Income Tax Audit under Section 44AB of the Income Tax Act

Income Tax Audit under Section 44AB of the Income Tax Act.  
Income Tax Audit under Section 44AB of the Income Tax Act is a process through which certain taxpayers are required to get their books of accounts examined by a Chartered Accountant. This audit ensures that taxpayers are maintaining proper financial records and complying with the income tax laws of India. Unlike other audits, this is focused specifically on income tax compliance. In this article, we explain the meaning, objectives, applicability, limits, due dates, forms involved, and penalties related to the income tax audit in a detailed and easy-to-understand manner.
What is Income Tax Audit Under Section 44AB of the Income Tax Act?
An income tax audit is an examination of financial records of a business or professional entity from the income tax compliance perspective. It is mandated under Section 44AB of the Income Tax Act. This audit is conducted by a Chartered Accountant who verifies the correctness of income, deductions, and tax calculations declared by the taxpayer.
This audit is different from other types of audits like statutory audits, cost audits, or internal audits. It focuses only on checking if the income tax returns have been filed properly and whether all tax-related provisions have been followed correctly.
Objectives of Income Tax Audit
The main purpose of the income tax audit is to ensure that taxpayers maintain proper books of account and follow all income tax provisions correctly. Here are the key objectives:

To confirm that the books of accounts are properly maintained and accurate.

To detect any discrepancies, errors, or misreporting in income, expenses, or deductions.

To report specific information such as tax depreciation, compliance status of different sections of the Income Tax Act.

To make the calculation of taxable income and deductions easier.

To help income tax authorities verify the correctness of returns filed by the taxpayer.

This also helps reduce tax evasion and improve voluntary tax compliance.
Applicability of Tax Audit
The tax audit under Section 44AB of the Income Tax Act is applicable to taxpayers whose turnover, sales, or gross receipts exceed the specified limits. It applies to both businesses and professionals, subject to certain threshold criteria and exceptions.
A tax audit is required if:

Business turnover exceeds Rs. 1 crore in a financial year.

Business turnover exceeds Rs. 10 crores, provided that cash transactions do not exceed 5% of total transactions.

Gross receipts of a profession exceed Rs. 50 lakhs.

A person opts for presumptive taxation under sections 44AD, 44ADA, or 44AE and declares income below the prescribed rate or incurs a loss.

A person opted out of presumptive taxation under section 44AD in any of the five years in the lock-in period.

Turnover Limits for Income Tax Audit
The turnover limit is a key determinant of whether a tax audit is applicable. Based on the type of taxpayer and nature of income, the thresholds are different.
Business

For taxpayers not opting for the presumptive taxation scheme, if the turnover exceeds Rs. 1 crore, then a tax audit is mandatory.

If the cash receipts and cash payments do not exceed 5% of the total receipts and payments, the threshold for mandatory tax audit is increased to Rs. 10 crores.

For taxpayers opting for presumptive taxation under section 44AD, tax audit is applicable if income is lower than 8% or 6% of turnover and exceeds the basic exemption limit.

If a taxpayer opted out of section 44AD in any year of the 5-year lock-in period, and total income exceeds the basic exemption limit, then tax audit becomes applicable.

Profession

A professional is required to conduct a tax audit if gross receipts exceed Rs. 50 lakhs in a financial year.

If opting for presumptive taxation under section 44ADA and declaring income less than 50% of receipts while income exceeds the basic exemption limit, tax audit becomes mandatory.

Business Loss

If a taxpayer incurs a loss and is not under presumptive taxation, and turnover exceeds Rs. 1 crore, a tax audit is required.

If there is a loss under presumptive taxation and income is below the basic exemption limit, no audit is needed.

However, if income exceeds the exemption limit, and the loss is declared under presumptive taxation, a tax audit is mandatory.

Tax Audit Under Other Laws
In cases where the taxpayer is already required to get accounts audited under any other law, like a statutory audit under the Companies Act, they need not go through a separate audit for income tax purposes. They must only ensure that the tax audit report is furnished using the appropriate forms before the due date.
This simplifies the compliance requirement by preventing duplication of effort and paperwork.
Audit Report Forms (Form 3CA, 3CB, 3CD, and 3CE)
The tax audit report must be furnished in the prescribed forms, which are:

Form 3CA: Used when the taxpayer is already required to get accounts audited under any other law.

Form 3CB: Used when there is no requirement for audit under any other law.

Form 3CD: A detailed statement of particulars forming part of the audit report.

Form 3CE: Used in case of non-residents receiving royalty or fees for technical services.

How and When to File Tax Audit Report?
The tax audit report must be furnished online by the Chartered Accountant using their account on the Income Tax e-filing portal. The taxpayer must add the CA's membership details and approve or reject the uploaded report.
If rejected, the entire process must be completed again. Hence, communication and accuracy are very important. The deadline for filing the audit report is the same as the due date for filing the income tax return.
Due Date for Filing Tax Audit Report
The last date for furnishing the Income Tax Audit Report is closely tied to the due date for filing the income tax return under the Income Tax Act, 1961. As per the prevailing provisions, the tax audit report under Section 44AB must be submitted by the Chartered Accountant who is appointed as the tax auditor. The CA uploads the audit report using his own login credentials on the income tax portal. However, this report is only treated as valid once the taxpayer logs in to their own income tax portal, reviews the audit report, and formally accepts it. This acceptance is a mandatory step in the filing process.
For most taxpayers who are subject to tax audit—typically due to turnover thresholds or specific provisions—the due date to furnish the tax audit report is 30th September of the relevant assessment year. However, in cases where the taxpayer has undertaken international or specified domestic transactions that fall under the transfer pricing regulations, the due date extends to 31st October of the assessment year. It is essential to understand that the term “assessment year” refers to the year following the financial year in which the income is earned. For instance, for the financial year 2024–25, the corresponding assessment year would be 2025–26.
Importantly, the Income Tax Audit Report must be filed before or on the same day as the income tax return filing due date. Failing to submit the audit report by the specified deadline can attract penalties under Section 271B, unless the taxpayer has a reasonable cause for the delay. Therefore, timely coordination between the taxpayer and the auditor is crucial to complete the audit and file the report within the stipulated timeline.
Penalty for Not Filing Income Tax Audit Report
If a taxpayer fails to furnish the tax audit report within the due date, penalties under Section 271B of the Income Tax Act may be imposed. The penalty is the lesser of:

0.5% of total sales, turnover, or gross receipts,

Rs. 1,50,000

However, if the taxpayer can prove there was a reasonable cause for failure, no penalty will be imposed. Reasonable causes accepted by courts and tribunals include:

Natural calamities like floods, earthquakes, or fire

Resignation of the tax auditor

Death or serious illness of key personnel

Loss of books of accounts due to theft, accident, or other uncontrollable reasons

Strikes or labor unrest

Other Consequences of Not Filing Tax Audit Report
Besides the monetary penalty, several other consequences can arise:

Interest on unpaid tax: Delay may lead to interest accrual on tax due.

Disallowance of deductions: Certain deductions claimed might be disallowed.

Audit by authorities: Non-filing may trigger a detailed scrutiny by the income tax department.

Legal issues: In extreme cases, non-compliance can lead to prosecution.

Loss of reputation and credit rating: Non-compliance affects business credibility.

Conclusion
Income Tax Audit under Section 44AB of the Income Tax Act plays a key role in ensuring tax compliance and maintaining transparency in financial reporting. It is mandatory for businesses and professionals who cross specific turnover thresholds. Understanding the provisions and timelines is essential for avoiding penalties and ensuring smooth tax filing.
If you have any queries about Income Tax Audit, then you can connect with Compliance Calendar LLP experts through email at info@ccoffice.in or Call/Whatsapp at +91 9988424211.
FAQs
Q1. Who is required to get a tax audit done under Section 44AB of the Income Tax Act?
Ans. Any individual or entity whose turnover exceeds Rs.1 crore in business or Rs.50 lakhs in profession during a financial year is required to get their accounts audited. However, if cash transactions are up to 5% of total transactions, the limit is extended to Rs.10 crores. Taxpayers under presumptive taxation (like Section 44AD, 44ADA, etc.) also need audit if they declare lower income than prescribed.
Q2. What is the last date to submit the tax audit report for FY 2023-24?
 Ans. For the Financial Year 2023-24, the extended due date for submitting the tax audit report is 7th October 2024. For taxpayers who are subject to transfer pricing regulations, the deadline is 31st October 2024.
Q3. Which forms are used for submitting a tax audit report?
 Ans. The tax audit report must be submitted using Form 3CA or Form 3CB, along with Form 3CD.

Form 3CA: If audit is already done under another law (e.g., Companies Act).

Form 3CB: If audit is done only for Income Tax purposes.

Form 3CD: Detailed information to be filed along with 3CA/3CB.

Q4. What happens if I don’t file the tax audit report within the due date?
 Ans. A penalty may be imposed under Section 271B of the Income Tax Act. The penalty is 0.5% of total turnover or gross receipts, subject to a maximum of Rs.1,50,000. However, no penalty is levied if the delay is due to a reasonable cause.
Q5. Is a tax audit required if the business incurs a loss?
 Ans. Yes, if the turnover exceeds Rs.1 crore (or Rs.10 crores where 95% of transactions are digital), and the taxpayer incurs a loss, then tax audit is applicable, provided the taxpayer has not opted for presumptive taxation. If under presumptive taxation, tax audit is required only if the income declared is below the prescribed rate and total income exceeds the exemption limit.
Q6. Can I revise a tax audit report once filed?
 Ans. Yes, a tax audit report can be revised by the Chartered Accountant if any mistake or omission is identified after filing. The revised report must also be accepted by the taxpayer through their income tax e-filing portal.
Q7. Do I need to get a separate audit done for income tax if I am already audited under another law?
 Ans. No. If your accounts are already audited under any other law (e.g., statutory audit under Companies Act), you are not required to get a separate audit under the Income Tax Act. However, the same audit report must be submitted in the prescribed format (Form 3CA and 3CD) for income tax purposes.

Income Tax Audit under Section 44AB of the Income Tax Act is a process through which certain taxpayers are required to get their books of accounts examined by a Chartered Accountant. This audit ensures that taxpayers are maintaining proper financial records and complying with the income tax laws of India. Unlike other audits, this is focused specifically on income tax compliance. In this article, we explain the meaning, objectives, applicability, limits, due dates, forms involved, and penalties related to the income tax audit in a detailed and easy-to-understand manner.

What is Income Tax Audit Under Section 44AB of the Income Tax Act?

An income tax audit is an examination of financial records of a business or professional entity from the income tax compliance perspective. It is mandated under Section 44AB of the Income Tax Act. This audit is conducted by a Chartered Accountant who verifies the correctness of income, deductions, and tax calculations declared by the taxpayer.

This audit is different from other types of audits like statutory audits, cost audits, or internal audits. It focuses only on checking if the income tax returns have been filed properly and whether all tax-related provisions have been followed correctly.

Objectives of Income Tax Audit

The main purpose of the income tax audit is to ensure that taxpayers maintain proper books of account and follow all income tax provisions correctly. Here are the key objectives:

To confirm that the books of accounts are properly maintained and accurate.
To detect any discrepancies, errors, or misreporting in income, expenses, or deductions.
To report specific information such as tax depreciation, compliance status of different sections of the Income Tax Act.
To make the calculation of taxable income and deductions easier.
To help income tax authorities verify the correctness of returns filed by the taxpayer.

This also helps reduce tax evasion and improve voluntary tax compliance.

Applicability of Tax Audit

The tax audit under Section 44AB of the Income Tax Act is applicable to taxpayers whose turnover, sales, or gross receipts exceed the specified limits. It applies to both businesses and professionals, subject to certain threshold criteria and exceptions.

A tax audit is required if:

Business turnover exceeds Rs. 1 crore in a financial year.
Business turnover exceeds Rs. 10 crores, provided that cash transactions do not exceed 5% of total transactions.
Gross receipts of a profession exceed Rs. 50 lakhs.
A person opts for presumptive taxation under sections 44AD, 44ADA, or 44AE and declares income below the prescribed rate or incurs a loss.
A person opted out of presumptive taxation under section 44AD in any of the five years in the lock-in period.

Turnover Limits for Income Tax Audit

The turnover limit is a key determinant of whether a tax audit is applicable. Based on the type of taxpayer and nature of income, the thresholds are different.

Business

For taxpayers not opting for the presumptive taxation scheme, if the turnover exceeds Rs. 1 crore, then a tax audit is mandatory.
If the cash receipts and cash payments do not exceed 5% of the total receipts and payments, the threshold for mandatory tax audit is increased to Rs. 10 crores.
For taxpayers opting for presumptive taxation under section 44AD, tax audit is applicable if income is lower than 8% or 6% of turnover and exceeds the basic exemption limit.
If a taxpayer opted out of section 44AD in any year of the 5-year lock-in period, and total income exceeds the basic exemption limit, then tax audit becomes applicable.

Profession

A professional is required to conduct a tax audit if gross receipts exceed Rs. 50 lakhs in a financial year.
If opting for presumptive taxation under section 44ADA and declaring income less than 50% of receipts while income exceeds the basic exemption limit, tax audit becomes mandatory.

Business Loss

If a taxpayer incurs a loss and is not under presumptive taxation, and turnover exceeds Rs. 1 crore, a tax audit is required.
If there is a loss under presumptive taxation and income is below the basic exemption limit, no audit is needed.
However, if income exceeds the exemption limit, and the loss is declared under presumptive taxation, a tax audit is mandatory.

Tax Audit Under Other Laws

In cases where the taxpayer is already required to get accounts audited under any other law, like a statutory audit under the Companies Act, they need not go through a separate audit for income tax purposes. They must only ensure that the tax audit report is furnished using the appropriate forms before the due date.

This simplifies the compliance requirement by preventing duplication of effort and paperwork.

Audit Report Forms (Form 3CA, 3CB, 3CD, and 3CE)

The tax audit report must be furnished in the prescribed forms, which are:

Form 3CA: Used when the taxpayer is already required to get accounts audited under any other law.
Form 3CB: Used when there is no requirement for audit under any other law.
Form 3CD: A detailed statement of particulars forming part of the audit report.
Form 3CE: Used in case of non-residents receiving royalty or fees for technical services.

How and When to File Tax Audit Report?

The tax audit report must be furnished online by the Chartered Accountant using their account on the Income Tax e-filing portal. The taxpayer must add the CA's membership details and approve or reject the uploaded report.

If rejected, the entire process must be completed again. Hence, communication and accuracy are very important. The deadline for filing the audit report is the same as the due date for filing the income tax return.

Due Date for Filing Tax Audit Report

The last date for furnishing the Income Tax Audit Report is closely tied to the due date for filing the income tax return under the Income Tax Act, 1961. As per the prevailing provisions, the tax audit report under Section 44AB must be submitted by the Chartered Accountant who is appointed as the tax auditor. The CA uploads the audit report using his own login credentials on the income tax portal. However, this report is only treated as valid once the taxpayer logs in to their own income tax portal, reviews the audit report, and formally accepts it. This acceptance is a mandatory step in the filing process.

For most taxpayers who are subject to tax audit—typically due to turnover thresholds or specific provisions—the due date to furnish the tax audit report is 30th September of the relevant assessment year. However, in cases where the taxpayer has undertaken international or specified domestic transactions that fall under the transfer pricing regulations, the due date extends to 31st October of the assessment year. It is essential to understand that the term “assessment year” refers to the year following the financial year in which the income is earned. For instance, for the financial year 2024–25, the corresponding assessment year would be 2025–26.

Importantly, the Income Tax Audit Report must be filed before or on the same day as the income tax return filing due date. Failing to submit the audit report by the specified deadline can attract penalties under Section 271B, unless the taxpayer has a reasonable cause for the delay. Therefore, timely coordination between the taxpayer and the auditor is crucial to complete the audit and file the report within the stipulated timeline.

Penalty for Not Filing Income Tax Audit Report

If a taxpayer fails to furnish the tax audit report within the due date, penalties under Section 271B of the Income Tax Act may be imposed. The penalty is the lesser of:

0.5% of total sales, turnover, or gross receipts,
Rs. 1,50,000

However, if the taxpayer can prove there was a reasonable cause for failure, no penalty will be imposed. Reasonable causes accepted by courts and tribunals include:

Natural calamities like floods, earthquakes, or fire
Resignation of the tax auditor
Death or serious illness of key personnel
Loss of books of accounts due to theft, accident, or other uncontrollable reasons
Strikes or labor unrest

Other Consequences of Not Filing Tax Audit Report

Besides the monetary penalty, several other consequences can arise:

Interest on unpaid tax: Delay may lead to interest accrual on tax due.
Disallowance of deductions: Certain deductions claimed might be disallowed.
Audit by authorities: Non-filing may trigger a detailed scrutiny by the income tax department.
Legal issues: In extreme cases, non-compliance can lead to prosecution.
Loss of reputation and credit rating: Non-compliance affects business credibility.

Conclusion

Income Tax Audit under Section 44AB of the Income Tax Act plays a key role in ensuring tax compliance and maintaining transparency in financial reporting. It is mandatory for businesses and professionals who cross specific turnover thresholds. Understanding the provisions and timelines is essential for avoiding penalties and ensuring smooth tax filing.

If you have any queries about Income Tax Audit, then you can connect with Compliance Calendar LLP experts through email at info@ccoffice.in or Call/Whatsapp at +91 9988424211.

FAQs

Q1. Who is required to get a tax audit done under Section 44AB of the Income Tax Act?

Ans. Any individual or entity whose turnover exceeds Rs.1 crore in business or Rs.50 lakhs in profession during a financial year is required to get their accounts audited. However, if cash transactions are up to 5% of total transactions, the limit is extended to Rs.10 crores. Taxpayers under presumptive taxation (like Section 44AD, 44ADA, etc.) also need audit if they declare lower income than prescribed.

Q2. What is the last date to submit the tax audit report for FY 2023-24?

Ans. For the Financial Year 2023-24, the extended due date for submitting the tax audit report is 7th October 2024. For taxpayers who are subject to transfer pricing regulations, the deadline is 31st October 2024.

Q3. Which forms are used for submitting a tax audit report?

Ans. The tax audit report must be submitted using Form 3CA or Form 3CB, along with Form 3CD.

Form 3CA: If audit is already done under another law (e.g., Companies Act).
Form 3CB: If audit is done only for Income Tax purposes.
Form 3CD: Detailed information to be filed along with 3CA/3CB.

Q4. What happens if I don’t file the tax audit report within the due date?

Ans. A penalty may be imposed under Section 271B of the Income Tax Act. The penalty is 0.5% of total turnover or gross receipts, subject to a maximum of Rs.1,50,000. However, no penalty is levied if the delay is due to a reasonable cause.

Q5. Is a tax audit required if the business incurs a loss?

Ans. Yes, if the turnover exceeds Rs.1 crore (or Rs.10 crores where 95% of transactions are digital), and the taxpayer incurs a loss, then tax audit is applicable, provided the taxpayer has not opted for presumptive taxation. If under presumptive taxation, tax audit is required only if the income declared is below the prescribed rate and total income exceeds the exemption limit.

Q6. Can I revise a tax audit report once filed?

Ans. Yes, a tax audit report can be revised by the Chartered Accountant if any mistake or omission is identified after filing. The revised report must also be accepted by the taxpayer through their income tax e-filing portal.

Q7. Do I need to get a separate audit done for income tax if I am already audited under another law?

Ans. No. If your accounts are already audited under any other law (e.g., statutory audit under Companies Act), you are not required to get a separate audit under the Income Tax Act. However, the same audit report must be submitted in the prescribed format (Form 3CA and 3CD) for income tax purposes.