Tax Audit Services

A tax audit is a mandatory examination of a taxpayer’s books of accounts, conducted by a Chartered Accountant under Section 44AB of the Income Tax Act, 1961. It is not the same as a statutory audit, the purpose here is specifically to verify that the income, deductions, and tax liability reported in the Income Tax Return are accurate and in line with the provisions of the Income Tax Act.

The requirement kicks in once a business or professional crosses a prescribed turnover or gross receipt threshold. The CA who conducts the audit submits findings in a structured report, Form 3CA/3CB along with Form 3CD, which becomes part of the taxpayer’s compliance record with the Income Tax Department.

A tax audit brings discipline to financial reporting, reduces the chance of errors in the ITR, and signals to the tax department that the accounts have been independently verified. For businesses dealing with large volumes of transactions, it is an important layer of credibility and accuracy in the overall tax compliance process.

Tax Audit under Section 44AB — Complete Guide

A tax audit is an examination of a taxpayer’s books of accounts by a Chartered Accountant to verify accuracy of income, deductions and compliance with Income Tax provisions. Under Section 44AB of the Income Tax Act, 1961, certain taxpayers are mandatorily required to get their accounts audited.

Section 44AB (Income Tax Act, 1961)

Every person —

(a) carrying on business shall, if his total sales, turnover or gross receipts in business exceed or are likely to exceed Rs. 1 crore in any previous year;

(b) carrying on profession shall, if his gross receipts in profession exceed or are likely to exceed Rs. 50 lakhs in any previous year;

(c) carrying on business and who has opted for presumptive taxation under Section 44AD but declares income below the prescribed limit and his income exceeds the basic exemption limit;

(d) carrying on business and who has opted out of Section 44AE, 44BB or 44BBB and declares income lower than the deemed profit under those sections;

(e) carrying on profession and who has opted out of Section 44ADA and declares income lower than 50% of gross receipts and income exceeds basic exemption limit —

get his accounts of such previous year audited by an Accountant before the specified date and furnish the report of such audit in the prescribed form duly signed and verified by such Accountant.

Who is Required to Get Tax Audit Done?

1. Business — Turnover Exceeds Rs. 1 Crore (Section 44AB(a))

Any person running a business where total sales, turnover or gross receipts exceed Rs. 1 crore in a financial year must get a tax audit done.

Exception — Higher Threshold of Rs. 10 Crore: If 95% or more of all receipts and payments are through digital/banking channels, the turnover limit is relaxed to Rs. 10 crore.

Applicable to:

• Traders and shopkeepers
• Manufacturers
• Contractors
• Any other business entity

2. Profession — Gross Receipts Exceed Rs. 50 Lakhs (Section 44AB(b))

Professionals whose gross receipts exceed Rs. 50 lakhs in a financial year are covered under this clause.

Applicable to:

• Doctors
• Lawyers / Advocates
• Chartered Accountants
• Architects
• Engineers
• Film artists
• Any other notified profession

3. Presumptive Taxation — Business (Section 44AB(c) read with 44AD)

A person opting for presumptive taxation under Section 44AD but declaring profit below 8% (non-digital) or 6% (digital) of turnover, and whose total income exceeds the basic exemption limit, must get a tax audit done.

Key Points:

• Turnover limit under 44AD is Rs. 3 crore (if 95% digital receipts)
• If you declare lower income — tax audit becomes mandatory
• Once you opt out of 44AD, you cannot re-enter for 5 years

4. Presumptive Taxation — Goods Carriage / Shipping (Section 44AB(d))

Persons engaged in:

• Plying, hiring or leasing goods carriages (44AE)
• Mineral oil exploration (44BB)
• Operation of aircraft (44BBB)

If they declare income lower than deemed profit under respective sections — tax audit is mandatory.

5. Presumptive Taxation — Profession (Section 44AB(e) read with 44ADA)

A professional opting for Section 44ADA but declaring income below 50% of gross receipts, and whose income exceeds basic exemption limit, must get tax audit done.

Applicable professionals: Same as clause (b) above.

Types of Tax Audit Reports

Due Date for Tax Audit

⚠️ Tax audit report must be filed before filing the Income Tax Return (ITR).

Penalty for Non-Compliance

If a taxpayer fails to get tax audit done or fails to submit the report on time:

Penalty = Lower of the following:

• 0.5% of total sales / turnover / gross receipts
• Rs. 1,50,000

However, if there is a reasonable cause for failure, penalty may be waived under Section 273B.