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July 3, 2020

Know Tax Audit Limit for FY 2019-20 and FY 2020-21 for Business and Profession

by Mahesh Mara in Income Tax

Know Tax Audit Limit for FY 2019-20 and FY 2020-21 for Business and Profession

The Finance Act 2020 has made some major changes in tax audit provision leading to changes in threshold limit. Tax audit is governed by section 44AB of the Income tax act. As per section 44AB a person is required to conduct compulsory audit of books of accounts if the turnover or gross receipts of business or profession crosses the threshold limit. In this article we are going to discuss about the various changes made by the Finance Act 2020 under section 44AB applicable for Financial Year 2019-20, Assessment Year 2020-21 and Financial Year 20-21, Assessment Year 2021-22

What is the threshold limit under section 44AB?

The Finance Act 2020 has made amendment in the threshold limit of tax audit under section 44AB. The tax audit limit under section 44AB is as under:

  • Where the person is carrying on business shall and his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds Rs. 1 crore in any previous year is liable for ax audit.
  • As per amendment made by Finance Act 2020, where the person is carrying on business and fulfills below conditions than threshold limit for tax audit shall be increased to Rs. 5 Crores:

 (i)  aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent of the said amount; and

(ii)  Aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent of the said payment.

(c) In case the person is carrying on profession than he shall be liable for tax audit if his gross receipts in profession exceed Rs. 50 lakh in any previous year.

(d) Where the person is carrying on the business shall and is opting for presumptive taxation scheme under the following provisions:

(i) Section 44AD: Presumptive taxation in case of business

(ii) Section 44ADA: Presumptive taxation in case of Profession

(iii) Section 44AE: Presumptive taxation in case of business of plying, hiring or leasing goods carriages

(iv) Section 44BB: Presumptive taxation in case of shipping business in case of non-residents

(v) Section 4BBB: Presumptive taxation in case of business of exploration of mineral oil etc.

And assesse has claimed income lower than the deemed profits to be required to show under the head profits and gains of business, as the case may be, in any previous year then he is liable for tax audit.

(e) Where person is carrying on the business shall, and the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the basic threshold limit which is not chargeable to income-tax in any previous year then he is liable for tax audit.

The above provision can be summarized as follows:

In case of person engaged in business and opting for presumptive taxation under section 44AD:

Turnover limit for the previous yearAmount of profit with respect to turnover (in %)Whether cash receipts less than 5% of the TurnoverWhether cash payment less than 5% of the total paymentIs Tax audit Applicable?
More than 5 CroresNot applicableNot applicableNot applicableYes
More than 2 crore but upto 5 CroreNot applicableYesYesNo
More than 2 crore but upto 5 CroreNot applicableNoNoYes
More than 1 crore but upto 2 CroreMore than 8% or 6% of TurnoverNot applicableNot applicableNo
More than 1 crore but upto 2 CroreLess than 8% or 6% of TurnoverNot applicableNot applicableYes
Less than 1 CroreMore than 8% or 6% of TurnoverNot applicableNot applicableNo
Less than 1 CroreLess than 8% or 6% of TurnoverNot applicableNot applicableYes

In case of person engaged in business and opting for presumptive taxation under section 44ADA:

Turnover limit for the previous yearAmount of profit with respect to turnover (in %)Is audit Applicable?
More than 50 LakhsNot applicableYes 44AB(b)
Upto 50 LakhsMore than 50%No
Upto 50 Lakhsless than 50% (sec 44ADA)Yes 44AB(d)

Note:

  • If total income exceeds basic exemption limit only then tax audit is applicable.
  • Where the assesse is covered under section 44AB then he is required to get the books of accounts audited by a Chartered Accountant.
  • The tax audit report should be furnished in form 3CB CD, where the report of the tax audit conducted by the chartered accountant is to be furnished in Form No. 3CB and the details of audit are to be reported in Form No. 3CD.
  • The due date of tax audit is 30th September of the Assessment year. Due to Covid-19 situation in the country, the government through press conference dated May 13, 2020 announced that the tax audit report due date has been extended from September 30, 2020 to October 31, 2020.
  • In case the assesse is liable for tax audit and he fails to conduct audit of books of accounts than he is liable for a penalty of lower of the below two:
    • 0.5% of the turnover or gross receipts, or
    • Rs. 1,50,000.

Clause


44AB(a) Business Turnover Exceed 1 crore
44AB(b) Professional Gross receipt exceed 50 lacs
44AB(c)‐i Income less than Deemed income u/s 44AE
44AB(c)‐ii Income less than Deemed income u/s 44BB
44AB(c)‐iii Income less than Deemed income u/s 44BBB
44AB(d) for section 44ADA
44AB(e) for section 44AD
44AB(3) Audited under any other law

Bare act portion of the section:

44AB. Every person,—

(a)  carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year 

[Provided that in the case of a person whose—

(a)  aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent of the said amount; and

(b)  Aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent of the said payment, this clause shall have effect as if for the words “one crore rupees”, the words “five crore rupees” had been substituted; or]

(b) Carrying on profession shall, if his gross receipts in profession exceed fifty lakh rupees in any previous year; or

(c)  Carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or

(d)  Carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year; or

(e)  Carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year, get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed:

Provided that this section shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD and his total sales, turnover or gross receipts, as the case may be, in business does not exceed two crore rupees in such previous year:

Provided further that this section shall not apply to the person, who derives income of the nature referred to in section 44B or section 44BBA, on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later :

Provided also that in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section.

Explanation.—For the purposes of this section,—

(i)   “accountant” shall have the same meaning as in the Explanation below sub-section (2) of section 288;

(ii)  “specified date”, in relation to the accounts of the assessee of the previous year relevant to an assessment year, means 91[date one month prior to] the due date for furnishing the return of income under sub-section (1) of section 139.

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