A tax audit under Section 44AB of the Income-tax Act is required when specified turnover or receipt thresholds are crossed, or when an assessee opts for a presumptive scheme and later reports income below the prescribed rate. The tax auditor examines the books of account and reports prescribed particulars in Form 3CD, together with Form 3CA or Form 3CB, as applicable.
The review covers the method of accounting, quantitative details, loans and deposits, payments attracting TDS, amounts inadmissible under sections such as 40 and 40A, prior-period items, GST reconciliation with the profit and loss account, and other clauses of Form 3CD as notified for the relevant assessment year. Differences between books and tax computation — including ICDS adjustments, depreciation as per the Income-tax Act, and disallowances — are identified and explained in the report.
Documentation typically includes trial balance mapping, ledger scrutiny, TDS traces, GST turnover comparison, and working papers for each applicable clause. The signed report is uploaded on the income-tax portal within the statutory due date. A complete tax audit file reduces the chance of defective-return notices and gives the assessee a clause-wise record of how book profits were converted into taxable income.
Where the same entity is also subject to a statutory audit, the tax audit is coordinated with that engagement so that figures, inventory valuations, and related-party disclosures remain consistent across both reports.