Compulsory Tax Audit of Accounts [Section 44AB] – Profits and Gains of Business and Profession

Compulsory Tax Audit of Accounts [Section 44AB]

Following Business are required to get their Accounts compulsory Tax Audited by a Chartered Accountant under Section 44AB for computing Profits and Gain of Business and Profession.

1. Following Business required to get their Accounts Compulsory Audited by CA under Section 44AB

(1) Person carrying on business to get his accounts audited if his total sales, turnover, etc., exceeds the specified amount [Section 44AB(a)]:

Every person carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed Rs.1 Crore in any previous year, get his accounts of such previous year audited by an “Accountant” before the specified date and furnish by that date the report of such audit in the prescribed form, duly signed and verified, by such accountant and setting forth such particulars as may be prescribed.

As per proviso to section 44AB(a), the threshold limit for a person carrying on business shall be increased from 1 crore to 10 crore in cases where,—

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(a)     aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed 5% of the said amount; and

(b)     aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed 5% of the said payment.

For the purposes of this clause, the payment or receipt, as the case may be, by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the payment or receipt, as the case may be, in cash.

(2) Person carrying on profession to get his accounts audited if his gross receipts in profession exceeds the specified amount [Section 44AB(b)]:

In the case of a person carrying on profession, the provisions for compulsory audit are applicable if his gross receipts in profession exceed Rs.50,00,000 in any previous year.

(3) In case the assessee has claimed his income under section 44AE, section 44BB and section 44BBB to be lower than the profits or gains so deemed to be the profits and gains of his business [Section 44AB(c)]:

Where a person who is carrying on the business and is covered under section 44AE, 44BB or 44BBB and claims that his income from the said business is lower than the deemed profits and gains computed under the said relevant sections, he shall get his accounts of such previous year audited by a Chartered Accountant on or before the specified date.

(4) In case the assessee has claimed his income under section 44ADA to be lower than 50% of the gross receipt of the profession [Section 44AB(d)]:

Where a person who is carrying on a profession referred to in section 44ADA and claims that:

  • income from such profession is lower than 50% of the gross receipt of the profession; and
  • his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,

he shall get his accounts of such previous year audited by a Chartered Accountant on or before the specified date.

(5) In case of a person carrying on a business in whose case section 44AD(4) is applicable [Section 44AB(e)]:

A person carrying on a business shall,—

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–           if the provisions of section 44AD(4) are applicable in his case, and

–           his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,

get his accounts of such previous year audited by a Chartered Accountant on or before the specified date.

1.Section 44AB shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of section 44AD(1) and his total sales, turnover or gross receipts, as the case may be, in business does not exceed Rs.2 Crore in such previous year. [First proviso to section 44AB]

2.         Section 44AB shall not apply to the person, who derives income of the nature referred to in section 44B or section 4488A. [Second proviso to section 44AB]

3.         In a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section. [Third proviso to section 44AB]

4.         As per section 44AD(4), where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of section 44AD(l), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of section 44AD(1).

Meaning of Specified Date:

Specified date, in relation to the accounts of the assessee of the previous year relevant to an assessment year, means date one month prior to the due date for furnishing the return of income under section 139(1).

in other words, it shall be:

(i)      31st October (as the due date of furnishing the return under section 139(1) is 30th November) of the relevant assessment year in case the assessee has undertaken any international transaction as per section 92B or specified domestic transaction as per section 92BA, and

(ii)     30th September (as the due date of furnishing the return under section 13 9(1) is 31st October) of the relevant assessment year in case of any other assessee.

It may be noted that the assessee is required not only to get his accounts audited by the specified date but also furnish the audit report on or before the specified date, irrespective of the fact whether the return of income is filed by that date or not. If the audit report is submitted on or before the specified date but the return of income is filed subsequently then a copy of the tax audit report and the proof of filling the same should be submitted along with the return of income.

2.  Is Tax Audit under Section 44AB compulsory even if the accounts are audited under any other law or any other provisions of Income-tax Act

(i)   Where accounts are audited under any other law:

As per proviso 2 to section 44AB, in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section, if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report in the form prescribed (Form No. 3CA and 3CD) under this section.

(ii) Where accounts are audited and/or report/certificate of an accountant are required under other provisions of Income-tax Act:

Under the provisions of sections 12A, 33AB, 33ABA, 35D, 35E, 36(I)(xi), 80-IA, 80-IB, 80-IC, 80-ID, 80JJA, 80JJAA and 142(2A), audit has to be conducted by a chartered accountant and the assessee has to obtain a report/certificate from him and file the same alongwith the return of income. In this case also, if the accounts of the assessee are audited by the chartered accountant under any other law, it will be a sufficient compliance but separate reportlcertificate will have to be obtained for the relevant sections. However, if the accounts are audited only as per the above sections, a separate tax audit u/s 44AB shall be necessary. Conversely, if the audit is conducted u/s 44AB, a separate audit shall have to be conducted for the purpose of other sections.

3. Report of Audit of Accounts [Rule 6G]

1.   The report of audit of the accounts of a person required to be furnished under section 44AB shall:

(a)     in the case of a person who carries on business or profession and who is required by or under any other law to get his accounts audited, be in Form No. 3CA;

(b)     in the case of a person who carries on business or profession, but not being a person referred to in clause (a), be in Form No. 3CB;

2.  Further, the particulars which are required to be furnished under section 44AB shall, in the case of a person carrying on business or profession, be in Form No. 3CD;

Advertising agents, clearing, forwarding and shipping agents, couriers. insurance agent, nursing home, stock and share brokers and dealers in shares and securities and travel agents have been held to be business.
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