what is tax audit & when is it mandatory
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What is Tax Audit & When Is It Mandatory?

In India, under Section 44AB of the Income‑tax Act, 1961, certain businesses and professionals are required to get their accounts audited by a qualified Chartered Accountant (CA) if they cross specified thresholds of turnover or receipts.

Some key applicability thresholds as of now:

  • For a business (not under presumptive scheme): if total sales, turnover or gross receipts exceed ₹1 crore in a financial year. However, if cash transactions do not exceed 5% of total receipts/payments, this threshold increases to ₹10 crore.
  • For a professional (e.g. a doctor, consultant, lawyer, etc.): if gross receipts from profession exceed ₹50 lakh in a financial year.
  • Other cases — e.g. if you opt out of presumptive taxation under certain sections, or declare profits below the prescribed presumptive rate — may also trigger audit requirements under Section 44AB.

If you fall under any of these thresholds and still do not get your accounts audited (or do not file the audit report), you risk non-compliance under the law.What Is Tax Audit and When It Becomes Mandatory in India

What Happens If You Don’t Get the Audit Done – The Penalty

If a taxpayer who is required to conduct audit under Section 44AB fails to get it done (or fails to submit the audit report), then the provisions of Section 271B come into play.

Penalty under Section 271B: The penalty is calculated as the lesser of:

  • 0.5% of total sales, turnover or gross receipts, or
  • ₹ 1,50,000 (i.e. ₹ 1.5 lakh)

So, for example, if your business had turnover of ₹5 crore and you failed to get audit done (though required), at 0.5% the penalty would compute to ₹2.5 lakh — but since the law caps it, you’ll pay ₹1.5 lakh (the lower of the two).

However, there is a silver lining — the penalty may not be levied if you can show a “reasonable cause” for the failure. Instances considered acceptable under law include natural calamities, death or serious illness of the partner responsible for accounts, resignation of auditor or key accounting personnel, loss of accounts due to circumstances beyond control, etc.

Beyond the monetary penalty — non-compliance can also invite other consequences:

  • Your income-tax return could be treated as defective (since audit report is part of the return).
  • This may lead to disallowance of deductions or claims you made based on books — effectively increasing your taxable income.
  • If you delayed overall return filing along with audit-report omission, interest and late-filing fees under other provisions (e.g. sections relating to interest on tax due) might also apply.

In short: failing to get a mandatory income-tax audit done (or failing to file the audit report) can invite financial penalties, potential loss of tax benefits, extra interest/charges — and even possible scrutiny from tax authorities. That’s why compliance is critical.

What Can Be Done If You Missed the Audit — Is There a Way Out?

  • If you missed audit due to genuine and unavoidable reasons (reasonable cause as per law), you may apply to have the penalty waived — under the provision allowing leniency for “reasonable cause.”
  • Even if deadline is missed, it’s advisable to get the audit done and file the audit report as soon as possible — often, tax authorities may accept delayed filings (with explanation) rather than straight non-compliance.
  • Maintain proper books and financial records all through the year, stay aware of turnover/receipts threshold, and coordinate with your CA early — this helps avoid surprise liabilities.

Frequently Asked Questions (FAQs)

Q1. What is the audit threshold under Section 44AB for businesses and professionals?

  • For businesses (not under presumptive scheme): turnover/gross receipts over ₹1 crore in a financial year (or ₹10 crore if cash receipts/payments are ≤ 5%).
  • For professionals: gross receipts over ₹50 lakh in a financial year.

Q2. What is the penalty for not getting the audit done when mandatory?
Under Section 271B: penalty = 0.5% of turnover/gross receipts, maximum ₹1.5 lakh (i.e. whichever is less).

Q3. Can penalty be waived if audit is not done on time?
Yes — penalty may be waived if taxpayer can show a “reasonable cause” for failure (e.g. natural calamity, illness, auditor’s resignation, loss of books, etc.).

Q4. What other consequences can arise besides penalty?

  • The income-tax return may be treated as defective, leading to disallowance of deductions/claims.
  • Interest on tax due, inability to carry forward losses or certain benefits (if return is defective or delayed).

Q5. If audit becomes mandatory after the end of year (because turnover crosses threshold), can it be done late?
Yes — but you should complete the audit and file the audit report as soon as possible, along with a reasonable cause if late. The earlier you comply, the better your chances of avoiding or minimizing penalties.

Conclusion

For firms and professionals — particularly for one like yours, running a consulting/accountancy business with potentially substantial turnover — compliance with the audit requirements under Section 44AB is not optional. Failing to conduct and file the audit report can lead to penalties under Section 271B, disallowances, and other complications. Conversely, timely compliance ensures smoother tax filings, keeps you in good standing with tax authorities, and maintains financial and legal credibility.