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Tax Audit Under Section 44AB of Income Tax Act, 1961

Tax Audit Under Section 44AB of Income Tax Act, 1961

Audit is an official Inspection of the business accounts by an independent body (Tax Auditor) to give assurance of transparency of organization to their users.

There are several types of audit mandates under different laws such as company audit/stock audit / statutory audit/cost audit / interim audit etc.

Similarly, Income Tax Law mandates an audit of books of accounts of the Organization called a TAX AUDIT.

OBJECTIVES

  • To make sure about the Correctness and proper maintenance of the books of accounts which is certified by the Tax Auditor.
  • The creditworthiness of the Organization useful for their Users (Users include creditors, management, employees, government etc)
  • Reporting Observation or Discrepancies by the tax auditor after a well ordered examination of books of accounts.

To report on specify information such depreciation as per Income Tax act and as per Indian Accounting Standard (if applicable) compliances for various provisions of Income Tax Act

MANDATORY

Every Taxpayer is required to have Tax Audit if their Sales/ Gross Turnover/ Gross Receipts of business exceed Rs 1 crore for the FY 2019-20 and this threshold limit is proposed to be increased to Rs. 5 crores with effect from FY 2020-21 (AY 2021-22)

CATEGORY OF BUSINESS

THRESHOLD FOR FY 2019-20

Businesses

Carry business (other than opting  presumptive taxation scheme)

Total Sales/ Turnover < 1 Crore

Business opting presumptive taxation scheme u/s 44 AE & 44 AB

Declare profits or gains less than the prescribed limit (such as 8% or 6%)

Business opting presumptive taxation scheme u/s 44 AD

Declare profits or gains less than the prescribed limit and has income across the basic threshold limit but does not exceed Rs. 2 Crore in Financial Year, then tax audit will not apply on such entity

Profession

Carrying on Profession

Total Gross Receipts < Rs. 50 Lakhs

Profession Carrying and eligible for presumptive taxation scheme u/s 44 ADA

  • Declare Profits or Gains lower than the prescribed limit as per the presumptive taxation scheme and if income exceeds the maximum limit not chargeable to the Income Tax
     

Business Loss

Business incurred Loss and not opting presumptive taxation scheme

Total Sales / Turnover < 1 Crore

Taxpayer incurred losses but Total Income Exceeds basic threshold limit

Taxpayer subject to tax audit u/s 44 AB

FORM PRESCRIBED FOR AUDIT REPORT

  • Form 3 CA : When Taxpayer is mandated to get his accounts audited by any other law
  • Form 3 CB : When Taxpayer is not mandated to get his accounts audited under any other law.

In case of either of the above mentioned Audit Report, tax auditor must furnish the specific details in Form 3 CD.

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03 Mar

Neha Sahni
Neha Sahni

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