Tuesday, 30 March 2021

Tax Audit (sec 44AB) limit for Business is 1 Cr / 2 Cr / 5 Cr in FY 2020-21 / AY 2021-22? Here is the answer

 
What is Audit ?

Audit means an inspection of books of accounts by some officials or some specified persons for the purpose of establishing the fact that the accounting records present a true and fair view.

Types of Audit

There are two types of audit, namely Statutory audit and Tax audit.

What is Statutory Audit ?

Statutory audit is a compulsory audit for a Company governed by Companies Act, a Trust governed by Trust Act, Bank by RBI Act etc. by an external auditor to examine full accounting records of the organization.




What is Tax Audit ?

A Tax Audit is an audit, made compulsory by the Income Tax Act, if the annual gross turnover/receipts of the assessee exceed the specified limit. Tax audit is conducted in Sec 44AB of the Income Tax Act by a Chartered Accountant. Simply Tax Audit means, an audit of matters related to tax.

Limits of Tax Audit (Sec44AB) under Income Tax Act

According to Section 44AB of the Income Tax Act 1961 (updated up to 2020) the Tax Audit limit for

Click here to go to the official website of Income Tax Department to read Sec 44AB in details

Business :

Rs. 1 Crore. It means an assessee need to be audited under Sec.44AB if his annual gross turnover/receipts in business exceeds Rs. 1 Crore. This provision is applicable from F.Y. 2016-17 (A.Y. 2017-18) & onwards. It means the limit of Tax Audit u/s 44AB is Rs. 1 Cr. for Business in FY 2020-21 / AY 2021-22

Profession :

Rs. 50 Lakh. It means an assessee need to be audited under Sec 44AB if his annual gross receipts in profession exceeds Rs. 50 Lakh. This provision is applicable from F.Y. 2016-17 (A.Y. 2017-18) & onwards. It means the limit of Tax Audit u/s 44AB is Rs. 50 Lakh for Profession in FY 2020-21 / AY 2021-22.


What is Presumptive Taxation Scheme (Sec 44AD) for Business ?

Sec 44AD provides special provision for computing profits and gains of Business on presumptive basis. You need not to maintain proper accounting. Your Net Income is estimated to be @ 8% of your gross receipt/turnover. From F.Y. 2016-17 onwards, net income is calculated as @ 6% of gross receipts are received through digital mode of payments and @ 8% of gross receipts are received in cash.

Businesses, whose annual gross turnover/receipt does not exceeds Rs. 2 Crore are eligible for this scheme.

Click here to go to the official website of Income Tax Department to read in details about Sec 44AD

You need to file ITR 4 (previously ITR4S up to F.Y. 2016-17) in F.Y. 2020-21 to avail these scheme.

 
What is Presumptive Taxation Scheme (Sec 44ADA) for Profession ?
 
Sec 44ADA provides special provision for computing profits and gains of Profession on presumptive basis. You need not to maintain proper accounting. Your Net Income is esteemed to be @ 50% of your gross receipt/turnover. 

Professionals, whose annual gross turnover/receipt does not exceeds Rs. 2 Crore are eligible for this scheme.

 
You need to file ITR 4 (previously ITR4S up to F.Y. 2016-17) in F.Y. 2020-21 to avail these scheme.
 
Now a big controversy arises, 

My Income from business exceeds Rs. 1 Crore but below Rs. 2 Crore in F.Y. 2020-21 (A.Y. 2021-22). Do I need to audit under section 44AB ?

It depends on several things, such as
  •  If you are a Commission agent, Company or L.L.P., then you need to audit u/s 44AB as you are not eligible for sec.44AD. So, you need to be audited u/s 44AB.
  • If you are a resident in India and you are an Individual / HUF / Partnership firm, then if your annual gross turnover exceeds Rs. 1 Crore but below 2 Crore, you need to calculate your Net income u/s44AD and file ITR 4 in F.Y. 2020-21 (A.Y. 2021-22) to avoid tax audit. Remember your Net Income should not below @8%.
  •  If your Net income is below @8% of your annual gross turnover/receipt, then you must be audited u/s 44AB even if your gross turnover is below 1 Crore.
  • If you are eligible for sec. 44AD but want to declare income less than 8% or not want to claim benefit of sec 44AB then you should be audited u/s 44AB.

According to CBDT Press release regarding clarification on threshold limit of tax audit u/s 44AB and u/s 44AD, 


"Section 44AB of the Income-tax Act (‘the Act’) makes it obligatory for every person carrying on business to get his accounts of any previous year audited if his total sales, turnover or gross receipts exceed one crore rupees. However, if an eligible person opts for presumptive taxation scheme as per section 44AD(1) of the Act, he shall not be required to get his accounts audited if the total turnover or gross receipts of the relevant previous year does not exceed two crore rupees. The higher threshold for non-audit of accounts has been given only to assessees opting for presumptive taxation scheme under section 44AD."


Click here to read CBDT press release on 20.06.2016

Can anyone declare higher income i.e. income above 8% under Presumptive Income Scheme (44AD)?

Yes, you can declare higher income (>8%) under sec 44AD. But income should not below 8%.


So in simple words, If your annual gross turnover/receipts from business exceeds Rs. 1 Crore, you need to be audited u/s 44 AB. But you may avoid tax audit u/s 44AD if your annual gross turnover/receipt is below 2 Crore. 

You may also read 

133 comments:

  1. hi.. I am a salaried person earning a salary and also do some trading in share market. In year 17-18, i had some loss in share trading (about 18000). My turnover in share trading business is about 46,00,000 (less than 1 crore). My net taxable income works out to be around 2,96,000. do i have to get my accounts audited (charges are prohibitively high). Please explain..

    ReplyDelete
    Replies
    1. If Profit (Loss in this case) is less than 8% of turnover, therefore tax audit u/s 44AB is applicable.

      Delete
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      Delete
  2. Tax audit threshold limit in AY 18 19

    ReplyDelete
    Replies
    1. 1 Cr for Business u/s 44ab and 50 Lakh for Profession u/s 44ab.

      Delete
    2. Dear Soumya
      Business = pvt ltd too ?
      Profession = salary or consulting as proprietor??

      Thanks

      Delete
    3. Dear Soumya
      Business = pvt ltd too ?
      Profession = salary or consulting as proprietor??

      Thanks

      Delete
    4. Yes, the term 'business' includes pvt ltd.

      Profession includes both Salary and consulting as proprietor.

      Delete
  3. what In case of a partnership firm if the turnover is less than 1 Crore & if there's no net profit but in fact there's a loss. so then what is to be done in that case.....??

    * do we need to get audit the books of accounts U/s 44AB as we are declaring below 8% net profit

    * also is it that Sec.44AD gets attracted only if in case of Turnover Between 1 Cr. to 2 Cr...... & if Turnover is below 1 Cr. can the profit be below 8% & also no need to get accounts audited.....???

    Please throw light on this issue am a bit confused. Thanks in advance

    ReplyDelete
    Replies
    1. * Tax audit u/s 44AB not required in case of loss

      * Tax audit u/s 44AB is required if net profit is below 8%

      * Tax audit u/s 44Ab is required if net profit is below 8%, even if the turnover is below 1 cr.

      Delete
  4. i also have am immense confusion in case of the recent amendment towards dis-allowance of Partners Remuneration & Partners Capital Interest for the purpose of calculating 8% Net Profit U/s 44AD.

    Previously (i.e. before amendment to section 44AD) it was very simple (Capital Interest + Partners Remuneration + net profit ) should be = 8% of total turnover that's it simple, it wub be considered as perfect compliance of 8% criteria for Sec. 44AD.
    And when in individual assessment's of the respective partners of the firm, there respective share's of Partners salary + Interest would be assessed to tax, fair enough

    But post amendment all the confusion started....the provision says 8% net profit before capital interest & salary....

    Confusion No.1}. In Case of Partnership Firm when we declare 8% profit u/s 44AD which means before Partners Remuneration & Interest, then which means no deduction to firm in form of Capital Salary & Capital Interest & pay more tax @ 30.30% on net profit.

    But won't this be in contravention of the partnership act where in P'ship deed we would have drafted as in case of profit the firm shall be entitled to partners salary & interest, but even then the firm earning profit we aren't deducting interest & salary is it oky with that how to present it in books of accounts.






    ReplyDelete
  5. Whether we have to comply with sec. 44AB for five consecutive years?

    ReplyDelete
  6. I have turnover of 18 lakh.loss of 1.68 lakh,do i need tax audit

    ReplyDelete
  7. For
    Transportation business Owning more than 10 vehicles and annual Turn over/Gross Receipt More Than 1 crore but Less 2 crore.
    My Question are as Follow:
    1. Tax Audit Is applicable or Not?
    2.Type of ITR form is Applicable?
    3.Books of Account required to be audited or not?

    ReplyDelete
  8. Hi sowmya you mean to say that if a person is under presumtive scheme no need of tax audit even you cross 1 crore limit of gross turnover

    ReplyDelete
    Replies
    1. Please read the whole article, also checkout the links of official website regarding this matter.

      Delete
    2. I have few clients their main business is running micro ATM ( IDFC,finno payment) mean who need money without approaching bank & ATM withdraw money from micro ATM for such transaction micro ATM ( merchant) charge RS 20 per 1000 rupees
      Apart from this micro ATM owner get commission from ( IDFC , finno payment) that is aroundly 22 to 25 rupees per 1 lakh
      My doubt here is how to show my client income in ITR
      Would plz explain me this ony one sir ???????
      My client did transaction 10000000 (1cr) through bank
      Is there tax audit applicable to him

      Delete
  9. Turnover 3 lakh and loss 30 thousand is audit mandatory ?

    ReplyDelete
  10. Hi Saumya. I have income only from Bank Deposit and bit of trading in share trading. Last year I had done couple of intraday trades (no F&O), rest all delivery based trading but with all gains are under STCG category. I had purchased shares of Rs. 1,22,850, sold them at Rs. 1,29,860, net STCG was Rs. 7010. All these are cumulative numbers for FY17/18. If I club purchase and sell value, my turnover is Rs. 2,52,710 which makes my returns just 2.77%. On your blog, you have mentioned that “If your Net income is below @8% of your annual gross turnover/receipt, then you must be Tax audited u/s 44AB even if your gross turnover is below 1 Crore”. (There is no lower limit mentioned.) So do I need to do Tax Audit? If answer is ‘Yes’ then can I declare more STCG to cross this 8% boundary, in order to avoid further headache? Appreciate your answer & guidance. Thank you.

    ReplyDelete
    Replies
    1. Gross Turnover means Gross receipts from business or profession (i.e. sale value in case of business). You said that you sold your shares at Rs. 129,860, then your gross turnover is 129,860.

      Delete
    2. Well, Thank you for your response & correction. But you did not answer my main question.

      "Do I need to get Tax Audit done? If answer is ‘Yes’ then can I declare more STCG to cross this 8% boundary, in order to avoid further headache?"

      Appreciate your answer & guidance. Thank you

      Delete
  11. If you want to avoid tax audit, you may declare more STCG to cross 8% boundary.

    ReplyDelete
    Replies
    1. Thank you Soumya. I appreciate your response.

      Delete
  12. Hai Good Morning,

    One of our client have running textile trading business at tamilnadu, his turnover is near by 12.25lakhs per annum, and net profit is 43270/- loss....shop is running loss so how we have to do TAx audit? tell me for your sugguestions

    ReplyDelete
  13. Dear soumya I am a saried person and doing Intraday trading in equity and FNO and having turnover of 18 lakh and have loss of around 36 thousands should I require audit for filling itr3.

    ReplyDelete
  14. If our turnover in business(in the capacity of Individual, HUF & partnership) does not exceeds Rs. 1 Crore and our Net profit in books is less than 8% then we can still avoid Tax Audit u/s 44AB by declaring income u/s 44AD. Isn't it?

    ReplyDelete
    Replies
    1. You should declare profit above 8% in 44AD.

      Delete
  15. Even please explain 44AB if our turnover doesn't exceeds Rs. 1 crores because i think it isn't written anywhere that you need to get your accounts audited u/s 44AB if your turnover doesn't exceeds Rs. 1 crores and your N.P % is less than 8. Please explain to the earliest. Thanks in advance.

    ReplyDelete
    Replies
    1. If you want to declare profit below 8%, then your accounts should be audited

      Delete
    2. Nishant Verma u r right. U can avoid Tax Audit by showing gross income less than basic exemption limit.

      Delete
  16. I m a salaried person doing FNO txns. Last Ft I incurred loss of 20000 with turnover of Rs 320000. Is Audit nessary for me if file ITR 3 and claim losses against my interest income. Pl reply.... N k Sharma

    ReplyDelete
  17. Saumya ji, whether his 2cr imit.ia.applicable to sec 44AE (playing & hiring of transport vehicle)...

    ReplyDelete
  18. * sorry fir spellings ..

    Saumya ji, whither this 2cr limit is applicable to sec 44AE (playing & hiring of transport vehicle) busimess?...

    ReplyDelete
  19. whether Sec 44AD is applicable in case of loss

    ReplyDelete
  20. As all transactions were done through banking system so why 8%? Why not 6%
    And in case of capital gain section 44AB does not apply, it only apply in case of business income

    ReplyDelete
    Replies
    1. You are absolutely right, but already I mentioned this matters in my article.

      Delete
  21. i am F&O trader in equities my turnover is above 1 Crore but my taxable income is below 2 lakhs further i have incurred a loss of 25 lakhs i have to tax audit or not, if audit not required then already for efiling lapsed can i audit my book of accounts & file ITR before 30.09.18 for the benefit of carry forward my losses

    ReplyDelete
  22. Dear Mr. Soumya
    Your post was quite enlightening. However, I am of the view that requirement of Tax Audit for business income less than Rs, 1 crore (for other than 44AD cases)has been withdrawn as per the substituted sub section (5).
    Old section:
    (5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.
    The above sub section has been substituted by new sub-section (5) by the Finance Act, 2016, w.e.f. 1-4-2017 i.e., from Assessment Year 2017-18.
    The new sub section (5) is as under :
    (5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.]
    After substitution of sub section (5), the legal position regarding requirement of maintaining books of account and furnishing audit report has changed significantly. To attract sec 44AB, both the conditions must be met (and not only one of those):
    1. Assesseees who are covered by provisions of sub Sec (4) and also
    2. Taxable income exceeds the minimum liable to tax
    The provision for declaring income less than provided in sub section (1) stands deleted. Could you please throw light as to under which section Tax Audit is compulsory for declaration of NP less than 6%/8% for turnover below Rs. 1 crore?

    ReplyDelete
  23. Hlo sir, i have computed my income on the basis of net profit as it is more than 8% and my turnover is more than 1 cr but less than 8%.Is it a tax audit or non tax audit?

    ReplyDelete
    Replies
    1. If your net profit is less than 8%, then you need to be audited. But if your net profit is above 8% and gross turnover is less than 2 cr, then you may compute your income u/s 44AD, but it also depends on several matters, such as business nature etc. Please read the whole article carefully, hope you will get your answer.

      Delete
  24. I had a collection agency income of below 50lakh I want know that my agency to be audit? Please confirm

    ReplyDelete
  25. I have few clients their main business is running micro ATM ( IDFC,finno payment) mean who need money without approaching bank & ATM withdraw money from micro ATM for such transaction micro ATM ( merchant) charge RS 20 per 1000 rupees
    Apart from this micro ATM owner get commission from ( IDFC , finno payment) that is aroundly 22 to 25 rupees per 1 lakh
    My doubt here is how to show my client income in ITR
    Would plz explain me this ony one sir ???????
    My client did 1 crore transaction
    Doe's tax audit applicable to him

    ReplyDelete
    Replies
    1. Total Commission received in a financial year will be treated as Gross Receipt/Turnover. If your Total Annual Commission (not transaction) exceeds the threshold limit, then Tax Audit u/s 44AB will be applicable.
      Also, Show your income as 'Income from Commission' in ITR 3 for FY 2018-19.

      Delete
  26. hi sir, my books was audited from last two years, but my turnover is 91 Lakh for the f/y 2018-19. So please suggest me Audit is required u/s. 44AB for the fy 2018-19.

    Thanks
    Pijush

    ReplyDelete
    Replies
    1. In that case, audit u/s 44AB is not mandatory as annual turnover in business is below 1 Cr.

      Delete
    2. If in that case profit is below 8%, whether it should be audited u/s 44AB or not
      Prithwiraj Pal

      Delete
    3. If profit is below 8%, then audit u/s 44AB is required and it is clearly mentioned in my article.

      Delete
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    ReplyDelete
  28. What is the auditable turnover for F.Y 2018-2019 and due date of filling of income tax return.

    ReplyDelete

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  30. Sir

    My self Ganesh, my Total income is Rs. 70000.00 which is below threshold limit

    But traded Options turnover around 4 crore and made loss of Rs. 20000

    Tax audit is required or not

    I think if i don't want to carry forward loss then why should it will be applicable

    Ek to loss hai upar se tax audit mein aur paise dene padenge

    ReplyDelete
    Replies
    1. Please tell me Turnover calculation formula for option trading

      I use

      Strike price * sell qty

      Delete
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  32. hello team.

    here is a query if u can help me with.

    i have a client whose annual turnover is 50 lacs and is A PARTERNSHIP FIRM (other than llp) (i.e. less than 1 crore and normally not covered for audit).

    he intend to file itr 3 (non presumptive income) and he wants to shows only 2 lacs as his profit (ie. less than 6/8 %)

    does he need to get his account audited as he is declaring lesser income than required under 44 AD even when is not opting for presumptive income. and whether the provison of 44AD will still be applicable if taxpayer files normal tax return.

    ReplyDelete
    Replies
    1. If you want to declare net profit below 6/8%, your accounts need to be audited u/s 44AB even if your annual gross turnover is below 1 cr. You need to file ITR 3.

      Delete
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  35. My client is LLP Law firm Turnover is 1100000 and profit after remuneration is Rs.51000.
    Which audit is applicable ?

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  39. Hi soumya the assessee or business refered in sec 44ab include all assessee or only individual and huf??

    ReplyDelete
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  42. Torn over 3 crore
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    How to minimum % net profit required ?
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  43. If your account get audited then there is no minimum net profit.

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  44. If an LLP incurs loss in 2019-20, is it liable for tax audit ??

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