit as required under such other law and also a report by the chartered accountant in the form prescribed under section 44AB, i.e. Form No. 3CA and Form 3CD.

What are Form Nos. 3CA/3CB ?

The audit of the accounts under section 44AB, in case of a person who carries on business or profession and who is required under any other law to get his accounts the audited shall file such audit report in Form 3CA
The audit of the accounts under section 44AB, in case of a person who carries on business or profession and who is not required under any other law to get his accounts the audited shall file such audit report in Form 3CB.

What are Form Nos. 3CD ?

Form 3CD is a statement of particulars required to be furnished in accordance with Rule 6G and Section 44AB along with Form3CA/3B as applicable.

  • There are total 41 clauses in Form 3CD (divided in Part A and Part B) containing disclosures related to loans, deductions, TDS paid etc.
  • In the end, the Form specifies the name, address, membership number, FRN no and signature of the auditor with stamp/seal.
What is the due date by which a taxpayer should get his accounts audited?

A person covered by section 44AB should get his accounts audited and should obtain the audit report on or before the due date of filing of the return of income, i.e. on or before 30th September of the relevant assessment year, e.g. Tax audit report for the financial year 2018-19 corresponding to the assessment year 2019-20 should be obtained on or before 30th September, 2019.

Information

Tax Audit is an independent verification of books of accounts of an assessee with business or profession to form an opinion on the matters related to taxation compliances carried out by the assessee. The income tax law enforces the taxpayers to get audit of accounts of their business or profession to be done according to provision of income tax law. Tax Audit facilitate the process of income computation for filing of return of income and also save time & efforts of tax authorities in verifying the correctness of income tax return filed by the taxpayer such as total income, claim for deductions etc.

  1. Reporting of observations/discrepancies noted by tax auditor
  2. Ensures proper maintenance of books of accounts
  3. Ensure verification the accounts
  4. Adherence to Income Tax Law
  5. Prevention from Fraud
  6. Provides assurance that management has presented Audited accounts which shows true and fair picture of state of business
  7. Determine whether legal liability of the assessee have been discharged fully and timely
  8. Independent opinion on the financial statements of a company
Section Assessee Description
44AB Business Taxpayer with total sales, turnover or gross receipt exceeding Rs 1 crore in business (not opted for presumptive taxation scheme) or
Profession Taxpayer whose gross professional income is over Rs 50 lakhs.
44AD Business Taxpayers is required to undertake Tax Audit compulsorily if such person claims that the profits and gains from the business are lower than the profits and gains computed in accordance with the provisions of section 44AD(1) & section 44ADA(1) respectively and if his income exceeds the maximum amount which is not changeable to tax (i.e. basic exemption limit). ​**Presumptive Taxation scheme - This provision is not applicable to the person, who opts for above scheme his total sales or turnover does not exceeds Rs. 2 crores.
44ADA Profession
44AE Small businesses engaged in the business of plying, hiring or leasing goods carriages Taxpayer is required to get his books of account compulsorily audited u/s 44AB if such person claims that the profits and gains from the business are lower than the profits and gains computed under these sections (irrespective of the turnover)
44BB Non Resident engaged in the business of extraction or Production of Mineral Oil
44BBA Non Resident engaged in the business of operation of aircraft
44BBB Foreign company, engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government

**If an eligible assessee opts out of the presumptive taxation scheme, after specified period, he cannot choose to revert back to the presumptive taxation scheme for a period of five assessment years thereafter.

  • Penalty Under Section 271B
    If any person fails to get his accounts audited as required under the provisions of section 44AB before the due date u/s 139(1), the AO may impose penalty which may be a sum equal to 0.5% of the total sales, turnover or gross receipts subject to a maximum of Rs. 1.5 Lakh.
  • No Penalty U/S 271B If Audit Report Furnished Within Due Date But Return Filed After Due Date
    If the assessee gets his account audited u/s 44AB and furnish the said report as required, than penalty u/s 271B shall not be levied though the return of income is filed after the due date specified u/s 139(1).
​What is tax audit?

Section 44AB gives the provisions relating to the class of taxpayers who are required to get their accounts audited from a chartered accountant. The audit under section 44AB aims to ascertain the compliance of various provisions of the Income-tax Law and the fulfillment of other requirements of the Income-tax Law. The audit conducted by the chartered accountant of the accounts of the taxpayer in pursuance of the requirement of section 44AB is called tax audit. The chartered accountant conducting the tax audit is required to give his findings, observation, etc. in the form of audit report. The report of tax audit is to be given by the chartered accountant in Form Nos. 3CA/3CB and 3CD.

What is the objective of tax audit?

One of the objectives of tax audit is to ascertain/derive/report the requirements of Form Nos. 3CA/3CB and 3CD. Apart from reporting requirements of Form Nos. 3CA/3CB and 3CD, a proper audit for tax purposes would ensure that the books of account and other records are properly maintained, that they faithfully reflect the income of the taxpayer and claims for deduction are correctly made by him. Such audit would also help in checking fraudulent practices. It can also facilitate the administration of tax laws by a proper presentation of accounts before the tax authorities and considerably save the time of Assessing Officers in carrying out routine verifications, like checking correctness of totals and verifying whether purchases and sales are properly vouched for or not. The time of the Assessing Officers saved could be utilized for attending to more important and investigational aspects of a case.

​If a person is required by or under any other law to get his accounts audited, then is it compulsory for him to once again get his accounts audited to comply with the requirement of section 44AB?

Persons like company or co-operative society are required to get their accounts audited under their respective law. Section 44AB provides that, if a person is required by or under any other law to get his accounts audited, then he need not again get his accounts audited to comply with the requirement of section 44AB. In such a case, it shall be sufficient if such person gets the accounts of such business or profession audited under such law and obtains the report of the audit as required under such other law and also a report by the chartered accountant in the form prescribed under section 44AB, i.e. Form No. 3CA and Form 3CD.

What are Form Nos. 3CA/3CB ?

The audit of the accounts under section 44AB, in case of a person who carries on business or profession and who is required under any other law to get his accounts the audited shall file such audit report in Form 3CA
The audit of the accounts under section 44AB, in case of a person who carries on business or profession and who is not required under any other law to get his accounts the audited shall file such audit report in Form 3CB.

What are Form Nos. 3CD ?

Form 3CD is a statement of particulars required to be furnished in accordance with Rule 6G and Section 44AB along with Form3CA/3B as applicable.

  • There are total 41 clauses in Form 3CD (divided in Part A and Part B) containing disclosures related to loans, deductions, TDS paid etc.
  • In the end, the Form specifies the name, address, membership number, FRN no and signature of the auditor with stamp/seal.
What is the due date by which a taxpayer should get his accounts audited?

A person covered by section 44AB should get his accounts audited and should obtain the audit report on or before the due date of filing of the return of income, i.e. on or before 30th September of the relevant assessment year, e.g. Tax audit report for the financial year 2018-19 corresponding to the assessment year 2019-20 should be obtained on or before 30th September, 2019.