Let’s understand the applicability of tax audit for A.Y. 2020-21 in detail. Basically, this audit is mandatory to only particular taxpayers who exceed the respective limits given by the Income Tax Department. This audit is conducted by the Chartered Accountant (CA) to verify / examine / review the accounts of the taxpayer.
What is tax audit?
You must be knowing about the audit conducted by companies on annual basis. This kind of audit is conducted to verify whether the financial statements of company are showing true and fair view or not and this audit is called as Statutory Audit.
In a similar way, tax audit is conducted to verify whether the income or turnover shown by the taxpayer following all the rules and regulations of Income Tax Act, 1961 and other Acts or not. Section 44AB of Income Tax Act, 1961 mandates specific taxpayers to get their accounts audited by Chartered Accountant (CA). In simple terms, the audit conducted by Chartered Accountant of the accounts of the taxpayer as per the provisions of Section 44AB is known as Tax Audit.
What are the objectives of tax audit?
● To Ensure Books of Accounts and other records of the overall organisation are maintained properly;
● To verify whether the income of the taxpayer and claim of deduction are properly disclosed or not;
● To restrict the chance of fraudulent practices.
● To ascertain or derive or report the requirements of Form No 3CA / 3CB and 3CD.
Who Is Liable To Do Tax Audit?
As per Section 44AB following persons are mandatorily subject to Tax Audit : -
1) Any person whose carrying business and if his total turnover or sales or gross receipts exceeds Rs. 1 Crore.
In F.Y. 2020-21, the above limit of Rs. 1 crore increased to Rs. 5 crores only to those whose cash receipt and payment made during the year does not exceed 5% of total receipt or payment which means more than 95% of banking transactions shall be done via banking channels.
Following image is only applicable to w.e.f. A.Y. 2020-21;
2) Any person who is carrying on profession and if his total turnover or gross receipts exceeds Rs. 50 Lakhs.
3) Any person, who is carrying on business, opts for Presumptive Taxation Scheme under section 44AD and his total sales or turnover exceeds Rs. 2 Crores.
4) If any assessee opts out of the presumptive taxation scheme, within the aforesaid period, he cannot choose to revert back to the presumptive taxation scheme for a period of five assessment years thereafter.
5) An assessee who declare profit for any previous year in accordance with section 44AD and he decreases profit for any of one 5 assessment year relevant to the previous year succeeding such previous year lower than the profit computed as per section 44AD and his income exceeds the amount which is not chargeable to tax.
6) A person who is eligible to opt for the presumptive taxation scheme of section 44ADA (*) but he claims the profits or gains for such profession to be lower than the profit and gains computed as per the presumptive taxation scheme and his income exceeds the amount which is not chargeable to tax.
7) A person who is eligible to opt for the taxation scheme prescribed under section 44BB or section 44BBB but he claims the profits or gains for such business to be lower than the profits and gains computed as per the taxation scheme of these sections.
8) A person who is eligible to opt for the presumptive taxation scheme of sections 44AE (*) but he claims the profits or gains for such business to be lower than the profits and gains computed as per the presumptive taxation scheme of sections 44AE.
If A Person Is Required By Or Liable To Get His Accounts Audited Under Any Other Law, Then Is It Compulsory For Him To Conduct Tax Audit As Well?
If a person is required by or liable to get his accounts audited under any law then he need not again get his accounts audited to comply with requirement of section 44AB.
In such case, it is sufficient if such person gets the accounts of such business or profession audited under such law and obtains the report of the audit as required under such other law and also a report by the chartered accountant in the form prescribed under section 44AB, i.e., Form No. 3CA and Form 3CD.
What Is The Due Date By Which A Taxpayer Should Get His Accounts Audited?
A person subject to tax under section 44AB should get his accounts audited and should obtain the audit report on or before 30th September of the relevant assessment year, e.g., Tax audit report for the financial year 2019-20 corresponding to the assessment year 2020-21 should be obtained on or before 30th September, 2020. (Date is extended to 31/10/2020)
What Is The Penalty For Contravention Of Section 44ab?
According to Section 271B, if any person who is required to conduct tax audit under section 44AB and fails to get his accounts audited in respect of any year or years as required under or furnish such report as required under section 44AB, the Assessing Officer may impose a penalty. The penalty shall be lower of the following amounts:
(a) 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such year or years.
(b) Rs. 1,50,000.
However, according to Section 271B, no penalty shall be imposed if reasonable cause for such failure is proved.