Income Tax audit means the Audit done in line with provisions of Income Tax Act, 1961. Person registered under Income Tax are required to get its books of account audited by a chartered accountant. Taxpayers have to comply with prescribed Income Tax Audit rules, sections and provisions. This article deals with some important FAQs on Income Tax Audit under section 44AB of income Tax Act, 1961.
Q- Who all required to comply with Income tax audit compliance?
ANSWER- Income Tax Audit under section 44AB is mandatory for the following persons-
- In case of Business, if turnover exceeds Rs. 1 Crore during Previous year.
- In case of Profession, if turnover exceeds Rs. 50 Lakhs during Previous year.
- Where the person opt out from the Presumptive Taxation scheme.
- In case of Business covered under Presumptive taxation scheme of section 44AD, assesse has claimed income less than 8% (in case of full receipts in Cash)/6% (Other cases) of Turnover and Total Income is more than Basic exemption limit.
- In case of Professions covered under Presumptive taxation scheme of section 44ADA of Income Tax Act, assesse has claimed income less than 50% of Gross Receipt and total income is more than Basic exemption limit.
- Assessee under Presumptive taxation scheme of section 44AE (Presumptive taxation for Transporter), section 44BB (Non Resident in supplying Service or hiring Plant and Machinery), section 44BBB (Foreign Co in Turnkey Projects) and claiming Income less than deemed PGBP under those sections.
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Q- Who can do Tax Audit?
ANSWER- Any Chartered Accountant (CA) in full time practice can do Tax audit. However, it is not mandatory to file income tax audit return by CA. Only audit report is mandatory to be filed by CA.
Q- What is the due date for Income Tax audit?
ANSWER- The due date for Income Tax audit is 30th September of next financial year. However, due date for Previous year 2019-20 is extended to 31st October, 2020 due to COVID-19. Similarly, the due date of Income Tax return for FY 2019-20 is extended from 31st October 2020 to 30th November 2020.
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Q- What is the Penalty if Assessee fails audit of accounts?
ANSWER- In case of non audit of books, Penalty under section 271B is levied lower of –
- 0.5% of turnover/Gross Receipts ; or
- Rs. 1,50,000
For example, BabaTax has Turnover of Rs 2 crore in PY 2019-20. In case, if BabaTax fails for audit of books of account for Income tax purpose. The penalty of Rs 1 lakh (lower of 0.5% X 2 Crore = 1 lakh or Rs 1,50,000) will be levied. However, according to section 271B, no penalty attracts, in case of reasonable cause for failure of audit.
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Q- In which form Income Tax Audit Report is submiited?
ANSWER- The tax auditor has to submit the tax audit report in Form 3CA or Form 3CB on basis of particulars mentioned in annexure Form 3CD.
Form 3CA– Audit has to be done as per Income Tax Act and also under any other Act.
Form 3CB– Audit has to be done only as per Income Tax Act.
Q- What are the audit compliance under Income Tax Act?
ANSWER- In case of Income tax audit, auditor has to submit Audit report in Form 3CA/3CB accompanied with an annexure in Form 3CD. Such Form 3CD contains list of compliances that are to be complied with and in case of non-compliance it has to be reported. Below mentioned are some important points present in the compliance part in Form 3CD.
1. Amounts debited to the profit and loss account, being in the nature of capital, personal, advertisement expenditure etc.
- Capital Exp., Personal Exp.
- Advertisement Exp. In Souvenir, Brochure, Pamphlet or like published by Political party.
- Expense incurred at Clubs being Entrance fees and Subscriptions.
- Expenditure incurred at Clubs being Cost of club services and facilities used.
- Expense by way of penalty or fine for violation of any law for the time being in force.
- Any other penalty or fine not covered above.
- Expense for any purpose which is an offence or which is prohibit by law.
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2. Amount inadmissible under section 40(a)
Subject to certain exceptions, any amount paid or credited to Non Resident or Foreign Co and Resident would get disallowed to the extent of 100% and 30% respectively in following cases.
1) TDS has not been deducted during P.Y.
2) TDS has been deducted but not deposited to Government upto Due date of return filing.
These disallowed amount would get allowed in the year in which TDS is being deducted or it is deposited to the government.
3. Amount inadmissible under 40A(3), subject to certain exceptions:
1) Any payment exceeding Rs. 10,000 to a single person in a single day made otherwise than A/C payee cheque or A/C Draft or use of ECS.
2) In case of transporter, limit is Rs. 35,000.
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4. Provision for Gratuity under section 40A(7)
1) Provision is not allowed as deduction.
2) Deduction would be allowed on payment basis or when it actually becomes due.
5. Any amount paid by employer not allowable under section 40A(9)
Any amount paid by employer for setting up of any fund, trust, Company, AOP, BOI, Society, etc. will not be allowed as deduction subject to certain exceptions.
6. Amount of deduction not allowed in case of section 14A
Any expense incurred to earn exempt income is not allowed as deduction while calculating taxable Income.
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7. Amount not allowed under proviso to section 36(1)
- In case of Borrowing, Interest would be allowed as deduction.
- But when Loan is borrowed for any asset, then no Interest would be allowed for the period between date of borrowing and date of asset being put to use.
8. Payments to Specified person under section 40A(2)(b)
This section disallows any excess payment made to specified persons (relatives).
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9. Disallowance with respect to section 43B
Any expense like Taxes, duties, Interest to bank etc. shall be allowed on payment basis only if claimed before due date of return filing for respective assessment year.
10. Amount in nature of Interest or any similar nature in excess of Rs. 1 Crore as referred in section 94B not allowed.
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11. Mode of taking/accepting and repayment of loans or deposits or advance under section 269SS and 269T
- If the amount is Rs. 20,000 or more, a person should take /accept or repay any loan/deposit or advance in relation to immovable property only by A/C payee, cheque, A/C payee draft or Online transfer, Subject to some exceptions.
- And for this purpose any unpaid amount shall also be considered in the above mentioned limit.
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12. Mode of undertaking Transactions
Subject to some exceptions, any person should not receive an amount of Rs. 2,00,000 or more except by A/C payee cheque or A/C payee draft or electronic clearing system-
- In aggregate from a person in a day, or
- for a single transaction, or
- In respect of transaction relating to one event or occasion from a person.
For any questions, you may reach us at Discussion Forum
The author of the above article is CA Rahul Gaur.
Disclaimer:The article or blog or post (by whatever name) in this website is based on the writer’s personal views and interpretation of Act. The writer does not accept any liabilities for any loss or damage of any kind arising out of information and for any actions taken in reliance thereon.
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