Income Tax Audit Limit and other provisions under Income tax: According to Section 44AB of the Income Tax Act, an Income tax audit is an examination and review of the financial records of a taxpayer who receives income from a business or profession. The taxpayer must appoint Practicing Chartered Accountant for conducting Income Tax Audit. The Practicing CA would make sure that the books of accounts had been maintained appropriately and will give his observations. There are different criteria for the applicability of Tax Audit under Income Tax Act, 1961
Who is required to do Income tax audit under section 44AB for FY 2022-23?
According to section 44AB, following persons are compulsorily required to get their accounts audited:
- Business: When total sales, turnover or gross receipts in business exceed Rs 1 crore and person has not opted for section 44AD.
Note: This Rs 1 crore limit is increased to Rs 10 crores in case when cash receipt and payment made during the year do not exceed 5% of total receipt or payment. In other words, more than 95% of business transactions should be done through banking channels.
- Profession: When gross receipts in profession for the year exceed Rs 50 lakhs.
- A Person who has opted Section 44AD last year and he declares profit less than 8% or 6% in the current year and his income exceeds the amount which is not chargeable to tax.
- A Person who has opted Section 44ADA last year and he declares profit less than 50% in the current year and his income exceeds the amount which is not chargeable to tax.
- A Person who has opted Section 44AE last year and he declares profits and gains computed as per the presumptive taxation scheme of sections 44AE and his income exceeds the amount which is not chargeable to tax.
- A person who is eligible to opt for the taxation scheme prescribed under section 44BB or section 44BBB but he claims the profits or gains for such business to be lower than the profits and gains computed as per the taxation scheme of these sections.
What is the new limit for Income tax audit?
From FY 2023-24, the presumptive taxation limit for section 44AD is increased is increased from Rs 2 crore to Rs 3 crore and taxation limit for section 44ADA is increased from Rs 50 lakh to Rs. 75 lakh, if their cash receipts during the fiscal year are less than 5% of total gross receipts or turnover. These changes are applicable from April 1, 2024, and will apply to assessment years 2024–25 and onwards.
Therefore, the new limit for Tax Audit under section 44AB of Income Tax Act, 1961 as follows:
|Previous limits till FY 2022-23
|Revised limits from FY 2023-24
|Sec 44AD: For small businesses
|Rs. 2 crore
|Rs. 3 crore*
|Sec 44ADA: For professionals like doctors, lawyers, engineers, etc.
|Rs. 50 lakh
|Rs. 75 lakh*
*The increased limits are subject to a condition that the 95% of the receipts must be through online modes.
What is section 44AD?
Presumptive taxation scheme of taxation for businesses is covered under section 44AD of the income tax act. Any business which has a turnover of less than Rs 2 crore can opt to be taxed presumptively. They must declare profits of 8% for non-digital transactions or 6% for digital transactions, whichever one is applicable. The following businesses are excluded from presumptive taxation:
- Life insurance agents
- Commission of any kind
- Business of plying, hiring or leasing goods carriages
What is the tax audit applicability for companies?
A tax audit is mandated for all companies, limited liability partnerships (LLPs), and individuals whose turnover crosses a particular threshold limit. Taxpayers who get their accounts audited under any other law do not have to get their accounts audited again for a tax audit until their turnover crosses the specified limit.
What is the due date of Income Tax audit?
The last date for filing the tax audit report with the income tax department is September 30 of the relevant assessment year. The due date for filing ITR of audited assessee is 31st October.
What is the tax audit report form?
The tax audit report has to be furnished in the forms prescribed below:
|Category of Taxpayer
|Form for Audit Report
|Annexure to Audit Report
|If the books of account of the assessee are required to be audited under any other law
|In any other case
Form No. 3CA/3CB is a format of audit report, whereas Form 3CD is a Statement of particulars required to be furnished under Section 44AB of the Income-tax Act.
If the assessee is required to get his books of accounts audited under any other law, it is sufficient for him to get his accounts audited under that law and furnish a report of such audit and a report in form 3CA and 3CD by a Chartered Accountant by the prescribed due date.
Can the professionals takes the benefit of Rs. 10 Crore for the tax audit turnover criteria?
Clause (a) of Section 44AB talks about a person carrying on a business, whereas clause (b) talks about a person carrying on a profession. The proviso to Section 44AB providing the enhanced turnover limit of Rs. 10 crores for the tax audit is placed below clause (a) to Section 44AB. Thus, the persons engaged in the profession are not entitled to claim an enhanced turnover limit of Rs. 10 crores for the tax audit.
What is the penalty for tax audit 44AB?
In case the Income Taxpayer is liable for Income tax & that person fails to Complete Tax audit of Firm books of accounts than he is responsible for a payment of penalty of lower of the below two:
- Rs. 1,50,000. or
- 0.5 percentage of Total receipts.
No Penalty for Failure of Tax Audit U/s 271B in case of Reasonable Causes with Case Laws. If the tax audit report is not submitted on time or before the deadline, no penalty under section 271B will be enforced. The provisions of section 271B must be applied, however, if the audit report is not submitted by the deadline. No Penalty for Failure of Tax Audit under section 271B of the Income Tax Act,1961 in case of Reasonable Causes shown.
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