Tax Audit (Section 44AB): Applicability, Form 3CD, Due Date

What is Tax Audit (Section 44AB)?

Tax audit under Section 44AB requires a Chartered Accountant in practice to examine the accounts of a business and certify various tax-related declarations in Form 3CD. The objective is to ensure correct income computation and compliance with tax provisions.

Tax audit is separate from statutory audit (Companies Act). A Pvt Ltd may need both: statutory audit (mandatory) + tax audit (if applicable).

Applicability — When tax audit applies

For Business:

• Gross receipts / total turnover > ₹1 crore in FY
• OR > ₹10 crore if 'cash receipts and payments' < 5% (i.e., 95%+ digital — digital business)

For Profession:

• Gross receipts > ₹50 lakh in FY (not opting for 44ADA)

Special cases — Section 44AD/44ADA presumptive:

• Declared income lower than presumed (8%/6%) under 44AD: Tax audit applies
• Declared income lower than 50% under 44ADA: Tax audit applies
• Otherwise (declaring presumed income): No tax audit needed

Form 3CD — The audit report

Form 3CD has 50+ clauses covering:

• General company details, accounting method
• Method of valuation of inventory
• Depreciation as per Income Tax Act vs Companies Act
• Income from sale of immovable property
• Capital gains
• Disallowance under various sections (Section 43B, 40A(2)(b), 40(a))
• Specified transactions (loans, deposits)
• Section 269SS/269T compliance (cash transactions)
• Section 269SU compliance (electronic payment acceptance)
• Income from undisclosed sources
• Tax under Section 56(2)(x) — gifts received
• Related party transactions
• Transfer pricing details (if applicable)
• Reportable transactions of holding company
• Compliance with TDS provisions

Due dates

• Form 3CD (tax audit report): 30 September of Assessment Year
• ITR-3 / ITR-6: 31 October of Assessment Year
• For transfer pricing applicability: 30 November

For FY 2025-26 (AY 2026-27): Form 3CD by 30 Sept 2026, ITR by 31 Oct 2026.

Penalty for non-compliance

Section 271B penalty for not getting books audited or not furnishing Form 3CD:

• 0.5% of turnover or gross receipts
• Subject to maximum of ₹1,50,000
• Plus other consequences — disallowance of expenses, ITR not filed by due date, etc.

For ₹2 crore turnover business: ₹1,00,000 penalty (capped at ₹1.5 lakh). Avoid this by appointing tax auditor early.

Selecting and engaging tax auditor

1. Tax auditor must be a Chartered Accountant in practice (not statutory auditor of company — they can be same firm for Pvt Ltd but checked carefully)
2. Engagement letter signed
3. Auditor performs audit procedures — verify books, transactions, compliance
4. Drafts Form 3CD with all clauses, qualifications (if any)
5. Signs with DSC
6. Company management signs as well
7. Filed on Income Tax portal before due date