Applicability of Tax Audit U/s 44AB (As Amended By Finance Act, 2017)

As we all know that the finance act 2017 which is applicable for the previous year 2017-18 has made an amendment in Section 44AB (Tax Audit) by inserting a new proviso which has made the applicability of this section completely different.

So let us discuss the applicability of this section for the purpose of audit for the previous year 2017-18.

  • In a case where a person carries business

The section 44AB(a) says that the person carrying business, would  required to get his accounts audited if his Total sales/turnover/gross receipts exceeds  Rs. 1 crore in the previous year.

However, the amendment comes from the finance act 2017, says that this section shall not be applicable to the person who declares profit U/S 44AD and has the total sales/turnover/gross receipts less than Rs. 2 crore.

So now the question arises that when a person is required to get his accounts audited. The answer to this question is as under.

  • First of all, the person having the T/O less than 1 crore is not required to get his accounts audit.
  • Secondly, if the turnover exceeds the limit of Rs.1 crore but up to Rs. 2 crore is having an option to avail the benefit of Section 44AD (1) and avoid the audit (As per the amendment made by finance act 2017), if he don’t want to avail the option of Section 44AD (1), then he required to get his accounts audited.
  • Thirdly, the person having the T/O more than Rs.2 crore is required to get his accounts audited.

Having the Turnover

  • In a case where a person carries profession.

The section 44AB(b) says that where a person carries profession is required to get his accounts audited if the gross receipts in the previous year exceeds Rs. 50 lacks.

The section 44AB (d) says that where a person carries profession, declares profit U/S 44ADA, and declares the profit less than the deemed profit and his total income exceeds the limit which is not chargeable to tax, then he requires to get his accounts audited U/s 44AB (d).

However, the amendment comes from the finance act 2017, says that this section shall not be applicable to the person who declares profit U/S 44AD and has the total sales/turnover/gross receipts less than Rs. 2 crore.

So now the question arises that when a person is required to get his accounts audited. The answer to this question is as under.

  • First of all, we will check that whether the person opting for section 44ADA or not. If he opts for Section 44ADA then we will apply the Section 44AB (d) and check whether he requires getting his accounts audited or not.
  • If he don’t fall U/s 44ADA then we will Apply 44AB (b) and check that whether the gross receipts are more than 50 lacks or not. If gross receipts are less than 50 lacks then audit is not required as the same is not covered U/s 44AB(b)
  • If gross receipts are more than 50 lacks but up to 2 crore then he can avail the benefit of Section 44AD(1) and avoid the audit (As per the amendment made by finance act 2017),
  • However if the gross receipts exceeds the 2 crore then audit is mandatory.

  • In a case where person carries business U/s 44AE / 44BB/ 44BBB

They are required to get their accounts audited if they declare income lower than the deemed income under those section and their income exceeds the maximum amount which is not chargeable to tax. [Section 44AB(c)]

  • In a case where person carries business covered U/s 44AD (4) and his income exceeds the maximum amount which is not chargeable to tax is required to get his accounts audited by an accountant.

[Note: Section 44AD (4) says that if a person declares his income U/S 44AD then he is bound to declare his income U/S 44AD for the next five assessments years.

But if he fails to declare his income U/S 44AD in any of the next 5 assessments years then the assessee is not eligible to avail the benefit of Section 44AD(1) for the next 5 assessments  year relevant to the previous year in which the assessee fails to opt section 44AD(1) ]

Tax Audit Limit for Business Rs. 2 Crore & for Profession Rs. 1 Crore

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Tags : section 44AB (190) Section 44AD (127) Tax Audit (318)

40 responses to “Applicability of Tax Audit U/s 44AB”

  1. Arpit parikh says:

    Dear sir,

    I have read your article on tax audit applicability but I have doubt for one instance which is as under:

    The assesse (partnership firm) having business income from construction in previous fy 201617 ia more than 1 crore and gets it account audited under 44AB(a) for ay 201718.

    In current year it has Business loss due to non operation of business during previous year 201718.However it has Income from other source and capital gain income worth rs.11 lakhs around and which is crdited to Profit and loss account.accordingly book profit as per pl is 4 lakhs.

    In this case,is tax audit applicable for ay 201819 and if yes can you please help me with explanation which section 44ab(e)

  2. Sankar says:

    Hi Sir ..
    12 AA Register Trust – require tax audit report 44 AB .. kindly cofirm.. f.y 2017-18 Grant Received 7.3 Cr.

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