Section 44AB of the Income Tax Act, 1961, lays down the provisions for tax audit for businesses and professionals. This section outlines the rules for the maintenance of books of accounts and filing of tax returns by certain taxpayers.
For Assessment Year 2017-18, the provisions of Section 44AB were in force, and taxpayers were required to comply with its requirements. Let’s take a closer look at what this section entails.
Who is required to undergo tax audit?
As per Section 44AB, the following persons are required to undergo tax audit:
- Any person carrying on business whose total sales, turnover, or gross receipts in the previous year exceed Rs. 1 crore.
- Any person carrying on a profession whose gross receipts in the previous year exceed Rs. 50 lakhs.
- Any person who is eligible to opt for the presumptive taxation scheme under Section 44AD but declares profits or gains lower than the prescribed limit under this section.
What are the provisions of tax audit?
A tax audit requires the taxpayer to get their accounts audited by a Chartered Accountant (CA) and obtain an audit report in Form 3CD. The audit report contains information on the taxpayer’s accounting practices, the adequacy of their bookkeeping, and their compliance with tax laws.
The CA examines the books of accounts of the taxpayer to ensure that they are properly maintained and accurately reflect the financial position of the business or profession. The auditor also checks for compliance with various tax laws, such as deductions claimed and taxes paid.
What are the consequences of non-compliance?
If a taxpayer who is required to undergo a tax audit fails to comply with the provisions of Section 44AB, they may be subject to penalties. The penalty for non-compliance is 0.5% of the total sales, turnover, or gross receipts, subject to a maximum of Rs. 1,50,000.
In addition to the penalty, the taxpayer may also face consequences such as disallowance of expenses claimed in their tax return, addition of income, or prosecution under the Income Tax Act.
Under Section 44AB, taxpayers who meet certain criteria are required to undergo a tax audit by a Chartered Accountant. The main objective of the tax audit is to verify that the taxpayer has maintained proper books of accounts and other documents as required by law, and that the information presented in the accounts is accurate and complete.
The tax audit report, prepared by the Chartered Accountant, includes various details such as the taxpayer’s accounting policies, compliance with accounting standards, the adequacy of internal controls, and the correctness and completeness of the information presented in the accounts. The auditor also examines whether all the transactions have been properly recorded, and whether the taxpayer has complied with all the relevant tax laws.
The tax audit report must be submitted along with the taxpayer’s tax return for the relevant assessment year. It is important to note that the tax audit report is not a substitute for the tax return, and taxpayers must still file their tax returns as usual.
In addition to the penalty for non-compliance mentioned earlier, the Income Tax Act also provides for other penalties such as interest on unpaid tax, penalty for under-reporting or concealing income, and penalty for failure to deduct or pay taxes.
It is worth noting that the provisions of Section 44AB are designed to ensure that taxpayers maintain proper books of accounts and comply with tax laws. A tax audit can also help identify areas for improvement in the taxpayer’s accounting practices, and help them make informed decisions about their business or profession.
Conclusion
taxpayers who meet the criteria specified in Section 44AB should ensure that they comply with the provisions of this section to avoid any penalties or other consequences of non-compliance. It is also a good practice to consult with a Chartered Accountant or tax professional for guidance on compliance with tax laws and other regulatory requirements.
Other Related Blogs: Section 144B Income Tax Act
Frequently Asked Questions (FAQs)
Q:1 Who is required to undergo a tax audit under Section 44AB?
A: Any person carrying on business whose total sales, turnover, or gross receipts in the previous year exceed Rs. 1 crore, any person carrying on a profession whose gross receipts in the previous year exceed Rs. 50 lakhs, and any person who is eligible to opt for the presumptive taxation scheme under Section 44AD but declares profits or gains lower than the prescribed limit under this section.
Q:2 What is the deadline for submitting the tax audit report?
A: The tax audit report must be submitted along with the taxpayer’s tax return for the relevant assessment year. For example, for Assessment Year 2017-18, the tax audit report must be submitted along with the tax return by the due date, which is usually July 31st of the assessment year.
Q:3 Who can perform the tax audit?
A: Only a Chartered Accountant (CA) can perform the tax audit under Section 44AB.
Q:4 What information is included in the tax audit report?
A: The tax audit report includes information on the taxpayer’s accounting practices, compliance with accounting standards, the adequacy of internal controls, and the correctness and completeness of the information presented in the accounts.
Q:5 What happens if a taxpayer fails to comply with the provisions of Section 44AB?
A: If a taxpayer who is required to undergo a tax audit fails to comply with the provisions of Section 44AB, they may be subject to penalties. The penalty for non-compliance is 0.5% of the total sales, turnover, or gross receipts, subject to a maximum of Rs. 1,50,000.
Q:6 Can a taxpayer claim any exemptions or deductions from the penalty for non-compliance?
A: No, there are no exemptions or deductions from the penalty for non-compliance under Section 44AB.
Q:7 Is a tax audit report a substitute for a tax return?
A: No, the tax audit report is not a substitute for a tax return, and taxpayers must still file their tax returns as usual.
Q:8 What are the benefits of undergoing a tax audit?
A: A tax audit can help taxpayers identify areas for improvement in their accounting practices, and ensure that they comply with tax laws and other regulatory requirements. It can also help them make informed decisions about their business or profession.
