It is mandatory for the above taxpayers to file tax audit reports by the deadline. The due dates are also listed above. The assessee is liable to pay a penalty for late filing or non-filing of tax audit report if he fails to submit the audit report. Now we need to ask how much penalty is imposed for non-filing of the tax audit report. The penalties for not filing a tax audit report are listed below.
Penalty for Delay or Non-Filing of Audit Report
If a tax audit is not done, the penalty is the lesser of the following:
- 0.5% of the total sales, turnover, or gross receipts.
- Rs. 1,50,000 (One lakh fifty thousand Rupees).
In simple terms, if you are required to have a tax audit but don’t do it, you will face a penalty, and this penalty will be either 0.5% of your income or Rs. 1,50,000, whichever is lower.
Other Consequences of Not Filing a Tax Audit Report in India
1. Deduction Disallowance
– Failing to submit a Tax Audit Report can lead to disallowances of claimed deductions and expenses.
– This may inflate taxable income, resulting in a higher tax liability.
2. Accrued Interest on Outstanding Taxes
– Non-compliance with Tax Audit Report requirements can result in a higher income tax liability.
– Consequently, taxpayers may be subject to interest charges under Sections 234A, 234B, and 234C of the Income Tax Act.
– These interest charges apply to overdue tax payments.
3. Legal Proceedings
– Non-adherence to tax audit obligations can trigger legal proceedings initiated by the Income Tax Department.
– These proceedings can be protracted and may lead to the imposition of additional penalties and fines.
4. Future Compliance Challenges
– Failure to meet tax audit requirements can adversely affect the taxpayer’s compliance standing with the Income Tax Department.
– This could lead to heightened scrutiny, more frequent audits, and an increased likelihood of future investigations.
5. Reputation Impact
– Businesses that neglect Tax Audit Report submission may incur damage to their reputation and credibility.
– Stakeholders, including clients, suppliers, and investors, may lose confidence in the business.
6. Added Compliance Complexity
– Not filing the Tax Audit Report introduces an extra layer of compliance complexity for taxpayers.
– Eventually, taxpayers will need to rectify their tax filings, a process that can be intricate and time-consuming.
6 Most Common Questions on Tax Audit – All Clarified
Acceptable Reasons for Exemption from Tax Audit Penalties
Section 271B: Reasonable Cause: Exceptions are allowed under the law. If there is a reasonable and justifiable cause for not completing the tax audit or for any delay in doing so, then no penalty will be imposed. You will not be penalized if you miss the tax audit deadline because of an understandable and legitimate reason.
- Accepted Reasonable Causes: Tax authorities have recognized several situations as valid reasonable causes. These include:
- Natural Calamities: If there was a natural disaster, like a flood, earthquake, or any other event beyond your control, that prevented you from completing the tax audit, it’s seen as a reasonable cause.
- Resignation of the Tax Auditor: If your tax auditor resigned, and this led to a delay in conducting the audit, it’s considered a reasonable cause. This situation is not under your control.
- Labour Problems (Strikes or Lock-outs): If there were prolonged strikes or lockouts in your business or profession, and these disruptions caused a delay in the audit process, it’s considered a reasonable cause. You can’t be held responsible for labour disputes.
- Loss of Accounts: If your financial records were lost or damaged due to situations beyond your control, such as a fire or theft, and this prevented you from conducting the audit, it’s seen as a reasonable cause. These events are outside your ability to prevent them.
- Physical Inability or Death of the Accountant: If the person responsible for maintaining your accounts becomes physically unable or passes away, and this results in a delay in the audit, it’s considered a reasonable cause. You can’t control such circumstances.
Section 44AD: Relief from Tax Audit and Bookkeeping
In summary, if you can provide a valid reason falling into one of these accepted categories for not completing a tax audit or for any related delay, you won’t be penalized under Section 271B of the Income Tax Act. The law recognizes that certain situations are beyond your control, and you shouldn’t be penalized for them.