The dictionary meaning of the term “Audit” is check, review, inspection, etc. There are various types of audits prescribed under different laws. For example company law requires a company audit; cost accounting law requires a cost audit. The Income-tax Law requires the taxpayer to get the audit of the accounts of his business/ profession.
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. 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.
WHAT DOES SECTION 44AB SAYS?
“44AB. Every person-
- Carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year; or
- Carrying on profession shall, if his gross receipts in profession exceeds fifty lakh rupees in any previous year; or
- Carrying on business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under Section 44AE, Section 44BB or Section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be profits or gains of his business, as the case may be, in any previous year; or
- Carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under Section 44ADA and he has claimed such income to be lower than the profits or gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which in not chargeable to income-tax in any previous year; or
- Carrying on the business shall, if the provisions of sub-section (4) of Section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,
get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed”
OBJECTIVE OF TAX AUDIT
One of the objectives of tax audit is to ascertain/ derive/ report the requirements of Form 3CA (audit report in case where the accounts of the business or profession have been audited under any other law), 3CB (audit report in case the accounts of the business or profession have not been audited under 3CA) and 3CD (Statement of particulars required to be furnished under Section 44AB of the Income-tax Act, 1961). Apart from these, a proper audit for tax purposes ensures:
- that the books of account and other records are properly maintained,
- that they truly reflect the income of the taxpayer,
- claims for deduction are correctly made by him,
- checking of fraudulent practicing,
- facilitating the administration of tax laws by proper presentation of accounts before tax authorities, and
- saving the time of Assessing Officers in carrying out routine activities.
TYPES OF TAX AUDIT (AS PER INCOME TAX ACT,1961)
- Section 44AB Most of the taxpayers, organizations and individuals are governed by this section
- Section 44BB This is for Non-Resident Indians engaged in businesses involved in the mineral oil industry
- Section 44BBB This is for international companies engaged in the business of civil construction, etc
- Section 44AD This is for all the business except from those mentioned in Section 44AE
- Section 44ADA is for tax audits of eligible professionals
- Section 44AE deals with business engaged in leasing, hiring and plying of goods carriages
PERSONS REQUIRED TO GET THEIR ACCOUNTS AUDITED
As per Section 44AB, following persons are compulsorily required to get their accounts audited:
- A person carrying on business, if his total sales, turnover or gross receipts (as the case may be) in business for the year exceed or exceeds Rs. 1 crore. This provision is not applicable to the person, who opts for presumptive taxation scheme under Section 44AD and his total sales or turnover does not exceed Rs. 2 crores.
- A person carrying on profession, if his gross receipts in profession for the year exceed Rs. 50 lakhs.
- An assessee who declares profit for any previous year in accordance with section 44AD and he decreases profit for any of one 5 assessment year recusant 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.
- 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.
- A person who is eligible to opt for the presumptive taxation scheme of Section 44ADA but he claims the profits or gains for such profession to be lower than the profit and gains computed as per the presumptive taxation scheme and his income exceeds the amount which is not chargeable to tax.
This provision is not applicable to the person, who opts for presumptive taxation scheme under Section 44AD and his total sales or turnover does not exceed Rs. 2 crores.
- A person who is eligible to opt for the presumptive taxation scheme of Section 44AE but he claims the profits or gains for such business to be lower than the profits and gains computed as per the presumptive taxation scheme of Section 44AE.
- A person who is eligible to opt for the taxation scheme prescribed under Section 44BB or Section 44BBB but he claims the profits or gains for such business to be lower than the profits and gains computed as per the taxation scheme of these sections
Section 44BB is applicable to non-resident taxpayers engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire basis to be used in exploration of mineral oil. Section 44BBB is applicable to foreign companies engaged in the business of civil construction or erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project.
DUE DATE FOR TAX AUDIT
A person covered under 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.
In case of a taxpayer who is required to furnish report in respect of any international transaction or specified domestic transaction, the due date of filing the return of income is 30th November of the relevant assessment year.
The tax audit report is to be electronically filed by the chartered accountant to the Income-tax Department. After filing of such report by the chartered accountant, the taxpayer has to approve the report from his e-filing account with the Department i.e., www.incometacidniaefiling.gov.in
PENALTY FOR NOT GETTING THE ACCOUNTS AUDITED
According to Section 271B, if any person who is required to comply with Section 44AB fails to get his accounts audited in respect of any year or years as required under Section 44AB or furnish such report as required under Section 44Ab, the Assessing Officer may impose a penalty. The penalty shall be lower of the following amounts:
- 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such year or years.
- Rs. 1, 50, 000.
However, according to Section 271B, no penalty shall be imposed if reasonable cause for such failure is proved.