Tax Audit (Section 44AB)
Section 44AB of the Income Tax Act mandates a tax audit by a Chartered Accountant for businesses and professionals whose turnover or gross receipts exceed prescribed thresholds, with the audit report to be furnished by a specified due date.
Section 44AB was inserted with the intention of ensuring proper maintenance of books of accounts and reporting of income by larger businesses and professionals. The provision requires that an assessee get their accounts audited by an accountant as defined under Section 288(2) — essentially a Chartered Accountant in practice — and furnish the audit report in the prescribed form before the income tax return due date.
The applicable turnover thresholds have been revised multiple times. As of FY 2024-25, the threshold for businesses is ₹1 crore in most cases. However, businesses that opt for presumptive taxation under Section 44AD are exempt from audit if their turnover does not exceed ₹2 crore. A significant relaxation was introduced by Finance Act 2020: businesses with turnover up to ₹10 crore are exempt from audit if at least 95% of their receipts and payments are through digital/banking channels — a provision intended to incentivise cashless transactions. For professionals, the threshold for mandatory audit is gross receipts exceeding ₹50 lakh.
The prescribed forms for the audit report are Form 3CA/3CB (the audit report itself) and Form 3CD (a detailed statement of particulars). Form 3CD contains 44 clauses covering aspects such as nature of business, method of accounting, compliance with TDS obligations, loans accepted or repaid in cash, related party transactions, and capital asset details. The thoroughness of Form 3CD makes it one of the most comprehensive compliance documents in India's tax framework.
The due date for filing the tax audit report is typically 30 September of the assessment year for non-transfer pricing cases. For cases involving international transactions or specified domestic transactions requiring a Transfer Pricing audit under Section 92E, the extended deadline of 31 October applies.
Penalty for non-compliance under Section 271B is 0.5% of total turnover or gross receipts, subject to a maximum of ₹1.5 lakh. However, reasonable cause can be a defence for avoiding this penalty under Section 273B. Common reasonable cause situations include natural calamities, the auditor's illness, or a taxpayer's ignorance of the law where the facts genuinely warranted it — though tribunals have been strict in accepting such defences.