Audit of Accounts Under Section 44AB of Income Tax Act

Audit of Accounts Under Section 44AB of Income Tax Act

Section to be discussed with relevant Rules:

Section 44ABAudit of Accounts
With Section 44ADPresumptive Income from Business
With Section 44ADAPresumptive Income from Profession
Rule- 6GAudit Report
Section 271BPenalty

Section 44AB. Every person-

(a)  Carrying on business and his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds “One crore (1 Crore) rupees” in any previous year:

Provided that in the case of a person whose-

(a)  Aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent  (5%) of the said amount; and

(b)  Aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent (5%) of the said payment,

Above clause shall have effect as if for the words “one Crore (1 Crore) rupees”, the words “five Crore (5 Crore) rupees” had been substituted; or]

Note:

  • The Finance Act-2021 has increased the threshold limit under this section from Rs. 5 Crores to Rs. 10 Crores
  • Where cash transactions do not exceed 5% of total cash transactions. It is further clarified that transactions settled through non-account payee Cheque and Demand dreaft shall be treated as “Cash Transactions” for the purpose of computing the threshold limit of 95% digital transactions.

(b)  Carrying on profession and his gross receipts in profession exceed fifty lakh (50 Lakh) rupees in any previous year; or

(c)  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)  Carrying on the profession and 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)  Carrying on the business and 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

Section 44AD(4) Where an assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1).

Provided that this section shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD and his total sales, turnover or gross receipts, as the case may be, in business does not exceed two crore (2 Crore) rupees in such previous year:

Provided further that this section shall not apply to the person, who derives income of the nature referred to in section 44B or section 44BBA, on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later :

Provided also that in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section.

Summary:

For Resident Professionals (Sec 44AB + Sec 44ADA)

For Business (Sec 44AB + Sec 44AD) (Resident Individual /HUF/Firm (excluding LLP)

For Business (Sec 44AB + Sec 44AD) (Other Assessees)

Rule 6G- Report of audit of accounts to be furnished under section 44AB

Penalty u/s 271B

According to section 271B, if any person who is required to comply with section 44AB fails to get his accounts audited in respect of any year or years as required under section 44AB or furnish tax audit report, 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.

Examples: Applicability of 44AD/44ADA & 44AB

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