Section 44AB: Tax Audit under Income Tax Act

There are various kinds of audits being conducted under different laws such as company audit /statutory audit conducted under company law provisions, cost audit, stock audit etc. Similarly, income tax law also mandates an audit called ‘Tax Audit’.

As the name itself suggests, tax audit is an examination or review of accounts of any business or profession carried out by taxpayers from an income tax viewpoint. It makes the process of income computation for filing of return of income easier.

What are the objectives of Tax Audit?

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.
To ensure proper maintenance and correctness of books of accounts and certification of the same by a tax auditor.

Who has to undergo Tax audit?

Every person –

(a) carrying on business shall,

if his total sales, turnover or gross receipts,
as the case may be,
in business exceed or exceeds
one crore rupees in any previous year
Following proviso is inserted after clause (a) of section 44AB by the Finance Act, 2021, w.e.f. 1-4-2021:

Provided that in the case of a person whose—

(a) aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent of the said amount; and

(b) aggregate of all payments made including amount incurred for expenditure, in cash.

I) Section 44AB(b)

carrying on profession shall,
if his gross receipts in profession
Exceed fifty lakhs rupees
in any previous year

II) Section 44AB(c)

carrying on the business shall,
if the profits and gains from the business are deemed to be the profits and gains of such person
under section 44AE or section 44BB or section 44BBB,
as the case may be,
and he has claimed his income to be lower than the profits or gains
so deemed to be the profits and gains of his business,
as the case may be,
in any previous year; or

III) Section 44AB(d)

carrying on the profession shall,
if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and
he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and
his income exceeds the maximum amount
which is not chargeable to income-tax in any previous year; or

IV) Section 44AB(e)

carrying on the business shall,
if the provisions of sub-section (4) of section 44AD are applicable in his case and
his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,
get his accounts of such previous year audited by an accountant before the specified date and
furnish by that date the report of such audit
in the prescribed form duly signed and
verified by such accountant and
setting forth such particulars as may be prescribed :

Provided that this section shall not apply to the person,

who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD and
his total sales, turnover or gross receipts,
as the case may be,
in business does not exceed two crore rupees in such previous year:

Provided further that this section shall not apply to the person,

who derives income of the nature referred to in section 44B or section 44BBA,
on and from the 1st day of April, 1985 or,
as the case may be,
the date on which the relevant section came into force,
whichever is later

Provided also that in a case,

where such person is required by or under any other law to get his accounts audited,
it shall be sufficient compliance with the provisions of this section
if such person gets the accounts of such business or profession audited under such law
before the specified date and
furnishes by that date the report of the audit as required under such other law and
further report by an accountant in the form prescribed under this section.

How to furnish Tax audit reports?

The tax auditor shall furnish a tax audit report online by using his login details in the capacity of ‘Chartered Accountant’. Taxpayers shall also add CA details in their login portal.

Once the tax auditor uploads the audit report, the same should either be accepted/rejected by the taxpayer in their login portal. If rejected for any reason, all the procedures need to be followed again till the audit report is accepted by the taxpayer.

You must file the tax audit report on or before the due date of filing the return of income. It is 30th November of the subsequent year in case the taxpayer has entered into an international transaction and 30 September (extended to 30th November for AY 2021-22) of the subsequent year for other taxpayers.