Tax Audit Applicability under Section 44AB – Explained

In India, the concept of tax audit under Section 44AB of the Income Tax Act, 1961 plays a vital role in promoting transparency and accuracy in financial disclosures. It helps ensure that taxpayers maintain proper records and comply with the rules while calculating taxable income.

If you are a business owner, professional, or operating under a presumptive taxation scheme, understanding the tax audit applicability is crucial to avoid penalties and remain compliant.

What Is a Tax Audit?

A tax audit involves an audit of accounts of a taxpayer by a Chartered Accountant. The purpose is to verify that the income and deductions are accurately reported and that the books of account comply with the Income Tax Act provisions.

Tax Audit Applicability under Section 44AB

The applicability of a tax audit depends on the nature of the activity (business or profession), the turnover or gross receipts, and whether the taxpayer has opted for any presumptive taxation scheme.

1. For Businesses – Section 44AB(a)

• A tax audit is mandatory if the total turnover or sales exceed ₹1 crore during the financial year.

• However, if the cash transactions (receipts and payments) do not exceed 5%, the limit increases to ₹10 crore.

This condition was introduced to encourage digital payments and discourage cash-based businesses.

2. For Professionals – Section 44AB(b)

• If the gross receipts of a professional exceed ₹50 lakh during the financial year, a tax audit is mandatory.

• This includes individuals like doctors, architects, lawyers, consultants, etc.

3. Presumptive Taxation Scheme – Section 44AD (Business)

Under Section 44AD, eligible businesses can declare income at 8% (or 6% for digital transactions) of gross turnover.

Tax audit is applicable if:

• The taxpayer declares income less than 8%/6% of turnover, and

• The total income exceeds the basic exemption limit (₹2.5 lakh for individuals below 60 years).

4. Presumptive Taxation Scheme – Section 44ADA (Professionals)

Professionals under Section 44ADA can declare 50% of their gross receipts as income.

Tax audit is applicable if:

• Income declared is less than 50% of gross receipts, and

• Total income exceeds the basic exemption limit.

5. Transporters – Section 44AE

• Transporters owning up to 10 goods vehicles can declare income as per Section 44AE.

• If they opt out or declare income less than prescribed, and total income exceeds the exemption limit, tax audit becomes applicable.

Important Due Dates for FY 2023–24

Which Forms Are Used for Tax Audit?

• Form 3CA and Form 3CD – For entities already subject to audit under other laws.

• Form 3CB and Form 3CD – For others liable only under Section 44AB.

Penalties for Non-Compliance

Failure to comply with tax audit provisions may attract penalties under Section 271B:

• 0.5% of turnover or ₹1,50,000, whichever is lower.

Penalties may be waived if there is a reasonable cause for non-compliance, such as natural calamities or system failures.

Quick Recap: Applicability Summary

Final Thoughts

Whether you run a small business, work as a professional, or have opted for a presumptive scheme, understanding tax audit applicability is essential. Timely compliance not only avoids penalties but also boosts your credibility with stakeholders like lenders, investors, and tax authorities.

If you’re unsure whether you fall under the audit category, it’s best to consult an expert.

Need Help with Tax Audit Compliance?

At Tradeviser, we help businesses and professionals with seamless tax audit filing, accurate reporting, and on-time compliance.

Talk to our experts today at www.tradeviser.in or book a free consultation.