Taxpayers Running Businesses

The business owners are required to get a tax audit if their total sales, turnover or gross receipts for the previous year are more than Rs 1 Crore. However, there are two conditions, and if these conditions are fulfilled, the audit is required only if the total sales turnover or the gross receipts are more than Rs 5 Crore (for AY 2020-21) or Rs 10 Crore (From AY 2021-22). The conditions are:

• Cash receipts are not more than 5% of total receipts, and
• Cash payments are not more than 5% of total payments.

Note: Payments or receipts through cheque or draft that are not ‘account payee‘ are also considered as cash

Tax Audit for Professionals

The persons who carry on a profession are required to get audited under section 44AB, if their gross receipts for the previous year are more than Rs 50 Lakh.

Taxpayers Falling Under Section 44AE (Presumptive Taxation Scheme for transporters), Section 44BB (for non-resident taxpayers who are engaged in the business of extracting or producing mineral oils), or Section 44BBB (for foreign companies engaged in the business of civil construction, etc.), they are required for tax audit if they claim that the profits and gains are less than the calculated profits and gains under these sections regardless of their turnover.

Taxpayers Falling Under Section 44AD

The tax audit is compulsory for taxpayers who are covered under section 44AD, if they claim that the profits and gains are less than what is computed as per the provisions of Section AAD(1) and if their income is more than the maximum amount which is not subject to taxation (For AY 2011-12 to 2016-17).

Taxpayers Falling Under Section 44AD(4)

For taxpayers who operate businesses under section 44AD(4), and their income is more than the maximum amount that was not subject to taxation in the previous year (applicable from AY 2017-18).

Taxpayers Under Section 44ADA

The taxpayers falling under Section 44ADA are required for an audit if their profits and gains claimed are less than what is calculated under Section 44ADA and if their income is more than the maximum amount that is not subject to taxation. (From AY 2017-18).

Due Date for Audit/Submitting Audit Report

If a business owner is required by law to get their accounts audited, they must submit the tax audit report in Form 3CA, along with Form 3CD (statement of particulars). On the other hand, if the business owner is not required by any other law to get their accounts audited but still falls under a tax audit, then the audit report must be submitted in Form 3CB, along with Form 3CD (statement particulars).

From the Assessment Year 2020-21, the audit report must be submitted one month before the due date of filing the income tax return under Section 139(1).

Section 44AB: Important Things You Must Know

• Companies, co-operative societies, and others that are already audited under other laws do not need a separate audit if their accounts are audited under such other law and the taxpayer gets the audit report under that law before the due date, along with a tax audit report from a chartered accountant in the tax forms.
• A tax audit report can be revised before the end of the assessment year if there is any payment that requires recalculation of disallowance under section 40 or 43B after submitting the original report.

• From April 1, 2013, tax audit reports must be submitted online. Before this period, keeping a physical copy was sufficient, and it may be submitted when the assessing officer asks for it.

• Tax audit under Section 44AB is only for business or professional income. There is no need to comply with Section 44AB for income from other sources.

• If a person is only a partner in a firm and not running any separate business, the remuneration received is not considered as gross receipts, so a tax audit is not required.