Section 44AB of Income Tax Act: Threshold Limits and Applicability

Section 44AB of Income Tax Act means when a person is engaged in business is required to maintain regular books of accounts.

The audit u/s 44AB aims to ascertain the compliance of various provisions of income tax law and the fulfilment of other requirements of the income tax act.

Objective of tax audit

• Ascertain or report the requirements of Form Nos. 3CA/3CB and 3CD.

• Proper audit for tax purpose would ensure that the books of account and other records are properly maintained, that they truly reflect the income of the taxpayer claims for deduction are correctly made by him. Such audit would also help in checking fraudulent practices.

• Facilitate the administration of tax laws by a proper presentation of accounts before the AO band save time.

Who Is Mandatorily Subject To Tax Audit?

A taxpayer is required to have a tax audit if the turnover or gross receipt of business exceeds specified limit in the financial year.

Tax Audit Limit For Business

Tax audit is mandatory if exceeds,

• Turnover limit 10 Cr if digital transaction in business more than 95%.

• Turnover limit 1 Cr if digital transaction in business less than 95%.

This provision is not applicable to the person if he / she opts for presumptive taxation scheme u/s 44AD and his total sales or turnover does not exceeds Rs. 2 crores.

Tax Audit Limit For Profession

Audit is required is gross receipts limit exceeds Rs 50 lakh.

Forms Used For Tax Audit Reports

An audit report is furnished in a prescribed form either in Form 3CA, 3CB, or 3CE.

Form 3CA

This form is used when a person carrying on business or profession is already mandate to get his accounts audited.

Form 3CB

This form is used when a person carrying on business or profession is not required to get his accounts audited.

Form 3CD

A detailed statement of particulars that must be attached to audit reports (Form 3CA or 3CB).

Form 3CE

This form is used for non-residents and foreign companies who receive royalties or technical service fees from the government or an Indian entity.

Penalty For Not Getting The Accounts Audited

According to 271B, if a person who is required to comply with section 44AB and fails to do so. The penalty shall be lower of the following amounts,

• 0.5% of the total sales, turnover in business or gross receipts in profession
• Rs. 1,50,000.

However, as per section 271B, no penalty shall be imposed if reasonable cause for such failure is proved.

Accepted Reasons for Delay in Filing Tax Audit Report

The reasonable causes that are accepted by Tribunals/Courts for delay in filing tax audit report are:

• Natural calamities
• Auditor or key employee resignation
• Extended strikes or lock-outs
• Loss of accounts due to uncontrollable situations
• Physical inability or death of the partner handling accounts

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