Tax Audit (Section 44AB)

– Section 44AB of the Income Tax Act

What is a Tax Audit?

A Tax Audit is an examination and review of the accounts of a business or profession, conducted to ensure that the income, expenses, and deductions reported by the taxpayer comply with the provisions of the Income Tax Act, 1961.

The audit is carried out by a Chartered Accountant (CA), who provides an Audit Report in Form 3CA/3CB and 3CD.

Tax Audit is not about paying tax but about ensuring the accuracy and compliance of financial reporting to the Income Tax Department.

Objective of Tax Audit

To verify books of accounts and check correctness of income reporting.
To ensure compliance with income tax laws and reporting norms.
To identify tax evasion, misreporting, or fraud.
To simplify assessment procedures by having accounts audited beforehand.
To assist in proper computation of income and tax liability.

Applicability of Tax Audit (Section 44AB)

A Tax Audit is mandatory if the turnover/gross receipts exceed prescribed limits:

1. Business

If total sales/turnover/gross receipts exceed ₹1 crore in a financial year.
Limit enhanced to ₹10 crore if:
- Cash receipts do not exceed 5% of total receipts AND
- Cash payments do not exceed 5% of total payments.

2. Profession

If gross receipts from profession exceed ₹50 lakh in a financial year.

3. Presumptive Taxation (u/s 44AD, 44ADA, 44AE, etc.)

If a person claims income lower than presumptive rates, and total income exceeds the basic exemption limit.

Forms Used in Tax Audit

Form 3CA – When the assessee is already required to get accounts audited under another law (e.g., Companies Act).
Form 3CB – When the assessee is not required to get accounts audited under any other law.
Form 3CD – A detailed statement of particulars (expenses, loans, depreciation, deductions, etc.).

Due Date for Tax Audit Filing

30th September of the Assessment Year (following the Financial Year).
Extended to 31st October for assessees covered under Transfer Pricing.

Penalty for Non-Compliance (Section 271B)

If a taxpayer required to get accounts audited fails to do so:

Penalty = 0.5% of total sales/turnover/gross receipts,
Subject to a maximum of ₹1,50,000.

Benefits of Tax Audit

Ensures accuracy of financial records.
Identifies errors, misstatements, or fraud.
Builds credibility with banks, investors, and tax authorities.
Simplifies Income Tax return filing and assessments.
Helps avoid heavy penalties.

Important Clauses in Form 3CD (Tax Audit Report)

The CA reports on:

Nature of business/profession
Details of partners/directors
Method of accounting & stock valuation
Depreciation as per Income Tax Act
Details of TDS deducted and compliance
Loans, deposits, and payments in cash
Disallowable expenses (u/s 40A, 40(a)(ia), etc.)
Details of deductions claimed (Chapter VI-A)
GST-related disclosures (turnover reconciliation, ITC mismatch, etc.)

Exemptions from Tax Audit

Tax Audit is not required for:

Individuals and HUFs with turnover/receipts below the specified limits.
Businesses covered under presumptive taxation (44AD/44ADA/44AE) and declaring income as per the scheme.
Farmers earning only agricultural income.

• Statutory Audit is done under the Companies Act to ensure fairness of financial statements. • Tax Audit is done under the Income Tax Act to ensure correct reporting of taxable income.

Only a Chartered Accountant in practice or a firm of CAs can conduct Tax Audit.

Yes. Companies mandatorily require a Statutory Audit, and if turnover exceeds limits under Section 44AB, they also need a Tax Audit.

Penalty under Section 271B up to ₹1,50,000.

Yes, if professional receipts exceed ₹50 lakh in a year.

Yes, if there are errors or omissions in the original filing.

Yes. For Tax Audit calculation, GST turnover is considered.

Yes, if turnover exceeds the prescribed limit, even in case of loss.

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