Tax Audit Limit: Criteria for Businesses and Professionals

Tax audit limit specifies the threshold for businesses and professionals, beyond the limit must get accounts audited under Section 44AB of the Income Tax Act.

Tax Audit

A tax audit involves an expression of the tax auditor’s opinion on the truth and correctness of certain factual details, furnished by the assessee to the Income Tax Authorities to enable correct assessment of total income considering all allowances, deductions, losses, adjustments, exemptions etc. and determination of tax thereon.

In simple words, tax audit is a formal examination of accounts of a business/profession in accordance with provisions outlined in Income Tax Act to simplify computation of income and filing of returns.

Objectives of Tax Audit

The main objective of tax audit is to check whether tax returns are filed in compliance with the applicable laws and regulations. It is also helpful in

  • Maintaining proper books of accounts
  • Ensuring adequate prevention and repression of tax
  • Protecting revenue
  • Enhancing transparency
  • Improving tax administration
  • Accuracy in financial records

Tax Audit Limit

Section 44AB of Income Tax Act mandates tax audit for:

  • Businesses having turnover exceeding Rs. 1 crore in the preceding financial year (having greater than 5% cash transaction)(Cash Business)
  • Businesses having turnover exceeding Rs. 10 crore in the preceding financial year transaction)(Digital Business) (having less than 5% cash
  • Professionals with gross receipts exceeding Rs. 50 lakh in the preceding financial year.

However, compulsory audit under section 44AB is not required for a person who has declared profit under section 44AD on presumptive taxation basis and his total sales/gross receipts is less than Rs. 2 crore in case of cash business and less than Rs. 3 crore in case of digital business.

Punishment Clause

In case, if the assessee opts out of section 44AD, profit limit should be maintained upto 6 assessment years; if profit is declared below the limit, then the assessee is not eligible for section 44AD upto 6 assessment years.

Profit limit shall be – atleast 6% for digital receipts and atleast 8% for cash receipts.

Who can prepare Tax Audit Reports?

A Chartered Accountant or a firm of Chartered Accountants having a valid Certificate of Practice (COP) can conduct a tax audit. He will be responsible for the verification of books maintained by the tax payer and issues a report in a prescribed form.

Forms required in Tax Audit

Rule 6G of Income Tax Act lists the forms to be filed for businesses/profession under section 44AB. The Central Board of Direct Taxes (CBDT) has released forms such as 3CA (Audit Form), 3CB, 3CD (Statement of Particulars) so that the auditor can report his observations along with these forms.

Form 3CA-3CD

Applicable for persons who is required to conduct an audit under any other law other than the Income Tax Act like the Companies Act, 2013.

Form 3CB-3CD

Applicable for persons who is required to adhere the provisions of Income Tax Act and not mandated to conduct any audit.

Due Date for filing Tax Audit Report

  • For persons filing the report under section 44AB- 30th September of the Assessment Year.
  • For persons liable for transfer pricing audit- 30th October of the Assessment Year.

Penalty for non-filing or delay in filing Tax Audit Report

  • If the business/profession does not get its books of accounts audited as per 44AB- Penal consequences under section 271B of the Income Tax Act shall be attracted.
  • If there is any incomplete audit and report is submitted after the due date- 0.5% of the total sales/turnover/gross receipts or Rs. 1,50,000 whichever is lower.

However, there are some exemptions where no penalty will be levied in cases such as natural calamities, sudden resignation of the auditor, strikes or lockouts, any unforeseen events or death of the person responsible for maintaining books of accounts.

Conclusion

As a taxpayer, it is advisable to adhere to the provisions of section 44AB of the Income Tax Act to accurately present the returns on a timely basis and avoid any delays or penalties.

Reporting of TDS/TCS Details in Tax Audit Report – Click Here

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