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What is Tax Audit under Section 44AB?

What is a tax audit?

Tax audit refers to the verification of the books of accounts maintained by a taxpayer. The purpose of a tax Audit is to find an audit of the accounts of the taxpayer. The audit is also done by a Chartered Accountant.  A tax audit is the process of verification and inspection of the accounts of a taxpayer to confirm their adherence to the provisions of the Income Tax law.

What is the objective of tax audit?

Tax audit is  conducted to achieve the following objectives:

  • Ensure proper maintenance and correctness of books of accounts and certification of the same by a tax auditor
  • Reporting observations/discrepancies noted by tax auditor after a methodical examination of the books of account
  • To report prescribed information such as tax depreciation, compliance of various provisions of income tax law, etc.

All these enable tax authorities in verifying the correctness of income tax returns filed by the taxpayer. Calculation and verification of total income, claim for deductions etc., also becomes easier.

Who is mandatorily subject to tax audit?

Section 44AB specifies that the following professionals/businesspersons need to get their accounts audited:

  1. A businessperson whose gross receipts/turnover/sales for the previous financial year is more than Rs. 1 crore.
  2. A professional whose gross receipts for the previous financial year is more than Rs. 50 lakh.
  3. Persons covered under Sections 44AD, 44AE, 44AF, 44BB and 44BBB, who are declaring lower profits from business than what is estimated.

What is the due date for Filing Tax Audit Report?

The due date for completing and filing tax audit report under section 44AB of Income Tax Act is 30th September of the assessment year. ​The tax audit report is to be electronically filed by the chartered accountant to the Income-tax Department. After filing of report by the chartered accountant, the taxpayer has to approve the report from his e-fling account with Income-tax Department (i.e., at https://www.incometax.gov.in/iec/foportal).

What is the penalty of non filing or delay in filing tax audit report?

According to section 271B, if any person who is required to comply with section 44AB fails to get his accounts audited in respect of any year or years as required under section 44AB or furnish such report as required under  section 44AB​, the Assessing Officer may impose a penalty. The penalty shall be lower of the following amounts:

(a) 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such year or years. 

(b) Rs. 1,50,000.

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

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Note: This Post was last updated on October 26, 2022

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