Tax Audit Applicability u/s. 44AB of Income Tax Act, 1961

Tax Audit Applicability u/s. 44AB of Income Tax Act, 1961

1. Before 2016, the turnover limit for sec 44AB and Sec 44AD were identical. Thereafter, in Budget 2016, the turnover limit for Sec 44AD has been raised to INR 2 Cr from INR 1 Cr, while no such change has been made in Sec 44AB(a) in this regard. Hence, they intact the turnover limit of INR 1 Cr for the assesses, other than eligible assesses for sec 44AD. This situation creates inconsistency.

2. Further, in Budget 2020, Govt introduces one more slab of turnover of INR 5 Cr for the person, whose aggregate of all amount received (incl sales/turnover/gross receipts) AND aggregate of all payments made (incl expenditure), in Cash, in P.Y, does not exceeds 5% of such payments.

3. After proposed changes in Sec 44AB, it would read as follows;

44AB. Every person, –

  • 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; or

‘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 percent. 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’;

  • carrying on profession _____________
  • ____________________

Now practically, there are 3 slabs of turnover for the business class assesee. After considering all factors, we can summaries the combined reading of Sec 44AB and Sec 44AD as follows:

a. INR 1 crore: Every person – for turnover up to Rs. 1 crore NOT liable to Audit u/s. 44AB. (But eligible assessee engaged in eligible business u/s. 44AD, declare profit less than 8% / 6% can not opt for section 44AD and liable to audit u/s. 44AB if his income exceeding the maximum amount not chargeable to tax, even though turnover less than 1 crore (includes Individual, HUF, Firm but exclude LLP).

b. INR 2 crore: Every person other than eligible for section 44AD and a person who does not qualify, conditions prescribed for turnover limit of INR 5 crores are liable to audit, if turnover exceeds INR 1 crore (Eligible assessee engaged in an eligible business as per section 44AD, for turnover up to INR 2 crores, have still an option to show profits of 8% / 6% for continue 5 assessment years to avoid audit u/s. 44AB).

c. INR 5 crore: A person, whose aggregate of all amount received (inc. Sales, turnover, gross receipts) AND aggregate of all payments made (including expenditure), in cash in previous financial year, does not exceed 5% of such payments, are straight way not liable to audit up to turnover limit of INR 5 crores.

4. Changes in due dates:

The due date for filing return of income under section 139(1) is proposed to be amended by providing 31st October of the assessment year (as against 30th September) as the due date for an assessee referred to in clause (a) of Explanation 2 of sub-section (1) of Section 139 of the Act.

– Tax Audit Report to be filed 1 month prior to the due date applicable for filing the return of Income.

– Accordingly, the due dates for filing of Tax Audit reports to be 30th September.

– Corresponding changes have been proposed in various sections which require filing of mandatory certificates / reports in order to align aforesaid timeline.

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