Audit Under Income Tax Act 1961

A taxpayer is required to have a tax audit carried out if the sales, turnover or gross receipts of business exceed Rs 1 crore and Profession exceeds Rs. 50 Lakhs in the financial year. Section 44AB of the income tax act, 1961 lays down certain conditions for applicability of tax audit in the provisions of Sec 44AB(a); Sec 44AB(b); Sec 44AB( c) & Sec44AB(d).

Section 44AB(a)

It is obligatory for the persons carrying a business and his total sales turnover gross receipt is more than one crore, to get his accounts audited by Chartered Accountants. However The limit for turnover under Section 44AB is INR 1 Cr but Under Budget 2020, the turnover limit under Sec 44AB(a) has been increased from INR 1 Cr to 5 Cr if the transaction of Cash Payments do not exceed 5% of the Total Payments in the financial year AND Cash Receipts do not exceed 5% of the Total Receipts in the financial year of the business.

Section 44AB(b)

An individual Assessee involved in the profession Service with a gross receipt that exceeds Rs. 50 lakh during the previous year is mandatory to get his accounts audited by chartered Accountants. Profession refers to person engaged in services of Interior Decorations, Technical Consulting, Engineering, Accounting, Legal, Medical, Architecture, other services related to Movie Artist like director singer lyricist story writer etc.

Section 44AB(c)

Sec 44AB(c) provides that where the assessee is engaged in a business to which the provisions of section 44AE, 44BB or 44BBB apply and he claims his profit to be lower than the deemed profits as per the respective section, he shall be liable for tax audit if his total income exceeds maximum amount not chargeable to tax.

Section 44AB(d)

Sec 44AB(d) provides that tax audit shall be applicable in case of professional to whom sec 44ADA apply, and who has claimed his profit to be lower than the presumptive tax rate of 50%. Further Sub-section 4 of the said section provides that where the assessee declares profit lower than 50%, he shall be liable to maintain books of accounts and get his accounts audited. Profession are same as referred in section 44AB(b)

**Turnover whether to include GST

The turnover for the purpose of Sec 44AB/Sec 44AD is not defined in the act. The ‘Guidance Note on Tax Audit’ issued by the ICAI provides that where the assessee has included the amount of excise and sales tax in the amount of sale price, the turnover will include the amount of excise and sales tax.(Inclusive method of accounting) However, if the Excise duty or sales tax recovered are kept in separate account and payments to the authority are debited in the same account, the amount of excise duty and sales tax should not be included in turnover.(Exclusive method of accounting) Sec 145A is applicable for the purpose of determining the income chargeable under the head PGBP. Turnover of the assessee being an integral part of income chargeable under the head PGBP, the provisions of sec 145A shall apply for the purpose of calculation of turnover. Sec 145A (ii) as amended by Fin 2018 provides that the valuation of sales, purchases and inventory shall be adjusted to include the amount of taxes, duties or cess. Even, the ICDS provides for inclusive method of accounting. In the view of the above it can be inferred that the turnover should include the amount of GST even if the assessee follows exclusive method of accounting.

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Location: Kalyan, Maharashtra, IN
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I am a Chartered Accountant. You can reach out to me on 8879882025. View Full Profile

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