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Recent Articles Of GST
Income Tax Audit Under Section 44AB - Criteria, Audit Report & Penalty
Topic Covered:
1. Introduction:
2. Applicability of provision of sec. 44AB
3. Non-Applicability of Tax Audit
4. Tax Audit Report
5. Due date for filing Tax Audit report
6. Penalty for non-compliance
7. Conclusion
Introduction:
Persons are required to get an audit of the books of accounts as per the provisions of the Income tax act. The section provides the threshold for tax audit requirement is provided under section 44AB of the Income Tax Act. In this article, we will discuss the applicability of the section, audit report, and penalty.
Applicability of provision of sec. 44AB
The requirement of a tax audit can be bifurcated in the following manner:
1. For Normal Businesses:
Taxpayers engaged in any business activity are required to get tax audit of books of accounts of business if the turnover or sales exceed ₹ 1 crore in a financial year.
If a majority of transactions of the business are made digitally i.e. cash payments/ receipts are less than 5% of total payments/ receipts then the turnover limit for tax audit applicability increases from ₹ 1 crore to 10 crores.
2. For presumptive Businesses
If a presumptive taxation scheme is opted by the taxpayer, and as per the provision of presumptive scheme, the minimum profit of 6% or 8% of turnover is not reported, and total income is more than the basic exemption limit then a tax audit will be required.
If a business exits the presumptive taxation scheme in any previous years, it can’t opt in for the presumptive scheme for the next 5 financial years. In this case, books of accounts are need to be audited.
3. For Professions under the normal scheme of taxation
In the case of profession tax audit is mandatory when gross receipts exceed ₹ 50 lakhs in a financial year.
4. For Professions under the presumptive scheme of taxation
If a taxpayer opts for a presumptive taxation scheme, the minimum profit of 50% of turnover is not reported, and the total income is more than the basic exemption limit then a tax audit will be required.
5. For specified businesses
When a taxpayer is engaged in goods carriage business he is eligible for Presumptive Taxation under Sec 44AE, 44BB, or 44BBB but if he reports profit lower than the prescribed rate under the relevant section, then a tax audit will be required.
6. Tax Audit in case of Equity or derivative Trading
Income from trading in Equity Intraday, & Derivative Trading i.e. future and option trading is considered Business Income. So in this case also the tax Audit as per the provisions of the Income Tax Act is required.
If the turnover exceeds the threshold limit for tax audit i.e. ₹ 10 Crore since all transactions are digital.
Non-Applicability of Tax Audit
Taxpayers reporting profits of business/ profession as per the presumptive taxation scheme u/s 44AD/ 44ADA respectively then tax audit is not applicable.
In case where the business turnover is between 2 crores to 10 crores, then irrespective of profit/ loss, a tax audit is not applicable. If the condition of less than 5% of cash transaction is satisfied.
Tax Audit Report
The Tax auditor shall furnish the audit report in a prescribed form which could be either Form 3CA-CD or Form 3CB-CD where:
Form No. 3CA-CD is required to be furnished when a person carrying on business or profession has already gotten his accounts audited under any other law like Companies Act, Society Act.
Form No. 3CB-CD is required to be furnished when a person carrying on business or profession is required to get his accounts audited only under the income tax act.
Due date for filing Tax Audit report
After the tax audit is performed, the Chartered Accountant has to report all the findings to the department by filing Form 3CA/CB-3CD as the case may be. The audit report must be signed digitally by the chartered accountant.
The due date to file the audit report is 30th September of the relevant assessment year. While due date to file ITR where tax audit is done is 31st October of the relevant assessment year.
Penalty for non-compliance
As per the provision of the income tax act a taxpayer is required to get a tax audit of the books of accounts but fails to do so then the penalty will be lower of following:
• 0.5% of the of the total sales, turnover, or gross receipts,
• OR
• INR 1,50,000/-
No penalty will be imposed under section 271B If there is a valid reason for the failure,.
Conclusion :
It can be concluded that, whether the audit required or not is not only depend on the turnover limit but also on the other relevant factors like taxpayer has opted for presumptive or not, if opted profit is declared as per provisions or not. To comply with the law and prevent from the penalty provisions, one should check all the criteria and then decide the applicability of the audit.
