Income Tax Audit Services
Section 44AB Tax Audit — All 44 Clauses of Form 3CD, Accurate & Filed On Time for Businesses and Professionals
An income tax audit under Section 44AB is the mandatory annual examination of books of account and financial records for businesses and professionals crossing prescribed thresholds. Conducted exclusively by a Chartered Accountant, it produces Form 3CA or 3CB and the 44-clause Form 3CD — one of the most consequential compliance documents a taxpayer files each year.
An incorrectly prepared Form 3CD is one of the most common triggers for scrutiny assessment, potentially leading to income additions, expense disallowances, and substantial tax demand with interest and penalty. N D Savla & Associates has conducted income tax audits across all major industries for over two decades.
Who Needs an Income Tax Audit?
| Category | Cash-Intensive Threshold | Cashless Threshold (<5%) | Key Condition |
|---|---|---|---|
| Business Taxpayers — Sec 44AB(a) | Turnover > Rs. 1 crore | Turnover > Rs. 10 crore | Cash receipts AND payments each ≤5% of totals for Rs. 10 Cr threshold |
| Professional Taxpayers — Sec 44AB(b) | Gross receipts > Rs. 50 lakh | Gross receipts > Rs. 75 lakh | Gross receipts = total before expenses, not net income |
| Presumptive Scheme Opt-Outs — Sec 44AD/44ADA/44AE | Income declared below prescribed rate (8%/6% for 44AD; 50% for 44ADA) | Must maintain books as if presumptive scheme does not apply | |
| Loss-Claiming Businesses | Claiming business loss; total income before loss exceeds basic exemption | Audit required to carry forward the business loss | |
Key Form 3CD Clauses
Clauses 1–10: Basic Information & Books
Nature of business, method of accounting (cash vs mercantile), changes in accounting method during the year (Section 145), and material deviations from prior year approach affecting profit or loss.
Clauses 17–21: Depreciation & Capital Assets
Block-wise depreciation statement — opening WDV, additions, sales, applicable rates, closing WDV. Common errors: wrong rates, 50% for second-half additions, missing 'put to use' condition.
Clause 26: Section 43B Payments
PF/ESI, gratuity, bonus, leave encashment — must be actually paid before return due date. Includes the new Section 43B(h) MSME payment compliance from FY 2023-24 requiring detailed vendor tracking.
Clauses 30–31: Cash Payments & Loans
Section 40A(3) cash payment disallowances (>Rs. 10,000/day/person). Section 269SS/269T: loans/deposits received or repaid in cash above Rs. 20,000 — penalty equals the loan amount.
Clause 34: TDS Compliance
The most data-intensive clause — systematic category-by-category TDS verification: correct rates, timely deposit, quarterly return filing, and Section 40(a)(ia) disallowances for deduction/deposit failures.
Clause 44: GST Disclosure
Reconciliation of GST expense in P&L with actual GST paid through cash ledger. Critical for businesses where GST expense includes ineligible ITC written off, penalties, and interest paid.
Step-by-Step Income Tax Audit Process
Engagement Confirmation & Pre-Audit Planning
Confirm audit applicability, review prior year Form 3CD for recurring issues, prepare structured audit plan with team assignments and data collection timeline — working backwards from 30 September.
Books Collection & Completeness Verification
Collect cash book, bank books, journal, general ledger, sales/purchase daybooks, fixed asset register, all vouchers and contracts. Verify Section 44AA compliance, consistency of accounting method, and subsidiary record reconcilability.
Revenue & Turnover Verification
Examine all revenue accounts, verify advances and credit notes, reconcile total turnover with GSTR-1, GSTR-9, and Form 26AS. Investigate any gap between books and TDS deducted by clients.
Expenditure Examination — Disallowances & Deductions
Section 40A(3) cash payments, Section 43B statutory payments, new Section 43B(h) MSME balances, Chapter VI-A deductions with supporting evidence, and related-party market rate verification.
TDS Compliance Verification
Category-by-category TDS check: Sections 192, 194C, 194J, 194I, 194A, and all others. Verify correct threshold, rate, deduction, deposit timeline, and quarterly return filing. Reconcile with Form 26AS. Quantify all defaults for Clause 34.
Depreciation, Capital Expenditure & Asset Register
Block-wise depreciation schedule in Clause 18 format. Every addition traced to invoice. 'Put to use' condition for 50% rate. Review for fully depreciated assets, disposals, and assets written off.
Form 3CD Preparation, Pre-Filing Discussion & Filing
All 44 clauses prepared with supporting working papers. Pre-filing discussion with management — opportunity to voluntarily pay Section 43B defaults before report is finalised, reducing tax payable. Senior partner review. Electronic filing on Income Tax portal.
Sector-Specific Considerations
Trading Businesses
Correct turnover computation for securities traders. Consistent stock valuation method. Section 145A inclusive basis for GST-registered businesses — reconciling with exclusive basis in GST returns.
Manufacturing Companies
WIP valuation (raw material + direct labour + overhead allocation). Block-wise depreciation on plant and machinery. MSME tracking systems for Section 43B(h) compliance — the major new compliance challenge from FY 2023-24.
Professional Firms
Partner remuneration under Section 40(b) — within deed limits and overall book profit ceiling. Interest on partner capital at maximum 12% p.a. Changes in capital or remuneration arrangements during the year.
Technology Companies
Revenue recognition under mercantile basis for SaaS, milestone billing, and long-term contracts. ESOP perquisite computation and TDS under Section 192.
Healthcare Sector
Pharmaceutical marketing expenditure deductibility (MCI/IMA guidelines), hospital government scheme receipts, diagnostic centre equipment depreciation, and TDS on doctor payments.
Real Estate
Revenue recognition method (percentage vs project completion), advance treatment, and Section 43CA deeming provisions for below-circle-rate sales.
Why Choose N D Savla & Associates?
- All 44 clauses treated equally — every clause verified with supporting documentation; no clause is a formality
- MSME Section 43B(h) specialists — dedicated methodology for MSME vendor identification, payment tracking, and disallowance computation
- Integrated GST + income tax audit — consistent turnover, ITC, and Clause 44 disclosures across all platforms
- Pre-filing voluntary payment advisory — concrete financial benefit from resolving Section 43B defaults before filing
- On-time filing every year — initiated mid-June, data collected by July, draft by mid-August, signed by September
- Meticulous working papers — every clause supported by documented evidence, defensible in scrutiny assessment
- Detailed management letter — specific guidance on every compliance gap, TDS default, and process weakness identified
- Senior partner review — all Form 3CD filings reviewed by a senior CA before electronic submission
Frequently Asked Questions
Who exactly needs an income tax audit for AY 2024-25?
What is the due date and penalty for late filing?
What is the difference between Form 3CA and Form 3CB?
What are the consequences of filing an incorrect Form 3CD?
What is the impact of Section 43B(h) MSME from FY 2023-24?
Can GST and income tax audit be conducted simultaneously?
Initiate Your Income Tax Audit Engagement for the Current Year
Accurate, on-time Form 3CD filing — all 44 clauses verified, pre-filing discussion included, management letter provided. Start early: we initiate all engagements by mid-June.
Contact Us- 📞 +91 9821 832 683 | +91 9765 000 966
- ✉ nainitsavla@savlagroup.in
- 🏢 Baner Business Bay, Pune | Mon–Sat 10AM–7PM