Under the Income tax Act, an assessee needs to get his books of accounts audited if he is liable to do so by virtue of section 44AB of the Income tax Act.
Further as per section 44AB an accountant as mentioned in the Explanation below sub-section (2) of section 288 are eligible to audit books of accounts and such audit is known as Tax audit.
The accountant as defined in explanation to section 288(2) of the Income tax act are as under:
“accountant” means a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 (38 of 1949) who holds a valid certificate of practice under sub-section (1) of section 6 of that Act.
Thus, only Chartered Accountant are eligible to audit books of accounts under the Income Tax Act.
Now let’s understand what is the penalty under Income Tax Act if a person who is liable to audit under section 44AB fails to get his books of accounts audited under Income Tax act?
The section which governs this penalty is section 271B of the Income tax act and relevant extract of section 271B is as under:
“271B. If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under section 44AB, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred fifty thousand rupees, whichever is less.”
Thus, the penalty under Income Tax Act for failure to get books of accounts audited is:
0.5% of Total sales, turnover, total receipts, or
whichever is lower.
For eg: If a business with a turnover of around Rs. 20 crore fails to get his books of accounts audited, then in that case the penalty would be calculated as under:
0.5% of 20,00,00,000 which comes to Rs. 10,00,000, or
whichever is lower.
Thus, in above case penalty of Rs. 150000 shall be charged.
Hence, for any business having turnover above Rs. 3,00,00,000, the penalty would be Rs. 1,50,000.
Further, it is also important to note that this penalty is not only for failure to get books of accounts audited but if a person gets his books of accounts audited by the chartered accountant but the Tax audit report is not furnished within due time as mentioned u/s 139(1) then also such penalty will be levied.
Therefore, it is not only sufficient to get books of accounts audited but to also furnish the tax audit report within due time to save yourself from the above penalty.
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