Article discusses Applicability of Tax Audit under section 44AB in In a case where a person carries business,In a case where a person carries profession and In a case where person carries business Under Section 44AE / Section 44BB/ Section 44BBB.

Applicability of Tax Audit U/s 44AB

As we all know that the finance act 2017 which is applicable from 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 and subsequent years.

  • 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 under Section 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, 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.

Audit reflection in eye

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. 50 Lakhs

(Republished with Amendments)

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40 Comments

  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. Riddhi says:

    Partnership firm Having Commission Income (Business commission not professional)= 48 Lakhs and having 1 Lakhs profit then liable for tax audit???

  3. CHETAN says:

    Sir if a doctor who have clinic receipts and hospital professional receipt is approx 1.5 Cr then tax audit is applicable ??
    according to chart 44ad(1) can be opt and avoid audit so it means we dont need to file 3cd ?? only itr will be filled ??

  4. ambadas gajul says:

    my question is if assesse is COMMISSION AGENCT AND PARTNERSHIP FIRM
    THE WHAT PROFIT RATIO IS REQUIRED UNDER INCOME TAX ACT, OUR TO IS 1350000/- COMMISSION FOR THE YEAR 2017-18, CAN WE TAKE BENEFITES U/S 40 B INT & REMUNERATION TO PARNTER

  5. Varma says:

    Hi sir,
    My gross receipts from works contract 6567518 & commission income 2405700 .we have the profit 364036.we required to audit my accounts please help me?????

  6. MEERA says:

    A PARTNERSHIP FIRM OF PROFESSIONAL ( DOCTORS) DONT WANT TO OPT 44ADA. GROSS RECEIPTS IS BELOW 50 LACS. WANT TO FILE NORMAL RETURN( NOT IN 44ADA) SHOWING PROFIT LESS THAN 8%. TAX AUDIT WILL BE APPLICABLE OR NOT IF SHOW LESS THAN 8% PROFIT BY FILING ITR5.

  7. Prathamesh says:

    Hello,
    My query is if a partnership firm of professionals (doctor) showing profit less than 50%, whether it has to get its accounts audited? Because u/s 44ADA the Profit is very high. So without opting this scheme we can get the books audited.

  8. Rohit Agrawal says:

    In case of profession flow chart , under the yes arrow sign it should be audit required and under no arrow key sign it should be no audit required

  9. Priyanka says:

    Sir, I have an query, in case of partnership firm if a firm is in profit before providing remuneration and interest to partner but after providing remuneration and interest to partner firm is in loss. whether firm is required to tax audit. As in my knowledge audit is required when firm shows profit less than 8% and income exceeds maximum exemption limit. I want to know in case of profit to firm before appropriation but after appropriation there is loss in firm. In that situation what should we consider and whether firm is required to tax audit or not???

    1. CA PULKIT says:

      Hello priyanka..
      In case you opt to show profit u/s 44AD then it must be equal to or more than 8% of the turonover or gross receipts which you offer to tax under PGBP head. And its been irrelevant that it will be after or before remuneration to partner, what is relevant is the amount you show under the above said head for taxation must be more than or equal to 8%.

      Hope you get your answer..

  10. Ranjan says:

    Hello Sir,

    I want to report losses with turnover of less than 1 crore. I also have salary income of more than 2.5 Lac.

    I was going through multiple articles on TaxGuru and came across these two :

    https://taxguru.in/income-tax/tax-audit-case-section-44ad-applicable-net-profit-8-6.html

    https://taxguru.in/income-tax/tax-audit-turnover-1-crore-net-profit-8.html

    Can you please give me your views on them ? Do i need audit ? If yes, is there any way i can avoid it ?

    Thanks & Regards,
    Ranjan

    1. CA PULKIT says:

      Hello Ranjan.

      Since your total income exceeds the maximum amount which is not chargeable to tax, then you are required to get your accounts audit. Here what is important is that your total income if exceeds the maximum amount not chargeable tax then u r required to get your audited.

      1. Ranjan says:

        Hello Sir,

        Thanks for your reply.

        My T/O is 2.2 Lakhs with bare minimum losses to carry forward. Would you suggest me to pay taxes on 6% of turnover under Sec 44AD instead of going for Tax audit ?

  11. Jitendra says:

    Dear Sir/Madam

    My total turnover in stock trading is below one crore and I have incurred
    losses I am not salaried,my Income from other sources and long term capital
    gains from mutual funds is well below exemption limit .do I need my account
    to be audited which itr form to be filled can I show presumptive income if
    i show presumptive income using itr4 then i cant put value of long term
    capital gains of mutual fund Please advise as no one has proper answer to
    this query and I do regular trading in stock market . Thanks in advance.

    Regards
    Jitendra gaur

    1. CA PULKIT says:

      Since your income is below the maximum amount not chargeable to tax u r not required to get your audited, you can file your return in FORM 3, But there u have to fill your balance sheet and p&l, you may also have an option to opt 44AD

  12. Harneet Khurana says:

    Hi Sir,

    Our Turnover in FY 2017-18 was 1.57 Crores. Do we have to get our Books audited us 44AB for FY 2018-19? Thanks in advance.

  13. Abhishek Dubey says:

    An individual having turnover less than 1cr from business and business in newly set up i.e its first assessment year for it and claim that profit is less that what 44AD specify .
    Will he be required to get accounts audited ?

    1. CA PULKIT says:

      No, sir there is no mistake. The professions covered U/s 44AA(1) can file there return U/s 44ADA. The profession other than the profession covered U/s 44AA(1) can file there return U/s 44AD(1) [eg. profession of teaching, photographer etc ]

      1. KUSHAL CHOPRA says:

        Actually the thing is that you did not specify the provisions with regard to the professionals not covered u/s 44AA(1). Still, thank you for the information. Helped me alot.

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