Tax audit is the examination of books of accounts from income tax point of view to review compliance with laws. This audit has to be conducted by a chartered accountant in full-time practice.
Tax audit applicability is based on turnover or gross receipt of the assessee.
If the assessee is carrying on any business where total turnover or gross receipts exceeds Rs. 1 Crore, then he has to get a tax audit done under section 44AB. It’s assumed that the assessee in this case has not opted for presumptive taxation scheme.
Similarly, in case of a professional, if gross receipt exceeds Rs. 50 Lakhs then he is also required to get a tax audit done under section 44AB.
In certain other cases, assessee is required to get their books of accounts audited by a chartered accountant in practice if they declare income lower than a certain percentage. Here are these cases;
- Where a person is carrying on business or profession and covered under the provisions of section 44AE, 44BB, 44BBB and declaring lower income than prescribed under these sections.
- Where assessee is carrying on profession, having income exceeding the basic exemption limit and declaring income lower than 50% of the gross receipt as specified under section 44ADA.
- Where assessee carrying on business is covered under section 44AD(4), having income exceeding the basic exemption limit and declaring income lower than the prescribed limit as specified under section 44ADA.
In above three cases, assessee is required to get books of accounts audited by a chartered accountant and e-file it with income tax department on or before the prescribed due date of filing.
A new provision has been inserted with effect from 01.04.2018. As per this new provision, if a person declares profit for the previous year under section 44AD and his total sales, turnover or gross receipt in business does not exceed Rs. 2 Crore in that previous year, then that person is excluded from the provisions of section 44AB.
This means, if an eligible person opted for presumptive taxation scheme as per section 44AD(1) of the income tax act, 1961, he shall not be required to get his accounts audited if turnover or gross receipts of the relevant previous year does not exceed Rs. 2 Crore.
Due date of filing tax audit report
Tax audit report has to be filed on or before 30th September of the subsequent financial year. This means for the financial year 2017-18, last date of filing tax audit report is 30th September 2018. However, it has been extended to 31st October 2018.
At present, tax audit report has to be e-filed along with the return of income.
Where the assessee is required to furnish a report of a chartered accountant as referred to in section 92E relating to international transaction or specified domestic transaction the due date of filing is 30th November of the relevant assessment year.
Also Read: Income Tax Return filing due dates – For Individuals
Audit report format
Tax audit is reported to income tax department in form no 3CA/3CB and form no 3CD along with the return of income.
In case of a person whose books of accounts are required to be audited by or under any law, the auditor has to submit report in Form 3CA and statement of particulars in Form 3CD.
In all other cases, audit report has to be submitted in Form 3CB and statement of particulars in Form 3CD.
Also Read: How to choose the right ITR for tax filing
How to e-file tax audit report
In the first step, assessee is required to add a chartered accountant in full-time practice in their account with IT department by logging into it.
The chartered accountant is required to furnish report by using his professional login details. Once the report has been uploaded to the IT department’s portal, assessee can see it from their own account and accept or reject it.
If accepted, audit report for the assessee has been filed. In case of rejection, process has to be followed again.
After filing tax audit report, you are required to file return of income by mentioning auditor details in it.
Consequences of non-compliance
If the assessee who is required to get his books of accounts audited under section 44AB fails to do so, then he is liable to pay a penalty at the rate of 0.5% of gross turnover or receipts or Rs. 1, 50,000 whichever is less. This means maximum penalty is Rs. 1, 50,000.
However, no penalty shall be leviable if assessee proves that there was a reasonable cause for such failure for not filing tax audit report.
Also Read: Consequences of Late or Non Filing of the Income Tax Return
Tax audit limitations for Chartered accountants
A chartered accountant in full-time practice can take 60 numbers of tax audit assignments. This means, in a CA firm of 4 partners, maximum tax audit assignment limit is 240.
ICAI in its 331st meeting held from 10th to 12th February, 2014 has decided to increase the earlier limit of 45 to 60. As per the change, this new limit of 60 audit assignments will be effective for the audits conducted during the financial year 2014-15 and onwards. (Link to refer ICAI announcement)