Mandatory Tax Audit Requirements (Section 44AB)
Who is subject to a compulsory Audit of Accounts under Income Tax Law
About Assisting and Arranging Audit
Proper maintenance of financial records is crucial for any business or professional entity. Assisting and arranging a tax audit ensures that the accounts of a taxpayer are verified for correctness, compliance with applicable laws, and proper reporting of income. This process helps identify discrepancies, ensures transparency, and strengthens the financial credibility of the business.
Tax audit services typically involve reviewing books of accounts and financial statements, ensuring compliance with the Income Tax Act, 1961, preparing and submitting the audit report in the prescribed format, and advising on tax planning and proper record-keeping practices. These services not only help businesses meet statutory obligations but also provide confidence to owners that their financial statements are accurate and reliable.
Who is Mandatorily Subject to Tax Audit?
A taxpayer is required to have a tax audit if the sales, turnover, or gross receipts of the business exceed Rs. 1 crore in a financial year. However, under certain other circumstances, a taxpayer may also be required to get their accounts audited.
Note: The threshold limit of Rs. 1 crore for a tax audit is proposed to increase to Rs. 5 crore with effect from AY 2020-21 (FY 2019-20) if the following conditions are met:
- Cash receipts are limited to 5% of gross receipts or turnover
- Cash payments are limited to 5% of aggregate payments
Below are the various categories of taxpayers and the conditions for tax audit:
Tax Audit in Business
| Category of person | Threshold |
|---|---|
| Carrying on business (not opting for presumptive taxation scheme) | Total sales, turnover or gross receipts exceed Rs 1 crore in the FY |
| Carrying on business eligible for presumptive taxation under Section 44AE 44BB or 44BBB | Claims profits or gains lower than the prescribed limit under presumptive taxation scheme |
| Carrying on business eligible for presumptive taxation under Section 44AD | Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit. |
| Carrying on the business and is not eligible to claim presumptive taxation under Section 44AD due to opting out for presumptive taxation in any one financial year of the lock-in period i.e. 5 consecutive years from when the presumptive tax scheme was opted | If income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for |
| Carrying on business which is declaring profits as per presumptive taxation scheme under Section 44AD | If the total sales, turnover or gross receipts does not exceed Rs 2 crore in the financial year, then tax audit will not apply to such businesses |
Tax Audit in Profession
| Category of person | Threshold |
|---|---|
| Carrying on profession | Total gross receipts exceed Rs 50 lakh in the FY |
| Carrying on the profession eligible for presumptive taxation under Section 44ADA |
|
Tax Audit in Business Loss
| Category of person | Threshold |
|---|---|
| In case of loss from carrying on of business and not opting for presumptive taxation scheme | Total sales, turnover or gross receipts exceed Rs 1 crore |
| If taxpayer's total income exceeds basic threshold limit but he has incurred a loss from carrying on a business (not opting for presumptive taxation scheme) | In case of loss from business when sales, turnover or gross receipts exceed 1 crore, the taxpayer is subject to tax audit under 44AB |
| Carrying on business (opting presumptive taxation scheme under section 44AD) and having a business loss but with income below basic threshold limit | Tax audit not applicable |
| Carrying on business (presumptive taxation scheme under section 44AD applicable) and having a business loss but with income exceeding basic threshold limit | Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit |
What if Accounts Are Audited Under Any Other Law?
Audit Under Other Statutory Laws
In certain cases, a person may be required to get their accounts audited under any other law, such as a statutory audit of companies under the provisions of Company Law.
In such situations, the taxpayer is not required to get the accounts audited again separately for Income Tax purposes, provided the audit under the other law is completed before the due date of filing the income tax return.
The taxpayer can simply furnish the prescribed audit report, as required under the Income Tax Act, along with the return of income.
Simple & Transparent Pricing for Audit Assistance
Scale your features as your business grows. Find the plan that fits your needs today.
Basic Plan
Prices are exclusive of gst @18%
- Price depends on volume of transactions and compliances
- Turnover up to 2 Crore
Standard Plan
Prices are exclusive of gst @18%
- Price depends on volume of transactions and compliances
- Turnover up to 10 Crore
Premium Plan
Prices are exclusive of gst @18%
- Price depends on volume of transactions and compliances
- Turnover up to 20 Crore
FAQ's on Assisting and Arranging Audit
Your Questions Answered
What is the primary purpose of a Tax Audit under Section 44AB?
The primary purpose is to ensure that the accounts of the taxpayer are properly maintained and audited as per the requirements of the Income Tax Act. It facilitates the correct reporting of income and helps the tax authorities verify compliance.
What is the mandatory turnover limit for a business?
A Tax Audit is mandatory for any person carrying on a business if the total sales, turnover, or gross receipts in the previous year exceed ₹1 Crore. (This limit is extended to ₹10 Crore if cash receipts/payments are limited to 5% of the total).
What is the mandatory gross receipts limit for a profession?
A Tax Audit is mandatory for any person carrying on a profession if the gross receipts in the previous year exceed ₹50 Lakh. This limit is fixed and does not have the higher turnover threshold like businesses.
When is a Tax Audit mandatory for a person opting out of the Presumptive Scheme (Section 44AD)?
An audit is mandatory if the taxpayer was eligible for the Presumptive Scheme (Sec. 44AD) but declares profits lower than the prescribed rate (6% or 8% of turnover) AND their total income exceeds the basic exemption limit.
Which specific form is used to submit the Tax Audit Report?
The Tax Audit Report must be submitted electronically in Form 3CD, which is certified by a Chartered Accountant in Form 3CB (if the accounts are not already subject to statutory audit) or Form 3CA (if they are).
What is the due date for furnishing the Tax Audit Report?
The due date for furnishing the Tax Audit Report (Form 3CA/3CB and Form 3CD) is typically September 30th of the relevant Assessment Year (i.e., September 30th following the end of the financial year).
What is the penalty for failure to comply with the Tax Audit requirement?
The penalty for not getting accounts audited or not furnishing the report on time is the lower of 0.5% of the total sales, turnover, or gross receipts, or ₹1,50,000.
Is a Tax Audit mandatory for a person carrying on multiple businesses/professions?
Yes. If a person carries on multiple businesses or professions, the aggregate of the turnover/gross receipts from all such businesses or professions is considered for determining the mandatory audit threshold under Section 44AB.
