Introduction

A Tax Audit under Section 44AB of the Income Tax Act is mandatory for businesses and professionals who cross specified turnover or gross receipt limits. The audit requires reporting in Form 3CD, along with either Form 3CA or Form 3CB, depending on the type of assessee and whether statutory books are already audited under another law.

These forms ensure transparency, accuracy of financial information, and compliance with income tax requirements.

In this guide, Bisways Consulting Group explains the purpose of these forms, when they apply, and how tax audit reporting is carried out.

What Is Form 3CD?

Form 3CD is a detailed audit report containing 44 clauses that summarise:

• Financial particulars

• Disallowances under Income Tax

• TDS/TCS compliance

• Related-party transactions

• Depreciation

• Inventory valuation

• Loan and borrowing details

• GST reconciliations

• Cash payments and receipts (Rule 6DD)

It is the core document of a tax audit and must be certified by a Chartered Accountant.

What Are Form 3CA and Form 3CB?

The tax auditor attaches Form 3CD to either Form 3CA or Form 3CB, depending on the entity type.

Form 3CA

Used when the assessee’s accounts are already audited under another law, such as:

• Companies (under Companies Act, 2013)

• LLPs (under LLP Act, if crossing audit limit)

• Societies and Trusts (under respective laws)

Form 3CB

Used when the assessee’s accounts are not audited under any other law, such as:

• Individual businesses

• Partnership firms

• Professionals

• Small enterprises

Both forms serve as cover letters for Form 3CD.

Who Is Required to Undergo Tax Audit Under Section 44AB?

Tax audit applies to:

1. Businesses

• If turnover exceeds ₹1 crore, or

• ₹10 crore where 95% digital transactions condition is met

2. Professionalss

• If gross receipts exceed ₹50 lakh

3. Persons opting out of Presumptive Taxation

Under Sections:

• 44AD

• 44ADA

• 44AE

Key Clauses in Form 3CD

A tax auditor verifies these sections thoroughly based on books and supporting records.

Step-by-Step Tax Audit Filing Process

Step 1: Preparation of Financial Statements

Collect profit & loss statement, balance sheet, ledgers, and trial balance.

Step 2: Review of Books by Auditor

Auditor reviews accuracy, internal controls, and compliance.

Step 3: Filling Form 3CD

Auditor enters detailed information across 44 clauses.

Step 4: Choose Form 3CA or 3CB

Based on whether statutory audit exists.

Step 5: Upload on Income Tax Portal

Auditor uploads the forms using DSC.

Step 6: Assessee Approval

The taxpayer must accept and approve the form digitally.

Common Issues Found During Tax Audit

• Incorrect depreciation calculation

• Cash transactions violating Section 40A(3)

• Mismatch between GST turnover and books

• Incomplete TDS deduction or late filings

• Undisclosed related-party transactions

• Unreconciled bank statements

• Errors in stock valuation

Why Tax Audit Matters

• Ensures accuracy of income reporting

• Avoids tax disallowances and penalties

• Helps maintain clean business records

• Strengthens credibility with banks and investors

• Prevents non-compliance under GST and Income Tax

• Supports transparent governance

Conclusion

Tax Audit under Section 44AB plays a vital role in maintaining transparent financial reporting and legal compliance. Whether filed through Form 3CA or Form 3CB, the core audit report in Form 3CD helps businesses identify risks, correct errors, and prepare accurate financial statements.

Bisways Consulting Group provides end-to-end tax audit support, from preparing accounts to filing Forms 3CA/3CB and 3CD on the Income Tax Portal — ensuring timely and compliant reporting.