Section 44AB of the Income Tax Act mandates tax audit for certain taxpayers whose turnover or gross receipts exceed specified limits. Understanding tax audit requirements, due dates, and compliance procedures is essential for businesses and professionals to avoid penalties and ensure smooth tax filing. This comprehensive guide covers everything you need to know about tax audit under Section 44AB.
[IMAGE::Section 44AB Tax Audit Guide]
What is Tax Audit Under Section 44AB?
Tax audit is an examination of books of account and other documents maintained by a taxpayer to verify the accuracy of financial statements and ensure compliance with income tax laws. Under Section 44AB, certain taxpayers are required to get their accounts audited by a Chartered Accountant and submit the audit report along with their income tax return.
The primary objective of tax audit is to ensure that taxpayers maintain proper books of account, claim deductions correctly, and comply with income tax provisions. It helps the Income Tax Department verify the accuracy of income and deductions claimed by taxpayers.
Who is Required to Get Tax Audit Done?
Tax audit is mandatory for the following categories of taxpayers:
Business Entities
A person carrying on business is required to get tax audit done if:
Total sales, turnover, or gross receipts exceed Rs. 1 crore in the financial year (Rs. 10 crore if cash receipts and payments are less than 5% of total receipts and payments)
Profits declared are less than 8% of turnover or gross receipts (or less than 6% for digital receipts)
Professionals
A person carrying on profession is required to get tax audit done if:
Gross receipts exceed Rs. 50 lakh in the financial year
Profits declared are less than 50% of gross receipts
Tax Audit Threshold Limits for FY 2025-26
The threshold limits for tax audit are:
Business: Rs. 1 crore (or Rs. 10 crore if cash transactions are less than 5%)
Profession: Rs. 50 lakh
Presumptive Taxation (Section 44AD): If turnover exceeds Rs. 2 crore and profit is less than 8% (or 6% for digital receipts)
Presumptive Taxation (Section 44ADA): If gross receipts exceed Rs. 75 lakh and profit is less than 50%
Due Date for Tax Audit
The due date for completing tax audit and filing the audit report is:
September 30th of the assessment year (i.e., September 30, 2026 for FY 2025-26)
This is the same date as the due date for filing income tax return for taxpayers requiring tax audit
The audit report must be submitted electronically along with the ITR
Important: If the due date falls on a holiday, the next working day is considered as the due date.
Tax Audit Report (Form 3CA/3CB and 3CD)
The tax audit report consists of two parts:
Form 3CA/3CB
This is the main audit report:
Form 3CA: For taxpayers who are already required to get their accounts audited under any other law (like Companies Act)
Form 3CB: For taxpayers who are not required to get accounts audited under any other law
Form 3CD
This is a statement of particulars that must be furnished along with Form 3CA/3CB. It contains detailed information about:
Nature of business or profession
Accounting policies and methods
Inventory valuation
Depreciation claimed
Deductions and exemptions
Related party transactions
Tax payments and TDS details
Who Can Conduct Tax Audit?
Tax audit can only be conducted by a Chartered Accountant (CA) who:
Is in practice and holds a valid certificate of practice from ICAI
Is not disqualified from conducting audit
Is not related to the taxpayer in a way that compromises independence
Penalties for Non-Compliance
Failure to comply with tax audit requirements attracts penalties:
Section 271B Penalty
If a taxpayer who is required to get tax audit done fails to do so, a penalty of:
0.5% of total sales, turnover, or gross receipts, or
Rs. 1,50,000, whichever is lower
This penalty can be avoided if the taxpayer can prove reasonable cause for the failure.
Section 271BA Penalty
If the tax audit report is not filed by the due date, a penalty of Rs. 1,50,000 may be levied.
Exemptions from Tax Audit
Tax audit is not required in the following cases:
Taxpayers opting for presumptive taxation under Section 44AD, 44ADA, or 44AE (subject to conditions)
Businesses with turnover up to Rs. 1 crore (or Rs. 10 crore with less than 5% cash transactions)
Professionals with gross receipts up to Rs. 50 lakh
New businesses in their first year of operation (if turnover is below threshold)
Documents Required for Tax Audit
The following documents are typically required for tax audit:
Books of account (cash book, ledger, journal, etc.)
Bank statements and reconciliation statements
Purchase and sales registers
Stock records and inventory statements
Vouchers and supporting documents for expenses
TDS certificates and Form 26AS
Previous year's tax audit report (if applicable)
Financial statements (P&L account, balance sheet)
Process of Tax Audit
The tax audit process involves:
Appointment of CA: Engage a qualified Chartered Accountant to conduct the audit
Documentation: Provide all necessary books of account and documents
Audit Process: CA examines books, verifies transactions, and checks compliance
Report Preparation: CA prepares Form 3CA/3CB and Form 3CD
Digital Signature: CA digitally signs the audit report
Filing: Submit the audit report electronically along with ITR
Key Points to Remember
Tax audit is mandatory for businesses with turnover exceeding Rs. 1 crore (or Rs. 10 crore with less than 5% cash)
Tax audit is mandatory for professionals with gross receipts exceeding Rs. 50 lakh
Due date for tax audit is September 30th of the assessment year
Only a Chartered Accountant can conduct tax audit
Penalty for non-compliance can be up to 0.5% of turnover or Rs. 1,50,000
Tax audit report must be filed electronically along with ITR
Maintain proper books of account throughout the year to facilitate smooth audit
Conclusion
Tax audit under Section 44AB is a crucial compliance requirement for businesses and professionals exceeding specified thresholds. Timely completion of tax audit, proper maintenance of books of account, and filing the audit report by the due date helps avoid penalties and ensures smooth tax compliance. Engaging a qualified CA and maintaining proper documentation throughout the year can make the tax audit process seamless and hassle-free.