Section 44AB of the Income Tax Act is a crucial provision that outlines the statutory audit requirements for certain categories of taxpayers. It mandates that certain classes of businesses must undergo a compulsory tax audit by a chartered accountant before filing their income tax returns. In this blog, we will delve deeper into Section 44AB of the Income Tax Act and its relevance for the Assessment Year 2018-19.
Who is Covered Under Section 44AB?
As per Section 44AB, the following categories of taxpayers are required to undergo a statutory audit:
- Businesses with an annual turnover of Rs. 1 crore or more: Businesses that have a total sales, turnover or gross receipts of Rs. 1 crore or more in a financial year are required to get their accounts audited by a chartered accountant.
- Professionals with gross receipts exceeding Rs. 50 lakhs: Professionals such as doctors, lawyers, architects, engineers, etc., who have gross receipts exceeding Rs. 50 lakhs in a financial year must also get their accounts audited by a chartered accountant.
- Businesses opting for presumptive taxation: Taxpayers opting for the presumptive taxation scheme under Section 44AD or Section 44AE of the Income Tax Act are also required to undergo a tax audit under Section 44AB.
What is the Procedure for Statutory Audit Under Section 44AB?
The audit under Section 44AB must be conducted by a qualified chartered accountant who is independent of the taxpayer. The auditor must examine the books of accounts and other relevant documents to ascertain the accuracy of the financial statements and compliance with tax laws.
The chartered accountant must submit an audit report in Form 3CA or Form 3CB, as applicable, along with a statement of particulars in Form 3CD. The audit report must be submitted before the due date of filing the income tax return, which is usually 30th September of the assessment year.
Penalties for Non-Compliance
Failure to comply with the provisions of Section 44AB can attract severe penalties. The penalty for non-compliance is 0.5% of the turnover or gross receipts, subject to a maximum of Rs. 1.50 lakhs. In addition, the taxpayer may also face disallowance of expenses and may be required to pay interest on the tax liability.
Firstly, it is important to note that Section 44AB applies to all types of businesses, whether they are sole proprietorships, partnerships, or limited liability companies. In addition, the annual turnover or gross receipts threshold for mandatory audit under Section 44AB was revised from Rs. 1 crore to Rs. 5 crores for businesses whose turnover is less than Rs. 5 crores, provided they satisfy certain conditions. This change was introduced by the Finance Act, 2020, and is applicable for the Assessment Year 2021-22 and subsequent years.
Furthermore, if a taxpayer is required to undergo an audit under any other provision of the Income Tax Act, such as Section 44AD or Section 44AE, then the audit under Section 44AB is not mandatory. However, if a taxpayer opts out of the presumptive taxation scheme during the year, then they would be required to undergo an audit under Section 44AB.
Another important point to note is that the audit under Section 44AB is not limited to just the financial statements of the business. The auditor is also required to examine compliance with various tax laws, such as TDS (Tax Deducted at Source) provisions, transfer pricing regulations, and other statutory obligations.
Lastly, it is crucial for taxpayers to ensure that they comply with the deadline for filing the audit report under Section 44AB. Failure to do so can result in penalties and interest, as mentioned earlier. In addition, the taxpayer may also face scrutiny from the tax authorities, which can be time-consuming and costly.
In conclusion
Section 44AB of the Income Tax Act is a significant provision that ensures compliance with tax laws and helps in maintaining transparency in the financial statements of businesses and professionals. Taxpayers falling under its ambit must ensure timely compliance to avoid legal consequences.
Other Related Blogs: Section 144B Income Tax Act
Frequently Asked Questions (FAQs)
Q:1 What is Section 44AB of the Income Tax Act?
A: Section 44AB of the Income Tax Act is a provision that mandates a compulsory tax audit by a chartered accountant for certain categories of taxpayers. It applies to businesses and professionals whose annual turnover or gross receipts exceed certain thresholds.
Q:2 Who is required to undergo a tax audit under Section 44AB?
A: Taxpayers falling under the following categories are required to undergo a tax audit under Section 44AB:
Businesses with an annual turnover of Rs. 1 crore or more
Professionals with gross receipts exceeding Rs. 50 lakhs
Businesses opting for the presumptive taxation scheme under Section 44AD or Section 44AE of the Income Tax Act
Q:3 Who can conduct the audit under Section 44AB?
A: The audit under Section 44AB must be conducted by a chartered accountant who is independent of the taxpayer.
Q:4 What is the deadline for filing the audit report under Section 44AB?
A: The audit report in Form 3CA or Form 3CB, along with a statement of particulars in Form 3CD, must be submitted before the due date of filing the income tax return, which is usually 30th September of the assessment year.
Q:5 What are the penalties for non-compliance with Section 44AB?
A: Non-compliance with Section 44AB can attract penalties of 0.5% of the turnover or gross receipts, subject to a maximum of Rs. 1.50 lakhs. In addition, the taxpayer may also face disallowance of expenses and may be required to pay interest on the tax liability.
Q:6 Is the audit under Section 44AB limited to financial statements?
A: No, the audit under Section 44AB is not limited to financial statements. The auditor is also required to examine compliance with various tax laws, such as TDS provisions, transfer pricing regulations, and other statutory obligations.
Q:7 Has the turnover threshold for mandatory audit under Section 44AB been revised?
A: Yes, the annual turnover or gross receipts threshold for mandatory audit under Section 44AB was revised from Rs. 1 crore to Rs. 5 crores for businesses whose turnover is less than Rs. 5 crores, provided they satisfy certain conditions. This change was introduced by the Finance Act, 2020, and is applicable for the Assessment Year 2021-22 and subsequent years.
