The Income Tax Act levies a penalty of 0.5% of the total sales/turnover/gross receipts (whichever is applicable) or Rs 1.5 lakh whichever is lower, for late submission of tax audit report.
It is important to note that if the income tax return is filed without the submission of an audit report, then it will be considered as a defective ITR. The income tax department will send you a tax notice to correct the ITR filed. A taxpayer will be required to file the audit report as well as pay the penalty amount. Once the penalty is paid and an audit report is submitted, then the taxpayer will be required to file the correct ITR again.
If the taxpayer does not correct the defective ITR within the specified time limit, then it will be considered that the ITR has not been filed. The consequences of not filing ITR as well as non-submission of the audit report will be applicable. For instance, if a taxpayer has failed to file ITR within the due date and also has an outstanding tax liability, then he/she is liable for paying penal interest.
If an individual with business or professional income missed the original ITR deadline, he/she could file a belated ITR by paying Rs 5,000 penalty. Hence, if an individual missed the income tax audit deadline as well as the original ITR deadline, then he/she must file a belated ITR and submit the audit report too. All the respective penalties for audit report, tax liability (if any), and belated ITR will be applied individually.
One respite is that the Assessing Officer (AO) has the discretionary power to not impose the penalty for not submitting tax audit report on time. Hence, if the individual is able to convince the AO that there was reasonable cause for delay in submitting the income tax audit report by the due date, then the AO will not impose the penalty. However, the penalty for not filing ITR will continue.
Who has to get their books of account audited?
Income tax audit under section 44AB is required to be conducted only if an individual has business or professional income above a certain specified limit.Business income: If a businessman’s total sales or gross receipts from business operations exceeds Rs 1 crore in a financial year, then conducting a tax audit is mandatory. However, the threshold limit shall be increased to Rs 10 crore from Rs 1 crore earlier if cash receipts and payments during the year do not exceed 5% of the total receipts or payments (as applicable).
Professionals: Individuals with professional incomes like doctors, lawyers, etc are required to conduct an income tax audit only if their gross receipts exceed Rs 50 lakh in a year. Here also, rules are different for those under the presumptive taxation scheme.
However for those individuals who have opted for presumptive income tax scheme, they are normally not required to get an tax audit conducted. The only exception to this rule is when the individual wants to claim lower income than specified under presumptive taxation scheme. Hence in this case tax audit has to be conducted even if the individual has opted for presumptive income tax scheme.
“If an individual want to claim in their ITR that their annual profits and gains from the business or profession are lower than the profits and gains specified as per presumptive taxation scheme i.e. profit is less than 6%/8% of total sales for business and 50% of gross receipts for professionals) and their total income exceeds the basic exemption limit, then they are required to maintain the books of account as per the provisions of section 44AA and has to get their accounts audited as per section 44AB,” says chartered accountant Manas Chugh, head regulatory services, Osgan Consultants, a Delhi based business and tax consultancy firm.
