If you run a business or practice a profession in India, there’s a high chance you’ve come across the term tax audit. But what exactly does it mean? And when is it compulsory?
That’s where Section 44AB of the Income Tax Act comes in.
This section defines the rules and regulations for the tax audit of an entity or a firm, and sets the threshold limits based on turnover or gross receipts. If your income or business size exceeds the specified limits, you must comply. Otherwise, penalties may follow.
Let’s dive into the details of Section 44AB – Tax Audit Limit in a simplified and humanized way.
What Is Section 44AB?
Section 44AB was made compulsory by the Income Tax Act to ensure that certain taxpayers maintain proper records and get them verified by an independent professional. In short, it requires certain taxpayers to get their accounts audited by a chartered accountant and submit a tax audit report in a prescribed format.
This section applies to both individuals and entities engaged in business or profession.
Purpose of Tax Audit
The goal of a tax audit is to:
- Ensure accurate and fair reporting of income
- Detect and prevent tax evasion
- Standardise financial disclosures
- Reduce errors in income tax return filings "
The tax audit is an additional layer of financial compliance for taxpayers who cross specific limits.
Who Needs to Get a Tax Audit Done?
Here’s a quick breakdown:
✅ For Businesses:
- A tax audit is mandatory for businesses with a turnover above Rs.1 crore in a financial year.
- However, if you’re opting for the presumptive taxation scheme under Section 44AD and your turnover is less than Rs 2 crore, audit is not required.
- But if you opt out of the presumptive scheme in any of the five years after opting in, tax audit becomes mandatory—even if turnover is less than ₹2 crore.
✅ For Professionals:
- If you are carrying on a profession (doctor, CA, lawyer, architect, etc.), and your gross receipts exceed ₹50 lakhs, you are required to get a tax audit done.
✅ For Businesses with Digital Transactions:
- If at least 95% of your business transactions are digital, the audit limit increases to ₹10 crore. This was introduced to encourage digital payments and reduce the compliance burden for small businesses.
What Does the Tax Audit Involve?
The tax audit under Section 44AB is conducted by a Chartered Accountant who prepares a detailed audit report.
This report must be furnished in either:
- Form 3CA & 3CD – for those who are already required to get their accounts audited under any other law (like the Companies Act)
- Form 3CB & 3CD – for those who are only required to get audited under the Income Tax Act
It includes details such as:
- Gross receipts
- Turnover
- Deductions claimed
- TDS compliance
- Related party transactions
- Loan or cash transactions over ₹20,000
Time Limit for Filing Tax Audit Report
The due date for furnishing the tax audit report is 30th September of the assessment year (unless extended by the government).
For instance, for FY 2023–24, the last date to file the audit report is 30th September 2024.
Penalty for Non-Compliance
If a taxpayer who is required to get their books audited under Section 44AB fails to do so, a penalty of 0.5% of turnover or ₹1,50,000 (whichever is lower) may be levied.
However, no penalty is imposed if there is a reasonable cause for the failure (such as illness, natural disaster, etc.).
Related Clauses: Section 44AB(a), 44AB(b), etc.
You’ll often hear people talk about specific subsections like:
- Section 44AB(a) – for business turnover above ₹1 crore
- Section 44AB(b) – for professionals with gross receipts above ₹50 lakhs
- Section 44AB(d) – for those declaring a lower income than deemed under Section 44AD and exceeding the basic exemption limit
- Section 44AB(e) – for businesses opting out of presumptive taxation after availing it previously
These sub-clauses further define the applicability of tax audit requirements.
Final Words
In a world of growing digital transparency, the Income Tax Department emphasises proper accounting and auditing to ensure compliance. Section 44AB is a vital part of that framework.
To summarise:
- Section 44AB defines the rules and regulations for the tax audit of an entity or a firm.
- It requires certain taxpayers to get their accounts audited by a chartered accountant.
- A tax audit is mandatory for businesses with a turnover above Rs 1 crore, and for professionals earning above ₹50 lakhs.
- All taxpayers have to get an audit report furnished in Form 3CB or 3CA with 3CD if applicable.
So, if your turnover or receipts cross the specified limit, don’t ignore the audit requirement. Filing without it can lead to penalties, notices, and unnecessary complications.
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