SECTION 44AB - TAX AUDIT
Section 44AB prescribes for the Tax audit of the Persons registered under the Income Tax Act. Through Tax audit, the Chartered Accountant expresses his opinion about the “True and Fair view” of the Books of Account of the Assessee. In the Finance Act 2020, the eligibility criteria for the Tax Audit has been further amended. Let’s understand the provisions of Section 44AB and analyse the section clause wise.
Section as per the Finance Act (No.2) 2019
44AB. Every person,—
(a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year; or
(b) carrying on profession shall, if his gross receipts in profession exceed fifty lakh rupees in any previous year; or
(c) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or
(d) carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year; or
(e) carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,
get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed :
Provided that this section shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD and his total sales, turnover or gross receipts, as the case may be, in business does not exceed two crore rupees in such previous year:
Provided further that this section shall not apply to the person, who derives income of the nature referred to in section 44B or section 44BBA, on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later :
Provided also that in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section.
Explanation.—For the purposes of this section,—
(i) "accountant" shall have the same meaning as in the Explanation below sub-section (2) of section 288;
(ii) "specified date", in relation to the accounts of the assessee of the previous year relevant to an assessment year, means the due date for furnishing the return of income under sub-section (1) of section 139.
Analysis of the Section
From the section, it can be analysed that the provisions of the Section 44AB is applicable to the following persons:-
In Business, total sales or T.O. exceeds Rs. 1 Crore
In Profession, gross receipt exceeds Rs. 50 Lakhs
In Business, declares profit and gains lower than the deemed profit and gains under section 44AE or 44BB or 44BBB
In Profession, delcares profit and gains lower than the deemed profit and gains under section 44ADA
In Business, the assessee opted out from the provisions of section 44AD
In the above scenarios, the Assessee shall have to get his Accounts audited by a Chartered Accountant in Practice within the due date.
Amendments in the Finance Act 2020
In the Finance Act 2020, a proviso has been inserted in the clause (a):-
Provided that in the case of a person whose-
Aggregate of all amount received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed 5% of the said amount and
b. Aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed 5% of the said amount,
And the said proviso shall be effective only if the sales, turnover or gross receipts during the previous year exceed Rs. 5 Crore.
Analysis of the amendment to Section
The section has been amended to include one more eligibility for the Tax Audit. In order to provide relaxation to the MSME sector, the proviso states that the said person has to comply both the conditions as the word “and” has been sued. The conditions are:-
Transactions in cash related to expense does not exceed 5% of the Total amount
Transactions in cash related to sales, turnover or gross receipt does not exceed 5% of the Turnover
While analysing the proviso, it has been evident that to comply with the increased threshold of Rs. 5 Crores, the assesse has to fulfil both the conditions mentioned aforesaid cumulatively. There is no ambiguity regarding the satisfaction of conditions one by one. Hence, if the assesse satisfy both the conditions, then only the assesse can enjoy the amended threshold limit of Rs. 5 Crores for the Tax audit.