Tax audit and consequences of non-compliance

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Tax audit and consequences of non-compliance

Who is subject to Tax Audit requirements mentioned in the Income-Tax Act?

As per Section 44AB of the Income Tax Act, the following persons are required to get their accounts duly verified and audited by a Chartered Accountant and file the Tax Audit Report in the prescribed format before the specified date.

(a)  A person carrying on business, if his total sales, turnover or gross receipts exceed one crore rupees in any previous year; or

(b)  A person carrying on a profession, if his gross receipts in profession exceed fifty lakh rupees in any previous year; or

(c)  A person carrying on the business and the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or

(d) A person carrying on the profession, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year; or

(e) A person carrying on the business, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,

What is the Specified Date?

The specified date for filing of the tax audit report is the due date for furnishing the return of income under section 139(1). That means the due date for filing for FY 2019-20 is 31st December 2020.

What are the consequences of the Non-Filing of Tax Audit Report (TAR)?

As mentioned in section 271B of the Income Tax Act, if the assessee failed to file a tax audit report as per section 44AB, the assessing officer may impose the penalty on the assessee. The penalty shall be lower of the following amounts:

  • 0.5% of total sales, turnover or gross receipts in business in such years or years or
  • 0.5% of the gross receipts in the profession, in such year or years or
  • Rs 1,50,000

However, no penalty shall be imposed if reasonable cause for such failure is proved (according to section 273B).

What are the exceptions to tax audit requirements u/s 44AB?

The requirement of audit under section 44AB does not apply to

  • a person who declares profits and gains on the presumptive basis under section 44AD and his total sales, turnover or gross receipts does not exceed Rs. 2 crores.
  • a person who derives income of nature referred to in sections 44B and 44BBA. These are Non Residents deriving profits from the operation of the shipping business and the operation of aircraft.
What is the prescribed format of the Audit report?

The Board has prescribed Forms 3CA/3CB/3CD containing the format of the audit report to be furnished.

  • in case of a person who carries on business or profession and who is required under any other law to get his accounts audited shall file such audit report in Form 3CA.
  • in case of a person who carries on business or profession and who is not required under any other law to get his accounts the audited shall file such audit report in Form 3CB.
  • The statement of particulars required to be furnished under section 44AB is annexed in Form 3CD. Form 3CD is an annexure to the Audit Reports mentioned above.

 

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About CA Janhavi Phadnis 78 Articles
Chartered Accountant and financial consultant. She has worked with corporates for 14 years with expertise in Forex-Treasury, Accounting, and Corporate Tax. She can be contacted at info.financepost@gmail.com

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