Section 44AB

Section 44AB of the Income Tax Act deals with the audit of accounts of certain individuals. In other words, if certain individuals meet the requisites as prescribed under Section 44AB, then these individuals will have to ensure that their accounts are audited by a certified Chartered Accountant. This practice is done solely to help the Assessing Officer with the calculation and computation of the total taxable income of the individual in question.

Applicability Of Section 44AB:

An income tax audit of an individual’s accounts under Section 44AB is applicable in the following situations:

  • Where individuals whose total income or turnover for the financial year is more than the taxable limit permitted, regardless of their turnover for previous financial years
  • Where individuals whose personal income is lower than the taxable limit, but whose income from business is more than the taxable limit
  • In special cases where the income of the individual in question does not cross the taxable limit, but the Assessing Officer requires the accounts of the individual to be audited. This can only be done by the Assessing Officer by passing an order under Section 142(2A) of the Income Tax Act.

Individuals Required To Perform Income Tax Audit As Per Section 44AB:

The following individuals are required to have an income tax audit performed on their accounts under Section 44AB:

  • Any person or individual carrying on a business:
    • If the individual or person in question carrying on a business earns a total income or turnover, through the functioning of the business, in excess of Rs 1 crore during any year prior to the relevant assessment year, then he or she will be required to have an income tax audit performed on his or her accounts
    • If the individual or person in question carrying on a business earns profits or gains through the functioning of the business as any person mentioned under Section 44AE, Section 44BB and Section 44BBB, and he or she has stated that his or her income is below the taxable limit prescribed for profits or gains acquired through business, then he or she will be required to have an income tax audit performed on their accounts
    • If the individual or person in question carrying on a business earns profits or gains through the functioning of the business as any person mentioned under Section 44AD, and he or she has stated that his or her income is below the taxable limit prescribed for profits or gains acquired through business, and has acquired income that is more than the limit exempted from tax, then he or she will be required to have an income tax audit performed on their accounts
  • Any person or individual carrying on a profession:
    • If the individual or person in question carrying on a profession earns gross income or receipts, through his or her profession, in excess of Rs 25 lakhs during any year prior to the relevant assessment year, then he or she will be required to have an income tax audit performed on their accounts
  • Any person or individual mentioned under other sections of the Income Tax Act:
    • Any person or individual who falls under the following sections of the Income Tax Act are also liable to have their accounts audited as per Section 44AB. These sections are:
      • 44AD
      • 44AE
      • 44AF
      • 44BB
      • 44BBB

Forms Required To Be Submitted Under Section 44AB:

Under Section 44AB, the following forms are required to be used by the individual or person in question when an audit is conducted on their accounts. These forms are specifically mentioned in Rule 6G of the Income Tax Act with regards to income tax audits conducted as per Section 44AB.

  • For persons or individuals carrying on a business or a profession, and whose accounts are to be audited as per the provisions stated under any kind of law, then the forms mentioned below are required to be used:
    • Form Number 3CA - Audit Form
    • Form Number 3CD - Statement showing relevant particulars
  • For persons or individuals whose accounts are not required to be audited as per the provisions stated under any kind of law, with the exception of income tax laws, then the forms mentioned below are required to be used:
    • Form Number 3CB - Audit Form
    • Form Number 3CD - Statement showing relevant particulars

Filing Of Income Tax Audit Report Under Section 44AB:

Persons or individuals who are required to have their accounts audited as per the provisions of Section 44AB, will have to file their income tax audit report under Section 44AB in tandem with their income tax returns by September 30th of the year of assessment in relevance to the past year. These individuals have to mandatorily e-file their income tax audit reports along with their income tax returns, and provide all relevant details as required.

Non-Compliance of Income Tax Audit Under Section 44AB:

Persons or individuals who are required to have their accounts audited under Section 44AB but fail to do so will be liable to pay a penalty or charge of 0.5% of the total turnover amount that they earn over the course of the relevant financial year. However, this penalty amount cannot be more than Rs 1.5 lakhs.

If the person or individual in question is unable to get their accounts audited due to a legitimate reason, then no penalty will be levied as per Section 271B. The following reasons are deemed to be legitimate causes for failure of income tax audit under Section 44AB:

  • If the failure or delay of the income tax audit has taken place due to the authorised chartered accountant or auditor resigning from his or her duty
  • If the failure or delay of the income tax audit has taken place due to the unforeseen death of the chartered accountant or auditor
  • If the failure or delay of the income tax audit has taken place due to the authorised chartered accountant or auditor not having access to the individual’s accounts. This includes events such as theft, strikes, riots etc
  • If the failure or delay of the income tax audit has taken place due to any unforeseen natural disaster or calamity

Is it possible for an individual to conduct a revision on his or her income tax audit report in the event it has already been carried out as per the provisions under Section 44AB?

In general it is not possible to conduct a revision of a tax audit report that has already been filed under this section. However, a revision can only take place if an amendment in the income tax law allows it. The audit report can then be revised by an authorised auditor, and a reason for the revision of the same must be stated.

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