In the current union budget, the Finance Minister has increased the limit for the essential audit Under Section 44AB of the Income Tax Act, 1961 to Rs 10 Crores towards the 95% or exceeding transactions are accomplished through the digital mode. The major goal behind this is to diminish the compliance loads on small businesses and to simplify the process of executions of the businesses. But there are some drawbacks if an increase in these limitations would get executed and in this article, we would discuss those subjects.
Latest Update in Income Tax Section 44AB
27th July 2022
- ITAT Delhi state bench deleted the penalty and ruled that non-compliance with income tax section 44AB of the IT Act, 1961 can pardonably condition if it was committed without the intention of dishonesty. Read more
Several Issues in Income Tax Scrutiny
Audit report under Section 44AB of Income Tax Act with years furnishes the basic document to the income tax dept towards opting for the cases towards the examination beneath several provisions of the income tax. For instance, mentioned under sections 269SS and 269ST. These two sections function with the receipts and the payment of the unsecured loans. Several clauses in which the compliance with these two sections are needed to get reported inside the audit report under section 44AB. The second instance would be reporting of the compliance through the ESIC and PF laws, calculation of depreciation, and others. All these rules are the portion of these subjects for choosing cases for the scrutiny assessments.
TDS dept officers depend on the audit report beneath section 44AB to make sure that if the particular deductor has yielded with the relevant TDS laws or not. But from now the need to audit has surged many small and medium-sized businesses would not undergo the new provision and thus their account does not get audited. Thus both the income tax and the TDS dept need to amend their ways to select the cases for scrutiny.
For the cases in which the audit report under section 44AB is available the questions inside the scrutiny notices roam near the reporting performed in the same. But that would not be available and the questions inside the scrutiny notices increase and that in turn draws much more load on the taxpayers.
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The individual would question now that the firms are still needed to get their accounts audited and thus need to care about the reporting gaps made because of the revisions in Section 44AB via Independent Auditor’s Report under companies act. However, the companies act would not be applicable to the entities excluding the companies. Thus the reporting gaps inside those entities would not be specified.
Non-compliance Reporting in ITR Forms
Despite posing no audit report Under Section 44AB of the Income Tax Act, 1961 but there are adequate provisions built inside the ITR forms in which the compliance along with different provisions of the income tax act is needed to be stated and thus reporting of the non-compliances would get assured in ITR forms.
The assessee does report in Income tax return forms and it relied on the taxpayer’s morality. If the specific reporting draws another load of more tax on the assessee then there might be a chance that he might prevent reporting that in the ITR and since the audit report under section 44AB does not need to apply there is no tool to validate the contents reported through the assessee.
Tax Compliance Commitment
From the past years, the taxpayers would ensure compliance through different provisions of the income tax law so that they would prevent getting qualifications in the audit report Under Section 44AB. But from now on there is less number of small and medium-sized businesses which need to get their accounts audited. Their commitment to the laws is not as much higher as it seems to be when their accounts were audited.
For instance, this non-compliance can be in compliance with the TDS provisions. Before that business owners used to follow the TDS provision since the audit report under section 44AB undergoes these compliances and non-adherence to them used to get qualifications.
Confidence Loss in The Financial Statements
The revenue of the state would not get affected on finishing the important needs of getting the accounts audited however this would indeed reduce the confidence of the users of the financial statements who depend on the financial statements to learn about the business.
The business owners need the capital to run the businesses. This need would be the working capital or the long-term funding. The business entities whenever they urge the lender for capital needs then lender asks about the audited financial statements of the entity. The major cause for questioning is that it provides assurance to the lender that the entity has been performing the legal business the funds which are furnished via lender would be used for legal meanings.
As the audited financial statements would not be available thus the lender would get more suspicious towards the business of the entity and would need them to furnish much more information so that they could satisfy themselves for the legality of the individual business and about the need of the funds. The same would build much more issues for the business owners and would make their funding late.
Moreover, the government department indeed comes under the users of the financial statements. Towards verification, they depend on the audited financial statements to obtain the view of the entity’s transactions. But because of the non-availability of the audited financial statements, there would be fear upon the entity and to prevent the fear the investigative officers would need to do the deep investigation that laid much more burden on the council.
Closure:
However, the purpose of the government for surging the limit Under Section 44AB of the Income Tax Act, 1961 has to diminish the compliance load and to furnish the simplicity of performing the businesses but whether it is enabled to get the goal or not would be revealed in the subsequent years.
Moreover, the mentioned relief would be effective only when both the assessee and the taxmen furnish their tasks with honesty without being impartial to each other.
