Income Tax Audit under Section 44AB

Individuals who meet certain qualifications and must have their accounts audited by a CA (Chartered Accountant) are subject to Section 44AB. This needs the submission of a specific set of forms.

Section 44AB of the Income Tax Act addresses the audit of certain individuals' accounts. If some persons meet the requirements outlined in Section 44AB, they will need to have their accounts audited by a certified CA (chartered accountant.) This procedure is carried out primarily to assist the Assessing Officer in calculating and calculating the individual's total taxable income.

Applicability of Sec44AB of Income Tax Act

A tax audit must be performed by the following individuals with the assistance of a chartered accountant-

  • The person engaged in business whose whole turnover or the gross receipts in any preceding year exceeded two crore rupees (However, this provision is not applicable to the persons who opt for presumptive taxation scheme.)

  • Any person who is pursuing a career and whose gross profits in any preceding year exceeded fifty lakh rupees.

  • A person who is regarded eligible for the presumptive taxation system and asserts that the profits and gains for the particular business are less than what is estimated under the presumptive taxation scheme and his/her income exceeds the taxable amount. This clause applies to taxpayers who pick a presumptive taxation scheme other than the scheme under Section 44AD and have a sale or turnover of less than Rs 2 crores.

Taxpayers should be aware that certain organizations, such as a corporation or a cooperative societies, are required by law to have their books audited. Section 44AB does not compel such firms to undergo another tax audit.

In this case, the concerned taxpayer only needs to receive and provide the specific audit report, accompanied by a report from a chartered accountant in either Form 3CA or 3CB. Form 3CD must be filled out with the necessary information.

Requirement of Income Tax Audit under Section 44AB

Section 44AB requires the following persons to have an income tax audit completed on their accounts

  • Businessmen

  • If the individual or person in issue owns a business and earns a total turnover of more than Rs. 1 crore in any year preceding the relevant assessment year, they would be compelled to have an income tax audit undertaken on his or her records.

  • If the individual or person in question carrying on a business return - profits or gains as any person mentioned under Section 44AE, Section 44BBB or Section 44BB, and he or she had stated that his or her salary is less than the taxable limit mentioned for gains acquired with the business, he or she will be required to have an income tax audit to be performed on their accounts.

  • If the individual or person in question carrying on a business gets profits or gains as any person mentioned under Section 44AD - and he or she has mentioned that his or her income is lesser than the taxable limit prescribed for the profits or gains acquired through business, and has acquired income that is greater than the limit exempt from tax, he or she will be required to have the income tax audit performed on the accounts.
  • Individuals Falling Under these Sections

Section 44AB needs any person or individual who comes within the below-mentioned sections of the Income Tax Act to have accounts audited-

  • 44AD
  • 44AE
  • 44AF
  • 44BB
  • 44BBB
  • Professional

If the individual in issue gets a gross income or receipts in excess of Rs. 25 lakhs from their profession in any year prior to the relevant assessment year, he or she would be compelled to have an income tax audit performed on their accounts.

Required Forms

The following forms must be utilized by the individual or person in question when their finances are audited under Section 44AB. These forms are explicitly stated in Rule 6G of the Income Tax Act in relation to Section 44AB income tax audits.

  • For persons or individuals carrying on a company or a profession whose accounts must be audited in accordance with the provisions of any type of law, the following forms must be used:
  • Form 3CA is an audit form.
  • Form 3CD - Statement containing pertinent information
  • Persons or individuals whose accounts are not required to be audited in accordance with the terms of any type of law, with the exception of income tax regulations, must use the following forms:
  • Form 3CB is an audit form.
  • Form 3CD - Statement containing pertinent information

How to Fill the Form?

Persons or persons who are needed to have their accounts audited under Section 44AB must file their income tax audit report under Section 44AB with their income tax returns by September 30th of the year of assessment in relevance to the previous year. These persons must e-file income tax audit reports along with their income tax filings and supply all necessary information.

Penalty for Non-Compliance of the Tax Audit Under Section 44AB

Persons or individuals who are needed to have their accounts audited under Section 44AB but fail to do so face a penalty or charge of 0.5% of their total turnover amount earned during the relevant fiscal year. This penalty, however, cannot exceed Rs. 1.5 lakhs.

If the person or individual is unable to have their accounts audited for a justifiable reason, no penalty will be imposed under Section 271B. Section 44AB considers the following circumstances to be reasonable causes of income tax audit failure:

  • If the income tax audit failed or was delayed because the authorized chartered accountant or auditor resigned from his or her position.
  • If the income tax audit failed or was delayed owing to the untimely death of the chartered accountant or auditor.
  • Suppose the income tax audit failed or was delayed because the authorized chartered accountant or auditor did not have access to the individual's accounts. This involves thievery, strikes, and rioting, among other things.
  • If the failure or delay in the income tax audit was caused by an unforeseeable natural disaster or calamity.
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