Introduction to Section-44AB
Section 44AB of the Income Tax Act, 1961 contains the provisions for the Tax Audit of a tax paying entity.
Tax audit is conducted by a Chartered Accountant as per the income tax provisions, which ensures that the taxpayers has maintained proper books of account and complied with the provisions of the Income-tax Act.
Tax Audit Reports are prepared by the Chartered Accountant in Form 3CA / 3CB and Form 3CD.
Due date for Tax Audit
Any person covered u/s 44AB should get the accounts audited before the due date of filing the return of income. The due is on or before 30th September of the relevant assessment year.
Applicability of Section 44AB
The following taxpayers are mandatorily applicable to perform a Tax Audit with the assistance of a Chartered Accountant:
- A person or an individual carrying business if the annual gross turnover or gross receipts (as the case may be) in business for the year exceeds Rs. 1 crore.
- A person carrying on profession, if his / her gross receipts in profession exceed Rs. 50 lakhs during the previous year relevant to the assessment year
- A person carrying on the business / profession eligible for presumptive taxation u/s 44AD, 44ADA, or 44AE and claims profits or gains lower than the prescribed limit under the presumptive taxation scheme and has income exceeding the maximum amount not chargeable to tax.
- If the income exceeds the maximum amount not chargeable to tax during the period of assessee becomes ineligible to opt for presumptive taxation scheme u/s 44AD due to opting for presumptive taxation in one tax year and not opting for presumptive tax for any of the subsequent 5 consecutive years
Tax Audit Report –3CA, 3CB and 3CD
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 be applicable for entities like a company where it is also required to be audited under the Companies Act.
- Form 3CB is furnished when a person carrying on business or profession is not necessary to get his accounts audited under any other law. This will be applicable for entities like individuals where they 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 receive royalty or technical service fees from the Indian government or any Indian concern.
Also, in case of either of the above mentioned audit reports, tax auditor must furnish the prescribed particulars in Form 3CD, which forms part of an audit report.
Penalty u/s 44AB
The penalty provisions of not furnishing tax audit report are defined under Section 271B of the Income Tax Act.
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 of which may be a sum equal to 0.5% of the turnover or the gross receipts subject to a maximum of Rs. 150,000.
However, this penalty can be relaxed if there is a reasonable cause for such failure, as per Section 273B. Here are the few instances which can be accepted as “Reasonable Cause” :
- Resignation of the Tax Auditor and Consequent Delay
- Death or physical inability of the partner in charge of the Accounts
- Labour Problems such as strikes, lock-outs for a long period
- Loss of Accounts because of Fire / Theft etc. beyond the control of the Assessees
- Natural Calamities