Section 44AB of Income Tax Act, 1961: Individuals who meet certain criteria and must have their accounts audited by a Chartered Accountant are covered by Section 44AB of the Income Tax Act. This requires the submission of a specific set of forms. The audit of certain individuals’ accounts is governed by Section 44AB of the Income Tax Act.
In other words, if some persons meet the Section 44AB requirements, they must have their accounts audited by a certified Chartered Accountant. This practice is carried out exclusively to aid the Assessing Officer in the assessment and computation of the individual’s total taxable income. In this article, let’s understand the audit of speculation business for shares, futures and options trading. Read on to find out more.
- When Tax Audit is Applicable?
- Who is Liable for Audit under Section 44AB?
- Audit of Speculation Business-Shares, Futures and Options Trading
- Filing Of Income Tax Audit Report Under Section 44AB
- Non-compliance of Tax Audit
- FAQ’s on Income Tax Audit Report Under Section 44AB
When Tax Audit is Applicable?
The tax audit under Section 44AB is applicable under the following situations:
- Individuals whose overall income or turnover for the financial year exceeds the taxable limit allowed, regardless of prior financial year turnover
- Individuals with a personal income that is less than the taxable limit but company income that is greater than the taxable limit
- In exceptional circumstances where the individual’s income does not exceed the taxable limit yet the Assessing Officer requests that the individual’s accounts be audited. The Assessing Officer can only do this by issuing an order under Section 142(2A) of the Income Tax Act.
Who is Liable for Audit under Section 44AB?
Any individual meeting the following criteria is liable to audit their accounts under Section 44AB:
Any person or individual carrying on a business:
- If an individual or person carrying on a business earns a total income or turnover of more than Rs 1 crore via the operation of the business in any year prior to the relevant assessment year, he or she would be compelled to have an income tax audit conducted on his or her books.
- If an individual or person carrying on a business earns profits or gains as any of the individuals listed under Section 44AE, Section 44BB, or Section 44BBB, and he or she has stated that his or her income is below the taxable limit prescribed for profits or gains acquired through business, he or she will be subject to an income tax audit.
- If an individual or person carrying on a business earns profits or gains through the operation of the business as any of the people listed in Section 44AD, and he or she has stated that his or her income is below the taxable limit for profits or gains acquired through business, but has income that exceeds the tax-free limit, he or she will be reassessed.
Any person or individual carrying on a profession:
If the individual or person in issue receives gross income or receipts in excess of Rs 25 lakhs from his or her profession in any year prior to the relevant assessment year, he or she would be compelled to have an income tax audit performed on their accounts.
Any person or individual mentioned under other sections of the Income Tax Act:
Section 44AB requires any person or individual who falls within the following sections of the Income Tax Act to have their accounts audited. These are the sections:
- Section 44AD
- Section 44AE
- Section 44AF
- Section 44BB
- Section 44BBB
Audit of Speculation Business-Shares, Futures and Options Trading
When a company’s turnover exceeds Rs. 1 crore, an audit under section 44AB is necessary.
However, in the case of speculation, stock trading, and futures/options, turnover is calculated as follows.
- Speculation Business: The turnover is calculated as the sum of both positive and negative differences.
- Intraday stock trading: The turnover is calculated as the sum of both positive and negative changes.
- Delivery-based stock trading: The higher the sale or purchase price, the higher the turnover.
- Futures: The turnover is calculated as the sum of both positive and negative differences.
- Options: The premium received on option sales is also included in turnover.
Filing Of Income Tax Audit Report Under Section 44AB
Individuals who are required to have their accounts audited under Section 44AB must file their income tax audit report under Section 44AB along with their income tax returns by September 30th of the assessment year for the previous year. These persons must e-file their income tax audit reports along with their income tax filings and supply all necessary information.
Non-compliance of Tax Audit
A penalty is imposed on a taxpayer who is required to have a tax audit performed but fails to do so.
The following are the penalties that may be imposed on him or her. In the following instances, the tax auditor must provide the report in a correct format, either in Form 3CA or Form 3CB:
0.5 percent of overall revenue (gross receipts) or turnover
Thus you must follow the provisions of section 44AB of the Income Tax Act 1961 if you are a taxpayer. This clause states that after performing an audit of your books of accounts, all taxpayers must get an audit report. This is to accurately portray the taxpayers’ income-related activities, deductions, and taxes.
FAQ’s on Income Tax Audit Report Under Section 44AB
Question 1.
Who is liable for audit under section 44AB?
Answer:
If an individual is in business and his/her total sales, turnover, or gross receipts (as the case may be) in a given year exceed or exceed Rs. 1 crore is liable to audit under section 44AB.
Question 2.
What is the penalty for not getting the accounts audited as required by section 44AB?
Answer:
Yes, If the audit is not completed and the report is not submitted on time (before or on September 30), a penalty of 0.5 percent of the turnover, up to Rs. 1.5 lakh, must be paid.
Question 3.
Is audit compulsory for proprietorship?
Answer:
If a proprietor runs a business with a sales turnover of more than one crore rupees, a tax audit is compulsory.
Question 4.
Is tax audit mandatory in case of loss?
Answer:
There has been a loss and the total taxable income is below the threshold limit (2.5 lakh for non-senior citizen and 3 lakh for senior citizen), then the tax audit is not mandatory.