Auditing of accounts before filing ITR

The tax filing procedure for businesses with high turnover, and certain professionals, requires that their accounts be audited before ITR is filed

Pradeep Gaur/Mint
Pradeep Gaur/Mint

The last date for filing the income tax returns for most taxpayers this year was 5 August. However, for those taxpayers whose accounts are required to be audited, the due date is 30 September. This has now been extended to 17 October. The due date was extended by the Central Board of Direct Taxes (CBDT), as it was coinciding with the last date for making declarations under the Income Declaration Scheme, 2016.

Read on to know who all need to get their books of accounts audited to file the income tax return (ITR), and when they need to do it.

Who need to get their accounts audited?

The income tax assessees who need to get their accounts compulsorily audited by a chartered accountant are governed under section 44AB of the Income tax Act, 1961. As per the Act, an ITR is required to be accompanied by an audit report if the taxpayer’s turnover of the business exceeds Rs1 crore, or receipts from a profession exceed Rs25 lakh during a financial year (FY). From FY 2016-17, this limit has been increased to Rs50 lakh for professionals. “This is applicable to you whether or not your business is formally incorporated,” said Archit Gupta, founder and chief executive officer,

If an assessee opts for the presumptive income scheme, she is not required to get the books audited. However, if she claims that the profits and gains from her business are lower than the deemed profits and gains computed under the scheme, then she too is has to get books of accounts audited.

Under the Act, professionals include: doctors, engineers, architects, lawyers, interior designers, actors or other notified professionals. In case of businesses, apart from other types of businesses, those who trade in derivatives (future and options) also come under the purview of the Act. However, method of calculating profits differs from typical businesses where the turnover is calculated on the basis of purchase and sales. Here it is calculated by adding the profits, or losses, made in each transaction. For instance: if a trader makes a profit of Rs1 lakh in one transaction and a loss of Rs50,000 in another, the turnover would be considered as Rs1.5 lakh.

Requirements of the audit report

The books of account that need to get audited are described under section 44AA, rule 6F of the Act. One needs to maintain a cash book, which records all cash receipts and payments. It must be maintained on a daily basis, detailing the cash balance in hand each day or at the end of a specified period—not exceeding a month. Along with this, documents like journals, ledgers, copies of bills and vouchers also need to be maintained for auditing.

Apart from the above, “professionals such as physicians, surgeons and dentists have to maintain additional books, which include a daily case register that is prescribed in Form 3C,” said Kuldip Kumar, partner and leader personal tax, PwC. It has to show: date, patient’s name, nature of professional services rendered (such as general consultation, surgery or visit), fees received and date of receipt.

“Chartered accountant fee for audit and preparing the report can vary depending on the volume and commercial arrangement,” said Kumar.

Last dates for large businesses and professional

The normal due dates are prescribed under section 139(1) of the Act, and assessees who are required to get their accounts audited need to file returns by 30 September of every assessment year. However, “in case a taxpayer has undertaken an international transaction, as per section 92B, or a specified domestic transaction as per section 92BA, the due date of submission of return shall be 30 November,” said Gupta. Along with the return, e-filing of audited report is also mandatory. The audit report must be submitted in form 3CA or form 3CB, as applicable, along with form 3CD , said Gupta.

Penalties for not getting the accounts audited

The penalties are different for not maintaining the required books of account and for not getting them audited to secure an audited report.

If a taxpayer fails to maintain the accounting records as per the requirements of section 44AA, a penalty may be levied. The maximum penalty that can be charged is Rs25,000. However, if the taxpayer can prove that there was reasonable cause for failure to maintain the records, then the penalty may be waived.

If an assessee fails to adhere to the deadline for getting the books of account audited, it will attract penalty under section 271B of the Act. The penalty under this section can go as high as Rs1.5 lakh or 0.5% of the total sales, turnover or gross receipts, whichever is lower. But if the taxpayer has reasonable cause for failure to get an audit done, for instance, natural calamity, or law and order disturbances, then such a penalty may be waived by the assessing officer.

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