Tax Audit – Meaning of Tax Audit, Section 44AB (Complete Details)

Tax Audit– The dictionary meaning of the term “audit” is check, evaluation, assessment, and so on. There are numerous kinds of audits recommended under various laws like business law needs a company audit, expense accounting law needs a cost audit, etc. The Income-tax Law needs the taxpayer to get the audit of the accounts of his business/profession from the view point of Income-tax Law.

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Following assessee are required to get their accounts audited by a chartered accountant and to furnish (digitally) the audit report in a specified form on or prior to due date of providing return:]

1. An assessee carrying on service

Condition: Total sales, turnover or gross-receipts of company for the previous year goes beyond Rs 1 crore.

Exception: Where a person:

  • States profits and gains for the previous year u/s 44 AD; and
  • His overall sales/ turnover/ gross invoices in organization does not go beyond Rs 2 crore in the previous year,.
    • then, the arrangement of tax audit is not appropriate.

2. An assessee continuing profession Condition: Gross invoices of profession for the previous year exceeds Rs 50 lacs.

3. An assessee covered u/s 44 AE, 44 BB or 44 BBB Condition: Assessee has declared that his earnings from such service is lower than the deemed earnings calculated in accordance with the respective area.

4. An assessee covered u/s 44 ADA Condition: Assessee has declared that: a. his income is lower than the presumptive earnings (computed u/s 44 ADA); and b. his earnings goes beyond the maximum amount which is not chargeable to income-tax (i.e. standard exemption limitation)

5. An assessee covered u/s 44 AD( 4) and his earnings exceeds the maximum amount which is not chargeable to income-tax in any previous year

Charge: If any assessee does not provide such audit report on or before specified date (i.e. 30 th September of evaluation year1) then he is accountable to pay penalty being lower of the following:

  • 1/2 percent of turnover or gross invoice; or
  • Rs 1,50,000

Tax Audit

Section 44 AB gives the arrangements connecting to the class of taxpayers who are required to get their accounts examined from a chartered accountant. The audit under section 44 AB intends to ascertain the compliance of numerous provisions of the Income-tax Law and the fulfillment of other requirements of the Income-tax Law. The audit performed by the chartered accountant of the accounts of the taxpayer in pursuance of the requirement of area 44 AB is called tax audit.

The chartered accountant conducting the tax audit is required to provide his findings, observation, and so on, in the type of audit report. The report of tax audit is to be offered by the chartered accountant in Form Nos. 3CA/3CB and 3CD.

One of the objectives of tax audit is to ascertain/derive/report the requirements of Form Nos. 3CA/3CB and 3CD. Apart from reporting requirements of Form Nos. 3CA/3CB and 3CD, a proper audit for tax purposes would ensure that the books of account and other records are properly kept, that they consistently show the income of the taxpayer and claims for reduction are properly made by him. Such audit would also help in inspecting fraudulent practices. It can also assist in the administration of tax laws by a correct presentation of accounts prior to the tax authorities and substantially save the time of Assessing Officers in performing routine verifications, like examining accuracy of overalls and validating whether purchases and sales are appropriately attested or not. The time of the Assessing Officers conserved could be utilised for attending to more crucial and investigational elements of a case.

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