Section 44AB specifies rules for a mandatory audit by specified persons carrying on Business or Profession. Section 44AB is one of the widely used and popular provisions in the Income Tax Act. Not all assessees carrying on business are liable for audit under section 44AB. There has been a certain threshold specified under section 44AB in order to be liable for an audit. In this Editorial, we have listed issues like, To whom audit under section 44AB is applicable, what is the limit etc.
Section 44AB makes it obligatory for
1. a person to get his accounts audited before the ‘specified date’ by an ‘accountant’ if the total sales, turnover or gross receipts in business for the previous year exceed or exceeds 1 crore or
2. a person carrying on profession will also have to get his accounts audited before the specified date, if his gross receipts in profession for a previous year or years relevant to any of the aforesaid assessment years exceed `25 lakhs. [The above limit of Rs. 25 lakh has been increased to Rs. 50 lakh – Amendment vide Finance Act, 2016 w.e.f. AY 2017-18]
Audit Report – Section 44AB Income Tax Act
The provision also casts an obligation on such persons to furnish by the ‘specified date’ a report of the audit in the prescribed form duly signed and verified by the accountant setting forth such particulars as may be prescribed by rules made in this behalf by the Central Board of Direct Taxes.
In cases where accounts are required to be audited by or under any other law, it will suffice if the accounts are audited under such other law before the specified date and the assessee furnishes by that the said date the report of the audit as required under such other law.
Deemed Profits – Section 44AB Income Tax Act
Where profits and gains from business are deemed to be profits and gains under section 44AE or Section 44BB or Section 44BBB as the case may be and assessee has claimed his income to be lower than the profits and gains then such profits and gains shall be deemed to be profits and gains of his business during the previous year or
Every person carrying on profession is required to get his accounts audited, if the total gross receipts from profession during previous year exceeds Rs. 50 lakhs.
Assessee carrying on business will have to get his accounts audited (irrespective of quantum of turnover or gross receipt), where the provisions of section 44AD(4) are applicable to him and his total income exceeds the maximum amount which is not chargeable to income tax.
Covered under 44ADA – – Section 44AB Income Tax Act
If a person is covered by section 44ADA and he declares his income from profession lower than deemed income, he will have to get his accounts audited under section 44AB (irrespective of quantum of turnover or gross receipt). However, this rule is not applicable if his total income does not exceed exemption limit.
Assessee Claims – Section 44AB Income Tax Act
Under presumptive assessment under sections mentioned above, if assessee claims that his income is lower than that specified under these sections, assessee is required to gets his accounts audited by a Chartered Accountant and copy of that report needs to be attached alongwith his return of income.
Therefore to gets his accounts audited he needs to maintain such books to substantiate his claim and also to enable Chartered Accountant to issue Audit Report to this effect. However, as amended by the Finance Act, 1992, the provision of this section of compulsory audit shall not apply to those assessees who derive income under Section 44BBA on and from April 1, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later.
Accountant Definition – Section 44AB Income Tax Act
The term ‘accountant’ will have the same meaning as in the explanation to Sub-section (2) of Section 288 of the Income-tax Act and the term “Specified date”, in relation to the accounts of the assessee of the previous year relevant to an assessment year means the 31st day of October of the assessment year.
Penalty under Section 44AB Income Tax Act
According to Section 271B, if any person fails without reasonable cause to get his accounts audited in respect of any previous year or years relevant to an assessment year or to furnish a report of such audit as required under the aforesaid provision, or furnish the said report along with the return of his income, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to 1/2% of total sales, turnover or gross receipts, as the case may be, in the business, or the gross receipts in the profession of such previous year or years, subject to a maximum of ` 1.5 lakh.