Section 44AB of the Income Tax Act outlines the requirement for individuals or entities engaged in business or profession to maintain regular books of accounts. When specific financial thresholds are met, a tax audit is mandated under this section to ensure compliance with various provisions of the Income Tax Act.
The tax audit mandated under Section 44AB serves several critical functions. It ensures that taxpayers’ financial records accurately reflect their income and that any claims for deductions are properly made. This process helps in identifying and preventing fraudulent practices. Additionally, a thorough tax audit aids in the efficient administration of tax laws by providing a clear and accurate presentation of accounts to the Assessing Officer (AO), ultimately saving time and resources.
Taxpayers must undergo a tax audit if their business turnover or gross receipts exceed specified limits during a financial year.
This requirement does not apply to those who opt for the presumptive taxation scheme under Section 44AD, as long as their total sales or turnover do not exceed ₹2 crores.
The tax audit report must be filed using specific forms based on the circumstances of the taxpayer:
Failure to comply with the tax audit requirement under Section 44AB can result in penalties under Section 271B. The penalty is the lesser of the following:
However, no penalty will be imposed if the taxpayer can demonstrate a reasonable cause for the failure to comply.
In certain situations, delays in filing the tax audit report may be excused by Tribunals or Courts. Accepted reasons include:
These provisions ensure that while compliance is crucial, there is flexibility in extraordinary circumstances.
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