TAX AUDIT PROVISIONS ARE GOVERNED BY SECTION 44AB, 44AD AND 44ADA. If you see Section 44AB, then it provides that every business need to go for Tax audit if more than Rs. 1 crore Turnover in Previous year. However from AY 2021-22 every person carrying on business, whose turnover does not exceed Rs. 10 Crore, is not required to get their books of accounts audited subject to following conditions:
a. Aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed 5% of all receipts. AND
b. Aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed 5% of the all payments.
Section 44AB also provides Tax audit in case of professionals whose gross receipts are above 50 lacs
Let’s understand everything in this table-
TAX AUDIT APPLICABILITY WITH INTRICACIES OF 44AB with 44AD AND 44AB with 44ADA
| FROM AY 21-22 | TAX AUDIT CRITERIA | ||||||||||
| 1 | Above 10 crore | Compulsory TAX AUDIT u/s 44AB(a) | |||||||||
| 2 | 1-10 crore | CHECK % OF CASH EXPOSURE – CHECK IF 5% OR higher | |||||||||
| THAN TAX AUDIT REQUIRED U/S 44AB(a) | |||||||||||
| EXAMPLE – WORKING TO FIND OUT CASH EXPOSURE | Amount | % | |||||||||
| total receipts | tally > receipts & payments | Total receipts LESS Opening cash/bank | 1,17,46,729 | ||||||||
| Total payments | tally > receipts & payments | Total Payments LESS Closing cash bank | 1,10,50,608 | ||||||||
| cash receipts | cash account | debit side Total | 8,85,907 | 7.54% | |||||||
| cash payments | cash account | credit side total | 7,57,999 | 6.86% | |||||||
| result | IF both > 5% | TAX AUDIT REQUIRED | formula | IN ITR 44AB – yes and FOR 3 ANSWERS in ITR YES / NO / NO | |||||||
| RIDER – | |||||||||||
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If 44AB not applicable for above criteria then You are out of TAX AUDIT. Here is Rider, for Non-corporate Assessee whose Turnover above 1 crore, You might have to prepare an Independent Auditor’s report with Audited Fin. Statement because GST Audit or Bank Purposes. For Ledger scrutiny, You check each clause wise accd to TAX AUDIT SOP but do not attach 3CB 3CD ( Instead attach Independent Auditor’s report ). DO NOT UPLOAD 3CB 3CD =. After Signing in report, Straightway file ITR Also Make sure While uploading ITR you have to select 44AB – Not applicable. And also while 3 answers will be YES YES YES. Due date will be of Non-audit. Also For Carried forward loss or Interest purpose, non-audit due date so make sure, for These clients, you take up as early as possible. |
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| 3 | 0-2 CRORE | CHECK % of net profit from Business – CHECK IF 6% /8% OR LESS | |||||||||
| only for Individual/HUF/ Partnership Firm | THAN TAX AUDIT U/S 44AD(4) applicable | ||||||||||
| EXAMPLE – WORKING FOR MIN. PROFIT CRITERIA | |||||||||||
| cash Turnover | 10,00,000 | write | |||||||||
| banking Turnover | 80,00,000 | write | |||||||||
| Net profit as per PL | 5,30,000 | write | |||||||||
| Add | Disallowances | write | |||||||||
| Add | Depreciation as per book | write | |||||||||
| Less | Depreciation as per Block | write | |||||||||
| Less | Other head income | 25,000 | write | ||||||||
| A | Net profit from Business | 5,05,000 | |||||||||
| B | Min Net profit from Buisness required | 5,40,000 | |||||||||
| (6% x Banking TO + 8% x Cash TO) | |||||||||||
| result | IF A>B | TAX AUDIT REQUIRED | formula | ||||||||
| RIDER FOR 2 & 3 | |||||||||||
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For Individual/HUF/Firm having turnover 1crore to 2 crore , We have to check Both Conditions of CASH EXPOSURE and Net profit From Business |
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Because 44AB and 44AD are charging sections and both superseding each other . |
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| reference 44AD(1) | |||||||||||
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(1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to 6/8% per cent, of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head Profits and gains of business or profession . |
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| reference 44AD(4) |
if not complying to 44AD(1) in any FY then you will directed to Tax audit u/s 44AD(4) for current FY and next 5 FY |
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[(4) Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1). |
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| reference 44AD(5) | |||||||||||
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(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.] |
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| check for every PROFESSION client | |||||||||||
| FROM AY 22-23 | TAX AUDIT CRITERIA | ||||||||||
| gross receipts > 50 LACS | Compulsory TAX AUDIT u/s 44AB(b) | ||||||||||
| gross receipts < 50 LACS | Compulsory TAX AUDIT u/s 44AB(d) if Net profit from profession is less than 50% of Gross receipts | ||||||||||
| Clause 44AB[d] – carrying on the profession & he has claimed such income to be lower than 50% of gross receipts and his income exceeds the maximum amount which is not chargeable to income-tax | |||||||||||
| reference – 44ADA(1) | |||||||||||
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an individual or a partnership firm other than a limited liability partnership is engaged in a profession referred to in sub-section (1) of section 44AA and whose total gross receipts do not exceed fifty 50 lacs in a previous year, a sum equal to 50% of the total gross receipts of the assessee in the previous year on account of such profession or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee, shall be deemed to be the profits and gains of such profession chargeable to tax under the head “Profits and gains of business or profession |
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| reference – 44ADA(4) – |
if not complying to 44ADA(1) then you will |
be directed to Tax Audit u/s 44ADA(4) in current FY |
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Author Bio
For 0 to 2 Crore turnover % of net profit from Business – 6% /8% OR LESS- Then tax audit applicable.
Kindly justify same with extract of relevant section. As in my opinion tax audit will not be applicable.
Correct. They have posted what is common misconception about 44AD & AB. copy pasted notes of a student without their own research & analysis,