Tax Audit- Introduction, Applicability and Form 3CD
- Account & Audit|Blog|
- 6 Min Read
- By Taxmann
- Last Updated on 3 August, 2023
Table of Contents
1. Introduction of Tax Audit
Income-tax law requires the assessee to get his books of accounts audited by the Chartered Accountant in pursuance of the requirement under Section 44AB of The Income Tax Act, 1961. The Chartered Accountant conducting the tax audit is required to give his findings, observations, etc., in the form of an audit report at the e-filing portal of Income-tax in Form No. 3CA/3CB and form 3CD.
2. Criteria for Conducting Compulsory Tax Audit
|Assessee Engaged in Business||Eligibility|
|Carrying on business (assessee does not opt for presumptive taxation scheme under section 44AD)||
Total sales, turnover, or gross receipts (as the case may be) in business exceeds Rs. 1 crore in the relevant previous year (PY).
Note: This limit shall be increased from Rs. 1 Crore to Rs. 10 crores in case, cash receipts are limited to 5% of the gross receipts or turnover and Cash payments are limited to 5% of the aggregate payments in the relevant PY.
For this purpose, if a cheque or a bank draft is not an account payee cheque or bank draft, it would be deemed as in cash.
|Carrying on business (opts for presumptive taxation scheme under section 44AD)||If after declaring profits on a presumptive basis under section 44AD in a particular year, the assessee does not declare profits under the presumptive basis for any of the 5 successive assessment years (A.Y) then, for the year of default and five successive years he has to maintain books of accounts and get them audited under section 44AB, if, his income exceeds the basic exemption limit.|
|Carrying on business (eligible for presumptive taxation under section 44AE, 44BB or 44BBB)||Claims the profits or gains for such business to be lower than the profits and gains computed as per the presumptive taxation scheme of sections 44AE, 44BB, or 44BBB.|
|Assessee Engaged in Profession||Eligibility|
|Assessee carrying on profession||If gross receipts in profession for the exceeds Rs. 50 lakhs|
|Assessee Carrying on notified profession under section 44AA i.e. legal, medical, engineering, accountancy, architecture, interior decoration, technical consultancy, whose gross receipts are not more than Rs. 50 lakhs.||If he claims that profits from such profession in the relevant PY are lower than the profits u/s 44ADA and his income exceeds the basic exemption limit.|
3. Manner of Filling Tax Audit Report
- Chartered Accountant conducting tax audit has to present the tax audit report online, using his/her official login credentials
- The assessee is required to mention relevant information about their Chartered Accountant in their login portal
- Once the tax auditor uploads the audit report, the same should either be accepted/rejected by the assessee in their login portal. If rejected for any reason, all the procedures need to be followed again till the audit report is accepted by the assessee
- Tax audit report must be filed on or before the due date of filing the return of income. It is 31st October (extended to 31st January 2022 for AY 2021-22) of the subsequent year in case the assessee has entered into an international transaction and 30th September (extended to 15th January 2022 for AY 2021-22) of the subsequent year for other assessees.
4. Tax Audit Report Forms under section 44AB
Applicable forms for reporting under section 44AB are as follows:
- Form 3CA – This is the report given by Chartered Accountant with Audit Observation related to Tax audit and applicable for only companies
- Form 3CB – This is the report given by Chartered Accountant with Audit Observation related to Tax audit and applicable for other than companies
- Form 3CD – Summary of Tax audit work and related annexures which is applicable for all assesses.
5. Form 3CD of Tax Audit
Form 3CD is a statement of prescribed particulars that is to be furnished as an annexure to the audit report. It is divided into two parts:
- Part A containing clause no. 1 to 8A
- Part B containing clause no. 9 to 44
In this blog, we would discuss the reporting requirement of each clause, that are contained in Part A of Form 3CD as per ICAI guidelines.
5.1. Clause (1)
The auditor should ensure that the name given in 3CD matches the income tax records. In case of change in the name of the assessee between the last day of the previous year and the date of tax audit report then both the names should be stated in the tax audit report.
5.2 Clause (2)
In this clause address of the assessee is to be reported. This address should be the same as he communicated to the Income-tax Department for assessment purposes as on the date of signing of the audit report. Moreover, the auditor should verify the same from registration certificates allotted under various tax laws. The reporting under this clause should be done as per the situation prescribed below:
|New Assessee||Address of the principal place of business.|
|Company||Along with the principal place of business, registered office address should also be stated.|
|Assessee has Branch||State branch address|
|Change in address (after FY end but before tax audit)||Detail of new address may also be provided|
5.3 Clause (3)
In this clause, assesse is mandatorily required to quote Permanent Account Number (PAN), allotted to him by the income tax department. The auditor is required to obtain the PAN card to verify the same.
However, in case the assessee has not been allotted any PAN, particulars of the Aadhar Card have to be mentioned in this column. Further, in case, the assessee has two PAN, then, the PAN through which Income Tax Return is filed shall be reported under this clause. Whereas, other PAN should be mentioned in Form 3CA/3CB.
5.4 Clause (4)
In this clause, the assessee is required to report the details pertaining to indirect tax registration such as identification number, if any, allotted for indirect tax like excise duty, service tax, sales tax, goods and service tax, custom duty, etc. in the format specified by the e-filing utility in this context.
Auditor is required to obtain a copy of the registration certificate containing registration details of that relevant law and if assessee has branches that are liable for registration then registration details for all such branches are also to be reported under this clause.
For this, auditor should obtain a list of indirect taxes applicable to assessee along with the detail mentioned in CARO Report (if applicable) and where the assessee is in process of obtaining registration under any Act, then, the fact regarding it should be mentioned in the report.
5.5 Clause (5)
In this clause status, of the assesse should be indicated. It refers to the different classes of assessee included in the definition of “person” in section 2 (31) of the Act [i.e., Individual, HUF, Company, Firm, etc.]. Status of LLP shall be considered as firm. However, foreign LLP shall be covered under company.
In case of change in status of assessee during the year status on the last date of the previous year shall be considered and this situation shall be reported by way of note.
5.6 Clause (6)
In this clause, period of tax audit has to be stated, for Income-tax purposes uniform previous year of 12 months ended 31st March of each year is required to be followed.
In case of amalgamations, demergers, reconstitution, new business, closure of existing business etc., the date of beginning and ending of previous year may differ from the usual. the starting date should be given to the end of financial year.
5.7 Clause (7)
This Clause contains detail of assessment year relevant to the previous year for which the accounts are audited. (e.g., if PY is 2021-22, AY would be AY 2022-23).
5.8 Clause (8)
In this clause, auditor has to mention under which clause of section 44AB, audit is being conducted. While filing the online form, the relevant clause of 44AB must be mentioned from the drop-down options available. These are as below:
5.8.1 Clause (8A)
This is a new clause that requires the assessee to state, whether the assessee has opted for taxation under any of the section 115BA/115BAA/115BAB/ 115BAC/ 115BAD of The Income Tax Act, 1961. Reporting under this clause has to be done in the form of either yes (if opted) or no (if not opted). In case of yes, the auditor has to obtain the copy of Form 10-IB / 10-IC /10-ID filed online by the assessee.
Section 115BAC is applicable for Individual/HUF, if, he opts to pay income tax under the new tax regime, wherein there are lower tax rates but does not allow certain deductions and exemptions.
Section 115BAD is applicable for assessee being a resident co-operative providing a benefit of a lower tax rate of 22% but subject to the non-allowability of certain deductions and exemptions and other conditions.
Read Clause 9 to 41 of Form 3CD:
Detailed Analysis of Clause 9 to 12
Detailed Analysis of Clause 13 and Clause 14
Detailed Analysis of Clause 15 and Clause 16
Detailed Analysis of Clause 17 to Clause 19
Detailed Analysis of Clause 20 and Clause 21
Detailed Analysis of Clause 22 to Clause 25
Detailed Analysis of Clause 26 to Clause 29
Detailed Analysis of Clause 30 to Clause 30C
Detailed Analysis of Clause 31
Detailed Analysis of Clause 32 to Clause 34
Detailed analysis of Clause 35 to Clause 38
Detailed Analysis of Clause 39 to Clause 41
Detailed Analysis of Clause 42 to Clause 44
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