Who Needs a Tax Audit Under Section 44AB?

A tax audit is an audit of your books under Section 44AB of the Income-tax Act, 1961, carried out by a chartered accountant. It is not the same thing as the statutory audit a company gets under the Companies Act. Plenty of small businesses end up needing one without planning for it, usually because turnover crossed a limit or because they stepped out of the presumptive scheme.

The turnover limits

A business needs a tax audit when its sales, turnover or gross receipts for the year are more than ₹1 crore. That limit rises to ₹10 crore if cash receipts and cash payments are each within 5% of the totals. For a profession such as a doctor, lawyer, architect or CA, the limit is ₹50 lakh of gross receipts. These limits are tested on turnover, not on profit, so a business running at a loss can still need an audit.

The presumptive scheme trap

Small businesses under Section 44AD and professionals under Section 44ADA do not normally keep full books or get audited. The catch is that if you declare a profit lower than the presumptive rate and your income is above the basic exemption limit, an audit becomes compulsory. A business that opts out of Section 44AD is also kept out of that scheme for the next five years, so the decision is worth thinking through before filing, not after.

Form 3CA or Form 3CB

The auditor gives the report in Form 3CA if your books are already audited under another law, for example a company’s statutory audit. Otherwise it is Form 3CB. Either one comes with Form 3CD, a statement of particulars covering things such as depreciation, loans and deposits taken or repaid in cash, TDS compliance and the reconciliation of turnover with GST returns. Because the CA signs off on these points, the books need to be in order well before the deadline.

Due dates

The audit report has to be filed by 30 September after the end of the financial year, and the income tax return for audit cases is due a month later, on 31 October, unless the CBDT extends either date for that year. Check the notified dates each year, since extensions are common.

Penalty for missing it

Under Section 271B the penalty for not getting the audit done, or not filing the report on time, is 0.5% of turnover or ₹1,50,000, whichever is lower. Late filing of the return in an audit case brings its own consequences on top of that.

How we can help

If you are not sure whether you cross the limits, start with a quick check of your turnover and cash ratio. Our tax audit service covers the audit and Form 3CD, and the books behind it can be prepared through financial statement preparation. Once the audit is done, the income tax return follows. You can also browse more in our audit, accounts and finance reports section.