Section 44AB of the Income Tax Act
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Updated date : 22 October 2021
Section 44AB of the Income Tax Act, 1961 includes the provisions for the tax audit. A tax audit is an audit which is necessary by the Income Tax Act, if the annual gross turnover/receipt of the taxpayer exceed the specified limit.
There are different provisions that ne should keep in mind while getting its tax audited under section 44AB of the Income Tax Act, 1961. According to these prvisions, the audit of tax must be performed thoroughly by a Chartered Accountant. The role of the CA is to ensure that the taxpayer has followed and maintained proper record of her/his account and it complies with the Income Tax laws.
As per the provisions of the Section 44AB of the Income Tax Act, 1961, the Chartered Accountant must report the tax audit to the Income Tax Guide department in Form no. 3CD and Form No. 3CA/3CB along with the tax return.
What is Tax Audit under Section 44AB?
The verification or evaluation of account books of an assesse is referred as the tax audit. The evaluation is carried out with an aim to see that the assesse maintained proper guidelines under section 44AB of the income tax act 1961.
The assesse needs to oblige the provisions of Section 44AB of the Income Tax Act while he or she is preparing the account books of his or her business. The provisions of this section deals with the various phases of the assesse’s profession or business. Let’s check the details of such provision under the section 44AB.
- The provisions of the section shows whether the income of the assesse from his profession or business is chargeable or not .
- It also shows how incomes are computed.
- The rate of depreciation, various allowances can be determined by the provisions of this section on the assets held by assesse.
- Apart from these, rebates on making donations, on making investments on borrowed capital, statutory funds and incidence of tax on bad debts are determined by such provision of the Section 44AB.
In addition to that, the audit of the tax of assesse is also required to ensure that it is in proper compliance with the provisions of the section 44AB of the Income Tax Act. By following the provisions of this section, it is assumed that there is no such concealment from the side of assesse.
Criteria of Application of Section 44AB
There are certain conditions that an individual needs to fulill to complete the tax audit process with the help of her/his Chartered Accountant. Let’s have a look into the following conditions:
- Those individuals who are handling enterprise or a company and whose entire turnover crosses INR 2 crore in the previous year.
- The professionals having gross profits INR 50lakh in the previous year.
Here, it’s important to mention that there are some companies or co-operative societies that get their accounts audited under special laws. Such companies don’t need to follow the provisions of Section 44AB of the income tax act. In such cases, the taxpayers need to furnish specific audit report which must be still supported by a CA (Chartered Accountant) with any of the following forms: Form 3CB or Form 3CA.
The individuals should perform the income tax audit according to the Section 44AB of the income tax act 1961.
Classification of Individuals
Continuing with the profession
Entire receipts crosses Rs 50 lakhs
Handling or carrying on business of the enterprise( not choosing the tentative taxation scheme)
The entire receipts crosses Rs. 1 crore.
Handling the business (choosing tentative taxation scheme under the section 44AD)
Entire sales crosses Rs. 2 crore.
Carrying the business which is eligible for the tentative taxation under the section 44AE 44BB and 44BBB.
Claim profits which is below the prescribed limit under the concerned tentative taxation scheme.
Carrying on the business which is eligible for the tentative taxation under the section 44ADA
Claim gains below the prescribed limit under the respective tentative taxation scheme and if the income crosses the maximum amount is not chargeable to tax.
Requiremnts of Forms to be Submitted Under Section 44AB
There are cetain forms required when it comes to auditing the accounts of a taxpayer u/s 44AB. One can find special mention of those forms in Rule 6G of the Income Tax Act, 1961.
- For the individuals who are handling enterprises, below mentioned forms are applicable:
- Form Number 3CD- the statement which displaying the relevant particulars.
- Form Number 3CA- Audit Form.
- Fo the individuals who don’t need to get audited with their account according to the provisions under any type of law, below mentioned forms are applicable.
- Form Number 3CB- Audit form
- Form Number 3CD- the statement which is showing the respective particulars.
Points To Know About Section 44AB For Filing Tax Audit Report:
- Those individuals who are planning to get their accounts audited with the provisions of Section 44AB should file the report of audit with their income tax by September 30th of the particular assessment year.
- These people should e-file their income tax audit along with their income tax returns by attaching all the relevant documents.
- The individuals who are liable to get their accounts audited under Section 44AB of the Income Tax Act, if they fail to do it by the given time, they are liable to pay a penalty of 0.5% of the entire turn over within a year. Hoever, the penalty shouln’t be more than Rs.1.5 lakhs.
- In such scenarios, the individuals may be questioned about the failure of income tax return within given time. If the taxpayer is able to give a satisfactory and legitimate answer against the question, there will not be any imposition of penalty under section 271B.
Below-enlisted are few of the reasons that may be accepted in case of failure of e-filing the tax audit under Section 44AB of the Income Tax Act:
- Failure of tax audit due to sudden death of Chartered Accountant
- Failure of e-filing income tax audit due to resignation of Accountant from his or her duty.
- Delay of e-filing the tax audit due to any natural disaster.
- The CA or the auditor not having proper access to the accounts of the individual in cases of theft or strikes.
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