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    Categories: Income Tax

Understanding section 44AB of Income Tax Audit in India

Understanding section 44AB of Income Tax Audit in India

Individual or business person has to get his book of accounts reviewed as per Section 44AB of Income Tax Act 1961.It sets the general guidelines to assist the assessing officer to calculate the gross income of the assessee as prescribed by law.

It must also be clear that the issue whether the turnover or gross receipt exceeds the prescribed limit is to be computed in each year independent of the preceding year or years. 44AB applies only if gross earning exceeds the threshold limit as per the accounts maintained by the assessee. Individual must maintain all records to support the gross receipts and declare if the audit is required or not.

Section 44AB sets the eligibility as follows –

  • Any individual, whose total sales or gross receipts, whatever may be the case, exceeds Rs 1 Crore in any of the previous years.
  • For Individual’s whose gross receipts in their profession exceeds Fifty lakhs rupees in any previous year
  • For a person in business, where profit earned from business as per Section 44AE, 44BB or 44BBB and earning is being claimed lesser than the gain earned via business in any of the previous years.
  • For a person in business, where profit earned from business as per Section 44AE, 44BB or 44BBB and earning is being claimed lesser than the gain earned via business in any of the previous years. Also, income is greater than the maximum amount which is non – chargeable as tax to any of the previous years.

So, any person falling under above eligibility criteria must get his accounts inspected. Audit is performed by a Chartered Accountant well before the specified due date. He also needs to submit an audit report duly verified and signed by the accountant.

There are cases where above rules don’t apply. Such exceptional cases include –

  • Cases where a person derives income by nature under section 44B or section 44BBA since 1st April , 1985
  • Cases where any individual is required to get his accounts reviewed by any other law. Exception can be easily raised if audit is done before specified date and also a report of audit is submitted.

Here specified date due date for furnishing the return of income under sub-section (1) of section 139.

Section 44AB covers individuals, HUF (Hindu Undivided Family), companies, firms; trusts and local authorities’ etc.All of above are required to get their accounts audited. It clearly states that audit is compulsory only in respect of Business carried on by the individual and not in case of his income from other sources. The audit report is maintained only for books of account related to the business.

The major object of audit is to verify the correctness of book of accounts mentioned by the assessee. It is a method to avoid cases of fraud and errors and report if found. It mandates tax compliance and totally avoids the possibility of tax evasion.

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