# Tax Audit — Section 44AB

A tax audit is a compulsory audit of the books of account, carried out by a Chartered Accountant, that the Income-tax Act requires certain assessees to obtain by a specified date. It is in addition to any audit required under other laws (e.g. the Companies Act).

## Who must get accounts audited?

The following five categories of persons must get their books audited by a CA:

#	Category	Threshold / Trigger
a	Person carrying on Business	Turnover exceeds ₹1 crore (or ₹10 crore if cash limits are met — see below)
b	Person carrying on Profession	Gross receipts exceed ₹50 lakh
c	Person declaring income lower than presumptive income u/s 44AE, 44BB or 44BBB	Lower income declared
d	Person declaring income lower than presumptive income u/s 44ADA	Lower income declared
e	Person to whom 44AD(4) applies	Income exceeds the basic exemption limit (BEL)

## The ₹10 crore higher limit (for businesses)

The turnover limit for category (a) is raised from ₹1 crore to ₹10 crore when BOTH of the following are satisfied:

Aggregate cash receipts ≤ 5% of total receipts, and
Aggregate cash payments ≤ 5% of total payments.

> Important: A payment or receipt by bearer cheque or bank draft is treated as a cash transaction for this 5% test.

This higher limit rewards businesses that are substantially digital/banking-based.

## Specified date for completing the audit

The audit must be obtained one month before the due date for filing the return u/s 139(1) in audit cases:

30th September of the assessment year (normal audit cases), and
31st October in case of transfer pricing cases.

## Forms used

Audit report in Form 3CA (where accounts are already audited under any other law) or Form 3CB (in any other case), plus
Statement of particulars in Form 3CD.

## Penalty for failure — Section 271B

If a person fails to get the accounts audited / furnish the report, the penalty is the lower of:

0.5% of total turnover / gross receipts, or
₹1,50,000.

## Key relief

If an assessee declares income under 44AD(1) or 44ADA(1) (i.e. on a presumptive basis), tax audit u/s 44AB does NOT apply to that business/profession.

Worked example

### Example 1

Turnover-based audit with the 5% rule. A business has a turnover of ₹6 crore. Cash receipts are ₹20 lakh and cash payments ₹15 lakh; total receipts ₹6 crore and total payments ₹5.8 crore. Cash receipts = 20/600 = 3.33% (≤5%) and cash payments = 15/580 = 2.59% (≤5%). Since both are within 5%, the higher limit of ₹10 crore applies and turnover (₹6 crore) is below it ⇒ no tax audit required.

### Example 2

Penalty computation under 271B. Turnover is ₹40 crore and the assessee fails to get accounts audited. 0.5% of ₹40 crore = ₹20,00,000; the statutory cap is ₹1,50,000. Penalty = lower of the two = ₹1,50,000.

### Example 3

Declaring lower than presumptive income. A professional covered by 44ADA has gross receipts of ₹40 lakh and declares actual income of ₹15 lakh (below the 50% = ₹20 lakh presumptive figure). Because income declared is lower than presumptive AND total income exceeds the basic exemption limit, the professional must maintain books and get a tax audit u/s 44AB (category d).

⚠️ Common exam mistakes

Treating bearer cheques / bank drafts as banking (non-cash) transactions — for the 5% test they count as CASH, which can knock a business out of the ₹10 crore limit.
Assuming the ₹10 crore limit applies to professionals — the higher limit applies only to BUSINESS; the professional limit stays at ₹50 lakh gross receipts.
Computing the 271B penalty as a flat 0.5% of turnover without comparing to the ₹1,50,000 cap — the penalty is the LOWER of the two.
Forgetting that the specified date is ONE MONTH BEFORE the return due date (30 Sept), not the return due date itself.
Applying tax audit where income is declared under 44AD(1)/44ADA(1) — audit does not apply in that case.

Bare-Act text Section 44AB (read with Section 271B for penalty) · Income-tax Act, 1961 · click to expand

Section 44AB requires the following persons to get their accounts audited by a Chartered Accountant before the specified date: (a) every person carrying on business whose total sales/turnover/gross receipts exceed ₹1 crore in the previous year (₹10 crore where aggregate cash receipts and cash payments do not exceed 5% of total receipts/payments respectively); (b) every person carrying on profession whose gross receipts exceed ₹50 lakh; (c) a person claiming profits lower than the presumptive profits under sections 44AE/44BB/44BBB; (d) a person claiming profits lower than those under section 44ADA; (e) a person to whom section 44AD(4) applies and whose income exceeds the maximum amount not chargeable to tax. The 'specified date' is one month prior to the due date for furnishing the return under section 139(1).

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Tax Audit [Section 44AB] and Penalty [Section 271B]

Worked example

⚠️ Common exam mistakes