Turnover Limit
A taxpayer is required to have a tax audit conducted if the sales, turnover, or gross receipts exceed certain thresholds during a financial year. Specifically:
- For Business: If turnover exceeds ₹1 Crore.
- For Profession: If gross receipts exceed ₹50 Lakhs.
However, amendments and specific circumstances may alter these requirements.
Amendments to the Provisions
Finance Act 2021: Effective from 1st April 2021, the threshold limit for the applicability of a tax audit has been increased to ₹10 Crores for taxpayers whose cash transactions do not exceed 5% of their total transactions. This means:
- Cash Receipts: Should not exceed 5% of total gross receipts.
- Cash Payments: Should not exceed 5% of total payments.
This amendment encourages digital transactions by providing relief to taxpayers with minimal cash dealings.
Categories of Taxpayers Mandatorily Required to Conduct Tax Audit
| Category | Criteria |
|---|---|
| 1. For Business | |
| Carrying on business (not opting for presumptive taxation scheme) | Total sales, turnover, or gross receipts exceed ₹1 Crore in the FY.OrIf cash transactions are up to 5% of total gross receipts and payments, the threshold limit is ₹10 Crores (w.e.f. FY 2020-21). |
| Carrying on business eligible for presumptive taxation under Sections 44AE, 44BB, or 44BBB and opted in the previous year | Claims profits or gains lower than the prescribed limit under the presumptive taxation scheme. |
| Carrying on business eligible for presumptive taxation under Section 44AD and opted in the previous year | Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic exemption limit (₹2.5 Lakhs). |
| Carrying on business and not eligible to claim presumptive taxation under Section 44AD due to opting out in any one financial year of the lock-in period (5 consecutive years) | Income exceeds the basic exemption limit in the subsequent 5 consecutive tax years from the financial year when presumptive taxation was not opted for. |
| 2. For Profession | |
| Carrying on profession | Total gross receipts exceed ₹50 Lakhs in a year. |
| Carrying on profession eligible for presumptive taxation under Section 44ADA | 1. Claims profits or gains lower than 50% of the total receipts from such profession and 2. Income exceeds the basic exemption limit. |
3. For Business Loss
In case of a loss from carrying on business and not opting for presumptive taxation scheme:
- If total sales, turnover, or gross receipts exceed ₹1 Crore.
- If the taxpayer’s total income exceeds the basic exemption limit but has incurred a loss from business.
- Tax Audit Applicability: Tax audit is mandatory under Section 44AB.
Cases Where Accounts Are Required to Be Audited Under Other Laws
If a taxpayer’s accounts are audited under any other law (e.g., statutory audit under the Companies Act), they are not required to get their accounts audited again for income tax purposes. However:
- The audit must be completed before the due date of filing the income tax return.
- The prescribed audit report under the Income Tax Act should be furnished.
What Constitutes an Audit Report?
The tax auditor shall furnish the audit report in a prescribed form:
- Form 3CA: For persons already mandated to get their accounts audited under any other law.
- Form 3CB: For persons not required to get their accounts audited under any other law.
- Form 3CE: For non-residents and foreign companies receiving royalties or fees for technical services from the government or an Indian concern.
In all cases, the tax auditor must also furnish the prescribed particulars in Form 3CD, which forms part of the audit report.
Income Tax Audit Due Dates For FY 2023-24:
- General Taxpayers: 30th September 2024
- Assessees covered under Transfer Pricing provisions: 31st October 2024
The tax audit report must be filed on or before the due date of filing the income tax return.
Objectives of the Income Tax Audit
- Ensure Proper Maintenance of Books: Verification of the accuracy and completeness of financial records.
- Reporting Discrepancies: Identification and reporting of any discrepancies or inconsistencies in the financial statements.
- Verification of Compliance: Ensuring compliance with various provisions of the Income Tax Act, including depreciation, deductions, and income reporting.
- Facilitate Tax Computation: Simplify the process of calculating taxable income and applicable taxes.
- Enhance Transparency: Provide a reliable basis for the Income Tax Department to assess the correctness of income tax returns filed.
Penalty for Non-filing or Delay in Filing Tax Audit Report
If a taxpayer fails to get their accounts audited or fails to furnish the audit report by the due date, the penalty shall be the lower of:
- 0.5% of the total sales, turnover, or gross receipts.
- ₹1,50,000
Note: No penalty shall be levied if there is a reasonable cause for the failure, such as:
- Natural calamities.
- Delay due to the resignation of the tax auditor.
- Labor disputes like strikes or lockouts.
- Loss of accounts due to unforeseen circumstances.
- Physical inability or death of the partner responsible for accounts.
Key Takeaways
- Be Proactive: Ensure you are aware of the tax audit requirements applicable to your business or profession.
- Maintain Accurate Records: Proper bookkeeping simplifies the audit process and ensures compliance.
- Meet Deadlines: File the audit report before the due date to avoid penalties.
- Consult Professionals: Engage qualified Chartered Accountants for conducting audits and filing reports.
Don’t Fall Behind on Your Taxes!
With timely action and professional assistance, you can ensure compliance and avoid unnecessary penalties. Consider using tax filing services to streamline the process and gain peace of mind.
