Section 44AB of Income Tax Act about Tax Audit for Individual & Businesses

Every financial year demands tax filing from an individual or a business under the Income Tax Act of India. Under Section 44AB of the Income Tax Act, a tax audit is triggered for a firm or entity if their annual gross turnover and receipts exceed a specified limit.

This audit ensures complete and accurate information of a tax payee’s financial belongings. Information like income, deductions, and taxes, along with account log books that comply with the Income Tax Act of 1961.

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What Is Section 44AB of Income Tax Act?

Section 44AB states the rules and regulations of tax audit for individuals and businesses. It deals with the audit of accounts of businesses or individuals. To ensure they meet all requisites as prescribed under this section.

If annual gross income/receipts exceed the specified limit. The assessee is liable to trigger a tax audit under IT section 44AB.

What Is Tax Audit Under Section 44AB?

The examination or evaluation of an individual’s book of account is termed a tax audit. Under this IT act, a practising Chartered Accountant conducts an audit. The CA then submits the audit reports and income tax return to the income tax department.

This section demands that a taxpayer maintain his book of accounts and other financial records properly to keep track of tax, income, and deductions in a financial year.

Application Criteria of Section 44AB of Income Tax Act

Following individuals or firms are liable for an audit from a chartered accountant -

A person carrying on businesses with gross turnover/receipts of more than ₹ 1 crore in any previous year. (if presumptive sections are not opted)
Individuals with gross income/receipts in profession above ₹ 50 lakh in any previous year.
Individuals in business or profession, who are covered under presumptive taxation scheme (44AD, 44ADA and 44AE) of Income Tax Department, but claim their profit is lower than the deemed profits mentioned in those sections.
The sale turnover limit exceeding Rs 2 crores for a person or business. (Presumptive sections above Rs 2 crore are not applicable)
Individuals with two or more businesses. Here the sum total of Gross Receipts earned from each business constitutes the aggregate gross turnover for the purpose of determining the applicability of audit.

List of Forms to Submit Under Section 44AB

In accordance with the IT Department laws, a person in question for his or her account audits is required to fill in the following forms –

1. A person carrying on a business or enterprise –

Form No. 3CA - to be filled by the auditor where the accounts have already been audited under any other law.
Form No. 3CD - To be filled in by the assessee and certified by the auditor with the reports gathered from evaluation.

2. An individual carrying on a profession –

Form No. 3CB – to be filled by the auditor Individuals who don’t require any audit performed under any law other than income tax law.
From No. 3CD – To be filled in by the assessee and certified by the auditor with the reports gathered from evaluation.

Due Date of Filing Income Tax Audit Report Under Section 44AB

After the taxpayer obtains a tax audit report, he has to file the income tax return on or before 30th September of an assessment year to avoid any penalties.

What Are the Applicable Penalties Under Section 44AB?

Suppose an individual in a profession or a person carrying on a business fails to file an income tax return in compliance with Section 44AB. In that case, he is liable to pay the following penalties set by the income tax department -

0.5% of the total sales, turnover and gross receipts within the financial year, or ₹ 1,50,000, whichever is lower.

In cases of national calamities, death or resignation of the tax auditor, and situations beyond the control of a taxpayer, the income tax department can revoke these penalties.

Now that you are aware of the intrinsics of Section 44AB of the Income Tax Act, complete the necessary procedures before the due date to avoid heavy penalties. This will also help you maintain a good record with the IT department.

FAQs about Section 44AB of Income Tax Act

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What is the 3rd proviso to Section 44AB?

The Assessee furnishes Form 3CD and is certified by a Chartered Accountant. The Chartered Accountant fills 3CD on behalf of the assessee. It consists of all the auditor reports of individuals, including account books, taxes, deductions and others, if any, under the specified terms of Section 44AB.

What is Form no. 3CD under Section 44AB?

It consists of all the auditor reports of individuals, including account books, taxes, deductions and others, if any, under the specified terms of Section 44AB.