Audit of accounts of certain persons carrying on business or profession

Applicability of Section 44AB

The following persons are required to perform a tax audit under Section 44AB of Income Tax Act, 1961:

1. A person carrying on business, if his total sales, turnover or gross receipts (as the case may be) in business for the year exceed or exceeds Rs. 1 crore. This provision is​ not applicable to the person, who opts for presumptive taxation scheme under section 44AD​ and his total sales or turnover doesn’t exceeds Rs. 2 crores.
2. Any person pursuing a profession and whose gross profits exceed fifty lakh rupees in any previous year.
3. A person who is considered eligible for the presumptive taxation scheme, and who claims that the profits and gains for the respective business is lower than what is computed in accordance with the presumptive taxation scheme and his/her income exceeds the amount that is taxable. This provision is applicable to the taxpayers who opt for presumptive taxation scheme other than the one who choose the scheme under Section 44AD and whose sale or turnover is limited to Rs 2 crores.

Individuals Required To Perform Income Tax Audit As Per Section 44AB

The following individuals are required to have an income tax audit performed on their accounts under Section 44AB:

• Any person or individual carrying on a business:
  • If the individual or person in question carrying on a business earns a total income or turnover, through the functioning of the business, in excess of Rs 1 crore during any year prior to the relevant assessment year, then he or she will be required to have an income tax audit performed on his or her accounts
  • If the individual or person in question carrying on a business earns profits or gains through the functioning of the business as any person mentioned under Section 44AE, Section 44BB and Section 44BBB, and he or she has stated that his or her income is below the taxable limit prescribed for profits or gains acquired through business, then he or she will be required to have an income tax audit performed on their accounts
  • If the individual or person in question carrying on a business earns profits or gains through the functioning of the business as any person mentioned under Section 44AD, and he or she has stated that his or her income is below the taxable limit prescribed for profits or gains acquired through business, and has acquired income that is more than the limit exempted from tax, then he or she will be required to have an income tax audit performed on their accounts
• Any person or individual carrying on a profession:
  • If the individual or person in question carrying on a profession earns gross income or receipts, through his or her profession, in excess of Rs 25 lakhs during any year prior to the relevant assessment year, then he or she will be required to have an income tax audit performed on their accounts
• Any person or individual mentioned under other sections of the Income Tax Act:
  • Any person or individual who falls under the following sections of the Income Tax Act are also liable to have their accounts audited as per Section 44AB. These sections are:
    • 44AD
    • 44AE
    • 44AF
    • 44BB
    • 44BBB

Forms Required To Be Submitted Under Section 44AB

Under Section 44AB, the following forms are required to be used by the individual or person in question when an audit is conducted on their accounts. These forms are specifically mentioned in Rule 6G of the Income Tax Act with regards to income tax audits conducted as per Section 44AB.

• For persons or individuals carrying on a business or a profession, and whose accounts are to be audited as per the provisions stated under any kind of law, then the forms mentioned below are required to be used:
  • Form Number 3CA – Audit Form
  • Form Number 3CD – Statement showing relevant particulars
• For persons or individuals whose accounts are not required to be audited as per the provisions stated under any kind of law, with the exception of income tax laws, then the forms mentioned below are required to be used:
  • Form Number 3CB – Audit Form
  • Form Number 3CD – Statement showing relevant particulars

Penalty for Non compliance

According to section 271B, if any person who is required to comply with section 44AB fails to get his accounts audited in respect of any year or years as required under section 44AB or furnish such report as required under section 44AB​, the Assessing Officer may impose a penalty. The penalty shall be lower of the following amounts:

(a) 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such year or years.

(b) Rs. 1,50,000.

However, according to section 271B​, no penalty shall be imposed if reasonable cause for such failure is proved.