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Understanding Section 44AB and a Brief of Required Forms

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According to the Income Tax Act of 1961, if a person’s turnover or gross receipts in a given financial year surpass ₹1 Crore, they must have their accounts audited. The audit report must be provided on Forms 3CA, 3CB, and 3CD in addition to Form 3CD. This includes maintaining proper records and filing out the correct forms. Failure to do so can result in hefty penalties. This article will explain the forms required for submission and various other aspects.  

The audit report must be submitted by September 30th of the assessment year, as required by law u/s 44AB. The individual whose finances must be audited must keep accurate books of accounts and other records. He must select a chartered accountant to serve as his auditor and provide the audit report. The chartered accountant will examine the financial records and other books of account before providing his report in Forms 3CA, 3CB, and 3CD. The chartered accountant’s assessment of the accuracy of the accounts and other records will be included in the audit report.

Did you know? In 1862, the departments of accounts and audit were established. The “Auditor General in India” was mandated under the Government of India Act 1919 and was tasked with auditing how India’s funds were spent.

What is a Tax Audit? 

A tax audit examines an individual’s or organisation’s tax returns to ensure they are accurate. The audit may be triggered by errors or discrepancies found in the tax return, or it may be selected for review through a random selection process. During a tax audit applicability for fy 2022-23, the taxpayer will be asked to provide documentation to support the information reported on their tax return. This may include receipts, bank statements, and records of income and expenses. The auditor will review these documents to determine whether the taxpayer has accurately reported their income and expenses.  

Also Read: Tax Audits in India – Learn About Income Tax Auditing And It’s Types

Key Takeaways:

1. Businesses must keep records of their income and expenses and have them audited by a certified Chartered Accountant,u/s 44AB of the Income Tax Act.

2. Section 44AB is a beneficial provision for businesses as it helps them keep track of their financial affairs and ensure compliance with tax laws.  

3. Businesses should consult with a qualified Chartered Accountant to ensure they are complying with all the provisions of Section 44AB.  

4. Non-compliance u/s 44AB can result in heavy penalties, so businesses should make sure they follow this provision. 

Objectives of a Tax Audit 

1. To assess the compliance of taxpayers with the tax laws  

2. To ensure that taxes are correctly and accurately reported and paid  

3. To identify areas where taxpayers may be non-compliant with the tax laws  

4. To provide recommendations to improve taxpayer compliance with the tax laws. 

What is Section 44AB? 

 u/s 44AB of the Income Tax Act, 1961, every person carrying on business or profession whose total sales, turnover, or gross receipts exceed or exceeds ₹1 crore in the previous fiscal year is required to get his accounts audited by an accountant before the specified date and furnish the audit report to the Income Tax Department

Applicability Of Section 44AB 

(1) Every person, being a resident in India, who is engaged in a business or profession referred to in sub-section (1) of section 44AB during the previous year, shall get their accounts of such year audited before the specified date by an accountant as referred to in sub-section (2) of section 288 and shall furnish the audit report to the Income-tax Officer on or before the due date specified in sub-section (1) of section 139.  

(2) Where the accounts of any person referred to in subsection (1) are required to be audited. 44AB and such person has not furnished the return of income u/s. 139(1), the due date specified u/s 139(1) in respect of such return shall be the due date specified in that sub-section for furnishing the audit report u/s 44AB.  

(3) Where it is not practicable for the person referred to in subsection (1) to comply with the provisions of sub-section (1) for any reason whatsoever, the Income-tax Officer may, on an application made on this behalf, extend the time for furnishing the audit report u/s 44AB.  

(4) Where any person referred to in subsection (1) has not furnished the audit report u/s 44AB before the due date specified in sub-section (1) of section 139 or before the extended date, if any, granted under sub-section (3), the return of income filed by him u/s. 139 shall be deemed to be an invalid return.

Also Read: How to Respond to an Income Tax Notification in Section 143 (1)

Submission of Section 44AB  

Every person who is required to get his accounts audited u/s 44AB shall submit a report of audit in the prescribed form duly signed and verified by him and by the chartered accountant or company auditor not later than 30th September following the end of the fiscal year to which the audit relates.  

Forms Required to Be Submitted u/s 44AB 

Forms required to be filed u/s 44AB are as follows-

1. If the turnover of the individual exceeds the prescribed limit, then he must get his accounts audited by a chartered accountant and submit the audit report along with the return of income.  

2. If the turnover of the individuals is up to 1 crore, then the individual is required to submit the audit report only if the individual has opted for presumptive taxation  u/s 44AD.  

3. The audit report shall be submitted on Form No. 3CA and 3CB.  

4. The auditors shall also submit the audit report in Form No. 3CD along with the return of income.  

  • Audit Report in Form No. 3CA As per rule 6G, the audit report in Form No. 3CA must be submitted by persons falling under the following categories: 

1. Assesses engaged in business or profession and required to get their accounts audited u/s 44AB, and 

2. An individual engaged in business or profession who has opted for presumptive taxation  u/s 44AD or section 44ADA.  

  • Audit Report in Form No. 3CB As per rule 6G, the audit report in Form No. 3CB must be submitted by persons falling under the following categories:

 1. Assesses engaged in business or profession and required to get their accounts audited u/s 44AB.

 2. An individual engaged in business or profession has opted for presumptive taxation u/s 44AD or section 44ADA. 

3. An individual who has been provided with an opportunity to file a revised return, where such return filed was selected for scrutiny, and the revised return is filed after due verification. 

Filing Of Income Tax Audit Report u/s 44AB 

Those who must have their accounts audited in keeping with Section 44AB’s requirements must file their income tax audit reports u/s 44AB along with their income tax returns by September 30 of the assessment year for the previous year. These people are obliged to digitally file their income tax audit reports alongside their income tax forms and to include all necessary information. 

Also Read: What Is Gross Total Income in Income Tax? Types, How to Calculate

Benefits of Section 44AB  

1. It legitimises businesses: Since businesses are required to maintain proper accounts and get them audited as per Section 44AB, it helps legitimise industries. This, in turn, results in companies being more responsible toward paying taxes and fulfilling other financial obligations.  

2. It helps businesses keep track of their finances: Another benefit of Section 44AB is that it helps businesses keep track of their finances. This is because businesses must maintain proper accounts that must be audited. This allows companies to know where their money is being spent and where to make cuts.  

3. It helps the government collect taxes: Section 44AB also allows the government to collect taxes as businesses must get their accounts audited and submit the same to the concerned authorities. This ensures that companies pay their taxes on time and the government can collect the same without delay.  

4. It helps in detecting fraud: Another benefit of Section 44AB is that it helps in detecting fraud. This is because when businesses maintain proper accounts and get them audited, it becomes easier to identify any irregularities. This helps in preventing fraud and protecting the interests of companies. 

Conclusion

A person must have their accounts audited if their turnover or gross receipts in a particular, fiscal year exceed one crore. In addition to Form 3CD, Forms 3CA, 3CB, and 3CD must also contain the audit report. This entails keeping accurate records and filling out the appropriate paperwork. Penalties for failing to comply with this could be severe.

A person whose finances must be audited is required to maintain proper books of accounts and other records. A Chartered Accountant must be chosen by him to act as his auditor and submit the audit report. Prior to September 30 of the assessor’s assessment year, the audit report must be delivered.

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