Income Tax Audit Penalty and Late Fees

If any person who is required to comply with section 44AB fails to get his accounts audited in respect of any year or years as required under section 44AB or furnish such report as required under section 44AB​, the Assessing Officer may impose a penalty. Here under this post we will discuss the Income Tax Audit Penalty for non compliance as per the Act.

Income Tax Audit

Tax audit is governed by income tax law, as the name suggests, a tax audit is an examination or review of accounts of any business or profession carried out by taxpayers from an income tax point of view. Section 44AB gives the provision relating to the class of taxpayers who are required to get their account audited from a chartered accountant. The Audit conducted by the Chartered Accountant of the accounts of taxpayer in pursuance of the requirement of section 44AB is called tax audit.

The outcome of the audit is an audit report. This report is drawn by a Chartered Accountant, where he or she gives his or her findings and observations about the person’s compliance under audit.

Income tax Audit Penalty

According to section 271B, if any person who is required to comply with section 44AB fails to get his accounts audited in respect of any year or years as required under section 44AB or furnish such report as required under section 44AB​, the Assessing Officer may impose a penalty. The penalty shall be lower of the 0.5% of total sales/turnover/gross receipts as the case may be (in business), or of the gross receipts in the profession, in such year or years Or Rs. 1,50,000/-.

It means that non-compliance of tax audit regulations by taxpayers attract a penalty, which may be lower of the following-

A) 0.5% of total sales, turnover, or gross receipts as the case may be (in business), or of the gross receipts in the profession, in such year or years.
B) Rs. 1,50,000/-

Also Read: Section 44AB- Income Tax Audit Meaning, Limit, Applicability, Forms, Due date, Penalty, FAQs, etc.

Waiver of Income Tax Audit Penalty

A penalty is waived only when a taxpayer is able to show a reasonable cause for non-compliance. If the books of account of a business or profession is not audited as per section 44AB, then the assessee has to pay penalty as per section 271B of the Income Tax Act. But if their is genuine reason for delay or non-filing of audit report, then as per section 273B of the Income Tax Act, no penalty shall be imposed if reasonable cause for such failure is proved.

Reasonable cause are-

Delay caused by resignation of the Tax Auditor.
Delay caused by death or physical inability of the partner responsible for accounts.
Delay caused by labour issues such as strike or lock-out
Delay caused by loss of accounts due to theft or fire, or incidents that are not under the assessee’s control.
Natural calamities.

Also Read- What is the Interest and Penalty for late filing of Income tax Return

Due date of furnishing Tax Audit Report and get the accounts audited

For every year, the due date of furnishing the tax audit report is 30th September of the subsequent year. For AY 2021-22, to mitigate the difficulties faced by taxpayers due to the ongoing COVID-19 pandemic, the due date of the income tax audit report has been extended to 31st October 2021.

The CBDT vide Circular no. 09/2021: dated 20th May 2021, extended the due date of furnishing of Report of Audit under any provision of the Act for the assessment year 2021-22, from 30th September 2021 to 31st October 2021.

Know Full Details Here- Extended Due Date of Income Tax Audit Report

Frequently Asked Questions- FAQs

  1. What is the penalty for late filing of tax audit report?

    According to section 271B, if any person who is required to comply with section 44AB fails to get his accounts audited in respect of any year or years as required under section 44AB or furnish such report as required under section 44AB​, the Assessing Officer may impose a penalty. The Income tax audit penalty shall be lower of the 0.5% of total sales/turnover/gross receipts as the case may be (in business), or of the gross receipts in the profession, in such year or years Or Rs. 1,50,000/-.

  2. Can tax audit be done after due date?

    Yes, tax audit can be done after due date but for this, assessing officer may imposed Income Tax Audit Penalty which shall be lower of the 0.5% of total sales/turnover/gross receipts as the case may be (in business), or of the gross receipts in the profession, in such year or years Or Rs. 1,50,000/-.

  3. What happen if tax audit is not filed in due date?

    If tax audit report is not filed within the due date then, according to section 271B, if any person who is required to comply with section 44AB fails to get his accounts audited in respect of any year or years as required under section 44AB or furnish such report as required under section 44AB​, the Assessing Officer may impose a penalty. The Income Tax Audit penalty shall be lower of the 0.5% of total sales/turnover/gross receipts as the case may be (in business), or of the gross receipts in the profession, in such year or years Or Rs. 1,50,000/-.

  4. What is the limit for tax audit for AY 2021-22?

    A Taxpayer is required to have a tax audit carried out if the sales, turnover, or gross receipts of business exceed Rs. 1 crore in the financial year. The threshold limit of Rs. 1 Crore for a tax audit is proposed to be increased to Rs. 5 Crore from AY 2020-21 (FY 2019-20) if the following two conditions are satisfied-
    (i) The aggregate of all amounts received including the amount received for sales, turnover, or gross receipts during the previous year, in cash, does not exceed five percent of the total turnover/gross receipts; and
    (ii) The aggregate of all payments made including the amount incurred for expenditure, in cash, during the previous year does not exceed five percent of the total payment.

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Disclaimer: The information contained in the above article are solely for informational purpose after exercising due care. However, it does not constitute professional advice or a formal recommendation. The author does not own any responsibility for any loss or damage caused to any person, directly or indirectly, for any action taken on the basis of the above article.

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Compiled by- CA Chirag Agarwal (Practicing Chartered Accountants)

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