🧾 Tax Audit under Income Tax Act, 1961

Tax Audit is a mandatory legal requirement for certain categories of taxpayers in India under the Income Tax Act, 1961. It ensures transparency and accuracy in income reporting and promotes voluntary compliance among businesses and professionals.

This guide covers everything you need to know about Tax Audit, including:

• What is Tax Audit?
• Applicability with turnover limits
• Detailed section-wise audit criteria
• Practical examples
• Audit forms and format
• Due dates and penalties
• Benefits
• FAQs

🔍 What is a Tax Audit?

A Tax Audit is an audit mandated by Section 44AB of the Income Tax Act. It is conducted by a Chartered Accountant to verify the accuracy of financial records and compliance with tax laws.

Unlike statutory audit (Companies Act), tax audit is aimed purely at ensuring correct income and deduction reporting for tax purposes.

🎯 Objective of Tax Audit

• Check and report accurate taxable income
• Ensure correctness of deductions, expenses, and claims
• Prevent tax evasion or under-reporting
• Provide reliable financial data to the department
• Assist tax officers in assessments

📘 Legal Provision – Section 44AB of the Income Tax Act

Section 44AB mandates specified persons (based on turnover, receipts, or profit declaration) to get their books audited and submit a tax audit report in prescribed format.

It applies to:

1. Businesspersons
2. Professionals
3. Persons opting in/out of Presumptive Taxation (Sec 44AD, 44ADA)

🧮 Applicability Criteria for FY 2024–25 / AY 2025–26 (with Examples)

Let’s break Section 44AB it down Clause-wise:

✅ Clause (a): Persons Carrying on Business

Condition:

If total sales or turnover or gross receipts in a financial year exceed:

• ₹1 crore → Tax Audit Mandatory
• ₹10 crore → If cash transactions (cash receipts and cash payments) ≤ 5% of such receipts

Example 1: Turnover above ₹1 crore with digital receipts

Mr. X operates a hardware store.

• Turnover in FY 2024-25 = ₹1.8 crore
• Aggregate Receipts during the year including amount received for turnover above = ₹2 crore
• Cash receipts = ₹9 lakh
• Aggregate of all payments during the year = ₹1.5 crore
• Cash payments = ₹7 lakh
• Rest via UPI & bank transfers

Cash Receipt % = 4.5% (9 lakh/2 crore*100)

                                  &

Cash Payment % = 4.67% (7 lakh/1.5 crore*100)

✅ Tax audit NOT applicable (since turnover < ₹10 crore & cash receipts & cash payment < 5%)

Example 2: Turnover ₹1.2 crore with high cash usage

Mr. Y runs a garment business.

•  Turnover in FY 2024-25 = ₹1.8 crore
• Aggregate Receipts during the year including amount received for turnover above = ₹2 crore
• Cash receipts = ₹11 lakh
• Aggregate of all payments during the year = ₹1.5 crore
• Cash payments = ₹7 lakh
• Rest via UPI & bank transfers
• Cash Receipt % = 5.5% (11 lakh/2 crore*100)
•                                   &
• Cash Payment % = 4.67% (7 lakh/1.5 crore*100)

❌ Tax Audit Required as although cash payments is less than 5% but cash receipts > 5% and turnover > ₹1 crore.

✅  Clause (b): Persons Carrying on Profession

Applicable if gross professional receipts > ₹50 lakhs

Example 3:

CA Z earns from consulting clients.

• Gross receipts: ₹52 lakhs
  ✅ Tax Audit Required

Professionals include:

• Chartered Accountants
• Doctors
• Lawyers
• Architects
• Interior Designers
• Engineers, etc.

✅ Clause (c ): Deemed Income under Sections 44AE / 44BB / 44BBB

Tax audit is applicable if:

• The taxpayer is covered under presumptive taxation under Section 44AE (transporters), 44BB (non-resident in oil), or 44BBB (foreign companies in turnkey projects)
• AND he declares income lower than the presumptive rate

✅  Clause (d): Presumptive Scheme under Section 44ADA (Professionals)

Applicable if:

• Gross receipts ≤ ₹50 lakh
• Income declared < 50% of gross receipts
• Income exceeds basic exemption limit (₹2.5 lakh/₹3 lakh/₹5 lakh based on category)

✅ Example 4:

A lawyer earns ₹48 lakh and declares ₹20 lakh (41.6%) as profit

➡️ Profit < 50% AND income > ₹2.5 lakh

✅ Tax audit is required

✅   Clause (e): Section 44AD (4) Cases

If a person opts for presumptive scheme under 44AD and then opts out, he cannot opt back for the next 5 years. If during that period, income exceeds the basic exemption limit, Tax Audit is mandatory.

✅ Example 5:

• FY 2023–24: Opted for presumptive under 44AD
• FY 2024–25: Opted out and declared income < 6%, income = ₹4 lakh
  ➡️ Section 44AD(4) applies + income > exemption limit
  ✅ Tax audit required

🧾 Forms for Tax Audit Report

Tax audit must be filed electronically in Income Tax Portal.

Situation	Form Required
Business/profession under other audit law	Form 3CA + 3CD
Only tax audit required	Form 3CB + 3CD

🗓️ Due Date for Tax Audit (AY 2025–26)

Case	Due Date
General cases	30 September 2025
Transfer Pricing or Form 3CEB cases	31 October 2025

Audit report must be uploaded before filing ITR-3 or ITR-5.

⚠️ Penalty for Non-Compliance – Section 271B

Failure to comply results in:

📌 Penalty = 0.5% of turnover, subject to maximum ₹1,50,000

Example 6:

Turnover = ₹4 crore

Audit not done = Penalty = 0.5% of ₹4 crore = ₹2 lakh but penalty maximum ₹1.5 Lakh.

🎁 Benefits of Tax Audit

• Validates financial correctness
• Enhances trust with bankers, investors
• Reduces chances of scrutiny
• Helps better compliance & planning
• Avoids future litigation

🙋‍♂️ Frequently Asked Questions (FAQs)

Q1. Can salaried person be audited under 44AB?

➡️ No, unless he has business/professional income above threshold.

Q2. Can I revise tax audit report?

➡️ Yes, before the due date or if error is noticed.

Q3. Is tax audit applicable on income from F&O trading?

➡️ Yes, since it’s treated as business income. Turnover calculation for F&O includes absolute profit/loss.

Q4. Can LLPs under Companies Act skip tax audit?

➡️ No. They must file Form 3CA + 3CD.

📝 Final Thoughts

Tax Audit is not just a compliance formality — it is a safeguard for businesses and professionals. Proper reporting, timely filing, and correct declarations reduce risk, build trust, and improve your financial discipline.

📌 If you're unsure whether you need a tax audit — let professionals handle it!

💼 Contact Us for Expert Tax Audit Services

Kumar Ravi & Company
📩 Email: ravikumarshah542@gmail.com

🌐 www.raviandcompany.com

📞 Call/WhatsApp: +91-7004361367

👉 Contact us now to connect with our expert CA team. We're here to guide you step-by-step!