Income Tax Audit under Section 44AB - Criteria, Audit Report, Penalty

1. What is Section 44AB?

Section 44AB mandates a tax audit for certain categories of taxpayers to ensure proper maintenance of books of accounts and accurate reporting of income.

2. Who is Required to Get Tax Audit under Section 44AB?

A tax audit is mandatory under the following conditions:

A. Business

Total Sales/Turnover/Gross Receipts > ₹1 crore in a financial year.

Threshold increased to ₹10 crore if:

Aggregate cash receipts do not exceed 5% of total receipts, and

Aggregate cash payments do not exceed 5% of total payments.

B. Profession

Gross Receipts > ₹50 lakh in a financial year.

C. Presumptive Taxation Scheme Cases:

Section 44AD (Business): If income is declared lower than 8% (or 6%) of turnover and total income exceeds the basic exemption limit.

Section 44ADA (Profession): If income is declared lower than 50% of gross receipts and total income exceeds the exemption limit.

Section 44AE (Transporters): If actual income is lower than deemed income and income exceeds exemption limit.

3. Due Date for Tax Audit

31st October of the Assessment Year (for example, for FY 2024-25, due date is 31st October 2025).

4. Tax Audit Report

Form 3CA: When the assessee is already required to get accounts audited under any other law (e.g., Companies Act).

Form 3CB: When audit is conducted only under the Income Tax Act.

Form 3CD: Statement of particulars required under section 44AB (to be attached with 3CA or 3CB).

5. Penalty for Not Getting a Tax Audit Done

Penalty under Section 271B:

0.5% of Turnover/Gross Receipts, subject to a maximum of ₹1,50,000.

Penalty can be waived if:

The assessee can prove that there was a reasonable cause for the failure (e.g., natural calamity, illness of accountant, etc.).

6. Key Points to Remember

The turnover limit is considered per business/profession, not on a consolidated basis unless accounts are merged.

Separate audit report for each firm/entity.

Filing the audit report requires submission by a Chartered Accountant via the income tax portal.

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Section 44AB – Tax Audit Summary

1. Applicability:

Business: Audit required if turnover exceeds ₹1 crore.

Limit increased to ₹10 crore if cash transactions ≤ 5% of total transactions.

Profession: Audit required if gross receipts exceed ₹50 lakh.

Presumptive Taxation: Audit needed if income is declared lower than presumptive rate and income exceeds the basic exemption limit.

2. Due Date:

31st October of the Assessment Year (e.g., for FY 2024–25, it's 31st Oct 2025).

3. Audit Report Forms:

Form 3CA/3CB: Audit report.

Form 3CD: Statement of particulars.

4. Penalty for Non-Compliance (Section 271B):

0.5% of turnover, up to ₹1.5 lakh.

No penalty if there’s a reasonable cause for failure.

Disclaimer:

The information provided above is for general informational purposes only and does not constitute legal, tax, or professional advice. While every effort has been made to ensure the accuracy of the content, users are advised to consult a qualified Chartered Accountant or tax professional for advice specific to their situation. The laws and rules are subject to change, and the author/website assumes no responsibility for any errors or omissions.