Income Tax Audit under section 44AB-overview, audit report, eligibility, penalty
Before moving on to tax audit under section 44AB you should acknowledge the term audit. So as per the glossary the audit is an official inspection of an entity’s account. It is also known as a systematic review of an organization. Now moving on to the tax audit here is what exactly tax audit is.
Tax Audit overview
There are several sorts of audits administered under various laws. It includes company audit/statutory audit under the company Act cost audit stock audit and many more. Similarly the income tax law also makes an audit compulsory and that is a tax audit.
The tax audit is a complete scan of the account of any business. That means it carries a review of the accounts carried by the taxpayers. The main reason to mandate the tax audit is it simplifies the filing and computation of income tax returns.
Prime objectives of tax audit
The tax audit in an organization is computed to achieve the following objectives:
1- To obtain proper maintenance and accuracy of the book of accounts and certification of the audit provided by the auditor
2- Mentioning all the observation/ discrepancies that are noted by the tax auditor. Further it should also be reported after a methodical examination of books of account
3- To comply with various compliances under the income tax law
All of these above objectives helps the tax authority of India ensure the accuracy in the return filing of various taxpayers. Further calculation and verification also become easier.
Who are compulsorily subjected to provide the tax audit?
A taxpayer must conduct the tax audit of its business if the sales/the total gross income of the business is more than INR 1 crore in a financial year. However, there are some other circumstances where the taxpayer needs to get their account audited. The below table will show you the criteria in which a taxpayer has to get its tax audit done.
|Category of the taxpayer ||Threshold |
|For businesses|| |
|Entities that are carrying on business without opting for presumptive taxation scheme ||When the turnovers exceed INR 1 crore |
|Businesses that are eligible for presumptive taxation under 44AE, 44BB or 44BBB. ||When it claims profits under the prescribed threshold under the presumptive taxation scheme |
|Conducting business under the section 44AD of presumptive taxation scheme ||The entity declares its income less than the prescribed limits, under the presumptive taxation scheme/or if income exceeds the basic limit. |
|Conducting business but is not eligible for the presumptive taxation scheme under section 44AD for opting out of the scheme for five consecutive years. ||When the income exceeds the maximum threshold and is not chargeable under the scheme for 5 subsequent years the presumptive scheme did not opt. |
|Conducting business and is declaring the profits under the presumptive taxation scheme under section 44AD. ||When the total turnover exceeds INR two crore in a financial year then the tax will not be mandated for any such businesses. |
| || |
|When a taxpayer is carrying on a profession ||If the total income of the taxpayer exceeds INR 50 lakh in a financial year |
|The taxpayers who are following the professions that are eligible under the presumptive taxation scheme.||When the taxpayer claims for profit lower than the threshold under the presumptive taxation scheme |
When the income surpasses the maximum amount not chargeable to income tax
| || |
|Business loss || |
|If a business is having loss of business but is not opting for the presumptive taxation scheme ||When the total income of the business exceeds INR 1 crore |
|When the total income of a business surpasses the basic threshold limit, but the taxpayer has incurred a loss of conducting business. And is not opted for the presumptive taxation scheme.||When the loss of business or turnover of the business surpasses INR 1 crore. |
|When a business is carrying out a business by opting for the presumptive scheme, it has a business loss below the basic limit. ||Tax audit not applicable in such cases |
|Conducting business under the presumptive taxation scheme of section 44AD, but having a business loss with an income that surpasses the basic threshold limit. ||It has to declare its taxable income as per the limits prescribed under the presumptive taxation scheme. And if the income exceeds the basic threshold limit. |
What happens in the cases where a taxpayer has to get his/her accounts audited under any other law it includes compulsory audits of businesses under the company laws?
In such cases, the taxpayer will not have to get its accounts audited again for the income tax requirements. It is proficient if your accounts have been audited under any other. But it must be filed within the due dates, or else you have to file the audit report. All the taxpayers can file their required audit reports under the income tax law.
What makes your audit report?
All the taxpayers who are eligible as per the above table must file their report in the required form. This form could be either 3CA/3CB.
1- Form no. 3CA is mandatory to file if an individual is carrying conducted business and is mandated to get his/her account audited by any law.
2- Form no 3CB is necessary to file when an individual conducting a business/ carrying out a profession and is not required to file the audit report as per any other law.
And in the case of both the audit mentioned above reports the tax auditor must file the audit reports in the prescribed form in form no. 3CD.
How and when is the tax audit report filed?
All the tax auditors must file the tax audit report using their login details as a chartered accountant. The taxpayers who are filing must provide the CA details in the login portal. After uploadingthe audit report, the same report should also be either accepted or rejected by taxpayers in their portal. If the taxpayers reject the audit report for any reason then all the steps should be followed as it is until the taxpayer accepts the audit report again.
Further you should note that the audit report must be filed as per the due dates of filing the reports prescribed by the income tax department. The due date for the subsequent year if the taxpayer has made an international transaction is 30th November. Similarly it is 30th September for all other taxpayers.
Penalty for non-filing the tax audit report/making delay in filing the tax audit report
If any taxpayer is mandated to get the tax audited they must file their audit report within the due dates. In case you fail to file it within the due dates you will be liable for the following as a penalty for non-filing/late filing.
1- You have to pay a penalty of 0.5% of you total sales as fine
2- It may be up to INR 1,50,000
Thus You must file your tax audit report before the due dates mentioned by the income tax department.