written by Khatabook | July 22, 2021

Forms, Submission & Applicability under Section 44AB of Income Tax

It is important to understand tax audit since it helps in presenting proper accounts before the Tax authorities. Income Tax audits are conducted by Chartered Accountants and they have been made mandatory under specific circumstances under the 1961 Income Tax 44AB. 

Audit means an official inspection of an organisation’s accounts and producing its audit report with a systematic assessment. It is generally undertaken by a Chartered Accountant or an independent body. Hence, the audit report certifies and validates the reported tax liability and helps the IT authorities quickly assess the returns.

Why Are Audits Conducted?

Audits required under the Income Tax Act 1961 are dealt with under Section 44AB and help with: 

  • The maintenance and correctness in the accounts books. They are generally certified by a tax auditor or Chartered Accountant. 
  • The reporting of discrepancies and observations noticed by a Chartered Accountant/ tax auditor after a systematic examination of the accounts books. 
  • Reporting of the details like compliance of income tax law, tax liabilities, depreciation, etc. 

Hence the audit report U/S 44AB is most useful to the tax authorities to verify the ITRs and correctness of tax liability of taxpayers/ persons/ individuals liable to pay income tax. Thus, verification of ITRs, refunds and processing of claims and deductions becomes a more bearable task for IT authorities. 

What is Section 44AB of Income Tax Act? 

The Income Tax Section 44AB applies to individuals meeting specific requirements set out under it. Such taxpayers need to get their accounts audited by an independent Chartered Accountant who provides an audit report in a prescribed set of forms to be submitted to the IT Department. This procedure ensures that the Assessing Officer has a clear picture of the calculation of the individual’s total tax liability and taxable income.

When is Section 44AB of Income Tax Act applicable?

The audit under the Section 44AB of the Income Tax Act into a taxpayer’s accounts is applicable in the situations listed below:

  • If the taxpayer’s total turnover or income in an FY or financial year is greater than the permitted taxable limit, regardless of the previous financial year’s income or turnover. 
  • If the taxpayer has a business income higher than the permitted taxable limit but a personal income lower than the permitted taxable limit.
  • If it is a special case of a taxpayer whose taxable income is lower than the permitted taxable limit, the ITO or Income Tax Assessing Officer requires and orders an audit into the taxpayer’s accounts U/S 142(2A) of the IT Act.

Who should undergo the 44AB Income Tax Audit?

The below-mentioned taxpayers are required to have a Section 44AB Income Tax Act audit performed:

Any business or individual carrying on a business:

  • Suppose the taxpayer/person/individual carries out a business from which the total turnover or income accruing exceeds Rs 1 Crore during any financial year before the assessment year in question. In that case, they should have their accounts audited U/S 44AB of Income Tax Act.
  • Suppose the taxpayer/person/individual is carrying out a business from which the gains or profits are mentioned U/Ss 44AE, 44BB and 44BBB. If they have declared their income below the prescribed taxable limits for gains/ profits, in that case, they should have their accounts audited under Sec 44AB of Income Tax Act.
  • If the taxpayer/person/individual carrying out a business from which the gains or profits are mentioned U/S 44AD, and they have declared that their acquired business income is higher than the prescribed taxable limits for gains/ profits, then they should have their accounts audited under Section 44AB of income tax.

Any individual/ person carrying out a profession:

  • Suppose the taxpayer/person/individual carrying out a profession earns a gr oss receipt/ income higher than Rs 25 lakh during any year before the assessment year in question. In that case, they should have their accounts audited under the Income Tax Act 44AB. 

Any individual/ person mentioned under the below IT sections:

If the taxpayer/ person/ individual falls under the following sections of the Income Tax Act. The sections are-

         1. Sec 44AE for business income from goods carriage and plying.

         2. Sec 44AD on presumptive taxes.

         3. Sec 44AF for retail businesses.

         4. Sec 44BBB for foreign companies in the business of civil construction.

         5. Sec 44BB for exploration and mining businesses.

Note that Section 44AB(e) of Income Tax Act has been in effect from 1st April 2016 and was amended by the Finance Act 2016. This section states that taxpayers/ individuals/ persons opting for presumptive taxation U/S 44AD must have their accounts audited.

Also Read: Income Tax Rebate Under Section 87A

Forms Required Under Section 44AB Income Tax Act

The forms required under Section 44AB when conducting the audit are mentioned in the Income Tax Act- Rule 6G. 

Taxpayers, individuals or persons carrying on a profession or business whose accounts need to be audited U/S 44AB provisions or any other tax laws should use the following forms.

  • Audit Form or Form Number 3CA
  • Statement and Particulars Form-3CD.

For taxpayer’s, individuals or persons not required to be audited under any provisions of law, except the IT Act laws, you should use the following forms.

  • Audit Form Form-3CB 
  • Statement and particulars form Form-3CD.

Filing the Audit Report under Sec 44AB of Income Tax

Taxpayers, individuals or persons required to have their accounts audited under Section 44AB Income Tax have to file their income tax returns and the Section 44AB income tax audit report by the 30th of September of the assessment year.

Audit Report

The tax auditor files their tax audit report using the login details online in the capacity of ‘Tax Auditor’ or ‘Chartered Accountant’.  Hence, the taxpayer should add the auditor or Chartered Accountant information on the IT Department’s login portal. The same can be rejected or accepted by the taxpayer on the login portal.

Non-Compliance of Income Tax Audit U/S 44AB

Taxpayers, individuals, or persons required to have their accounts audited under Section 44AB Income Tax Act 1961 but fail to do so are liable to pay the penalty amounting to 0.5% of the total turnover earned in the relevant FY or financial year. The penalty sum, though, cannot exceed the amount of Rs 1.5 lakh.

Section 271B Legitimate Reasons

When the taxpayers, individuals or persons under Section 44AB(a) of Income Tax Act have a legitimate reason for being unable to get their accounts audited, no penalty is levied U/S 271B of the IT Act. The reasons considered legitimate causes for failure to have their accounts audited and submitted U/S 44AB(a) of Income Tax Act 1961 are mentioned below.

  • When the authorized auditor/chartered accountant resigns from her/ his duty, causing the delay/ failure of the income tax audit completion.
  • When the authorized auditor/chartered accountant dies, causing the delay/ failure of the income tax audit completion.
  • When the authorized auditor/chartered accountant cannot access the accounts due to events like riots, strikes, theft etc., causing the delay/failure of the income tax audit completion.
  • When the authorized auditor/chartered accountant cannot access the accounts due to natural calamities or disasters, causing the delay/failure of the income tax audit completion.

Sec 44AB(a) of Income Tax Act Due Date Update

The CBDT circular of 20th May 2021 has extended the due dates and compliance dates for some direct tax compliances for the AY or Assessment Year 2021- 2022. These are mentioned below.

Criteria

ITR filing date

For taxpayers whose accounts need not be audited

Extended to 30th September 2021 from the 31st July 2021

For audit cases, U/S 44AB(a) of Income Tax Act

Set to 30th Nov 2021

For Transfer Pricing cases

Set to 31st December 2021

For Revised or Belated Returns

Set to 31st January 2022 from 31st December 2021

For cases where audit reports are to be furnished

Due date under the Income Tax Act has been set to 31st October 2021

For cases where audit reports are to be furnished in transfer pricing cases

Due date under the Income Tax Act has been set to 30th November 2021

Union Budget 2021 changes

The 2021 Union Budget-

  • Offers exemption from filing to those senior citizens above 75 years of age earning only interest income and pension income. 
  • The Rs 1 Crore threshold limit under section 44AB(a) of Income Tax Act 1961 for a tax audit U/S 44AB of the Income Tax Act is under consideration and proposed to be raised to Rs 5 Crore from FY 2019-2020 or AY 2020- 2021. It will apply when the cash receipts of the taxpayer do not exceed 5% of the turnover or gross receipts or if the cash payments of the taxpayer are less than 5% of the total or aggregate payments. 

Also Read: Section 44AD- Check Features and Applications 

Parting Words:

Sec 44AB of the Income Tax Act is an important section that concerns an audit of the books of accounts of specific taxpayers. We have briefly studied the various conditions when the audit is mandatory, how the audit report is filed, and the latest updates in IT laws, Union Budget and CBDT directives. The audit is a very useful tool to verify your tax liability and the correctness of the books of accounts. Not filing the audit report in time along with the requisite ITR attracts a penalty. Thus, all taxpayers are advised to file their audit reports and ITRs by the due dates mentioned. We have also mentioned the latest updates of these due dates above.

FAQs

1. Can the income tax report under Section 44AB of the Income Tax Act be revised?

Generally speaking, the tax audit report revision filed U/S 44AB of the IT Act is not encouraged. A correction or amendment is only possible if you appeal to the IT authorities stating your reasons for the request and the IT laws allow it for any reason. An authorized auditor can then undertake such a revision audit.

2. What is the latest updated due date for U/S 44AB ITR filing?

For audit cases, u/s  44AB(a) of Income Tax Act, the ITR filing date has been set to 30th Nov 2021 by the CBDT circular of 20th May 2021.

3. Are all pensioners and senior citizens exempt from filing ITRs?

No. The 2021-Union Budget offers exemption from filing to those senior citizens above 75 years of age earning only interest income and pension income. All senior citizens or all pensioners are not exempt from filing ITRs.

4. I am a professional architect. Should I have my accounts audited?

Section 44 AB of Income Tax Act specifies that if the taxpayer/person/individual carrying out a profession earns a gross receipt/income from the profession higher than Rs 25 lakh during any year, they should have their accounts audited under the Income Tax Act 44AB.

5. Can I reject the audit report U/S 44AB? 

The tax auditor files the tax audit report using their login details online in the capacity of ‘Tax Auditor’ or ‘Chartered Accountant’.  Hence, the taxpayer should add the auditor or Chartered Accountant information on the IT Department’s login portal. The audit report can be rejected or accepted by the taxpayer on the login portal.

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