Section 44AB of the Income Tax Act lays down provisions pertaining to the tax audit under the Income Tax Audit. An Income tax audit is conducted to ensure that the taxpayer has properly maintained the books of accounts and other records, and they truly reflect the income of the taxpayer. Tax audits have been made mandatory by the Income Tax Act that states that all taxpayers are required to get the accounts of their business or organization audited according to the provision of the act.

Moreover, it is intended to verify whether the assessee has complied with various requirements like filing of income tax returns, the accurate specification of claim and income tax deductions, etc. In short, a tax audit is a measure which is initiated to curb fraudulent tax practices. Tax audit must be carried out by a practicing Chartered Accountant. We also have a CA Firm under our umbrella ( CA Mehra Amit & Co. ) in pursuance of the requirement of section 44AB. This article is a detailed account on section 44AB, which deals with a tax audit.

As Per Section 44AB, Who Is Covered By Tax Audit?

Tax Audit is applicable to certain classes of individuals which are mentioned under Section 44AB of the IT Act.  Thus, as per the regulations of Section 44AB of the Income Tax Act, 1961, following is the list which outlines the classes of people who have to compulsorily follow the income tax audit procedures and get their accounts audited:

1. Taxpayer whose total sales, turnover or gross receipts from business exceeds Rs 1 cr or where Professional receipts exceed Rs 50 Lakh:

• It is mandatory to fill the Part A of Schedule Profit & Loss A/c and part A of Balance Sheet and also to file the Audit report u/s 44AB of Income Tax Act where the Total Sales, Turnover or Gross Receipts of the business exceeds Rs.1 cr or where Professional receipts exceed Rs 50 Lakh for the Financial Year 2017-18.
• The Audit Report u/s 44AB has to be electronically filed prior to or along with the return of income before the due date.
• The taxpayer has to approve the Audit Report u/s 44AB after it is e-filed by the Chartered Accountant. Without taxpayer approval, the submission of the Audit Report u/s 44AB is NOT COMPLETE.
• For the purpose of all the provisions of Income Tax Act, 1961, the date of approval by the taxpayer will be considered as the date of filing of the Audit Report u/s 44AB.

2. A taxpayer reporting Presumptive income under section 44AD:

• As per the provisions of Income Tax Act, the benefit of Section 44AD shall not be applicable where the gross receipts from business exceed Rs.2 cr in the financial year 2017-18.
• Hence, where the gross receipts/total turnover from the business exceeds Rs.2 cr, it is mandatory to fill the Part A of profit and Loss A/c and Part A of Balance Sheet and also file the Audit Report u/s 44AB of Income Tax Act.
• The taxpayer is advised to follow the process as per Sl. No. 1 above strictly in such cases. The benefit of Section 44AD is not available in such cases.
• A person who is eligible to opt for the presumptive taxation scheme of section 44AD but claims the profits or gains for such business to be lower than the profits and gains computed as per the presumptive taxation scheme of section 44AD. This is also applicable in case his income exceeds the amount which is not chargeable for taxation.
• If an eligible assessee opts out of the presumptive taxation scheme, after a specified period, he cannot choose to revert back to the presumptive taxation scheme for a period of five assessment years after the decision to opt out is taken.

3. Taxpayer whose gross receipts in profession exceed Rs 50 Lakhs:

• It is mandatory to fill the Part A of Schedule Profit & Loss A/c and part A of Balance Sheet and also file the Audit report u/s 44AB of Income Tax Act where the gross receipts in profession exceed Rs 50 Lakhs for the Financial Year 2017-18.
• The audit report has to be electronically filed along with the return of income before the due date.
• The taxpayer is also required to approve/reject the audit report once the same is e-filed by the Chartered Accountant.

• 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.
• A person who is eligible to opt for the presumptive 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.

(*) section 44BB is applicable to non-resident taxpayers engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire basis to be used in the exploration of mineral oils. Section 44BBB is applicable to foreign companies engaged in the business of civil construction or erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project.