This article will try to clear all doubts regarding the applicability of The Income Tax Audit Limit For AY 2022-23. But before know the applicability of the Tax Audit, everyone should know the Meaning of the Tax Audit.
What is Tax Audit
As we all know there are various types of audits being conducted under different laws such as cost audit, company audit or stock audit, etc.
Meaning of Tax Audit- In the same way tax audit is governed by income tax law, as the name suggests, a tax audit is an examination or review of accounts of any business or profession carried out by taxpayers from an income tax point of view. Under the Income Tax Act, section 44AB deals with the tax audit limit and provision of the Tax Audit.
Section 44AB of Income Tax Act
Applicability of Tax Audit/section 44AB- Every person carrying on business and maintaining books of account is required to get them audited from a chartered accountant if total sales, turnover or gross receipts from the business during the previous year exceeds Rs. 1 Crore.
Amendment w.e.f., 01st April 2019– To reduce the compliance burden on small and medium enterprises, section 44AB is proposed to be amended to increase the threshold limit, for a person carrying on business, from Rs. 1 crore to Rs. 5 crores.
However, the increased threshold limit of Rs. 5 crores shall be applicable only when cash receipt and payment made during the year do not exceed 5% of total receipt or payment, as the case may be. In other words, more than 95% of business transaction should be done through banking channels.
Amendment w.e.f., 01st April 2021– In order to boost non-cash-transaction to promote the digital economy and to further reduce the compliance burden of small and medium enterprises, it is proposed to increase the threshold from Rs. 5 crores (five crores) to Rs. 10 crores (ten crores) in cases listed above.
Although section 44AB limit is still Rs. 1 crore and 44AD limit is 2 Crore (except specified above). So it creates a lot of confusion among stakeholders regarding the Tax Audit Limit for AY 2022-23.
Let’s understand the provision of section 44AB:-
EXTRACT OF Section44AB – Audit of accounts of certain persons carrying on business or profession.
Every person,—
(a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year;
From AY 2020-21, Govt. inserted a proviso in the said clause so as to provide that in the case of a person whose aggregate of all amount received including the amount received for sales, turnover, or gross receipts during the previous years, in cash, does not exceed five percent of the said amount; and the aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five percent Of the said payment, this clause shall have effect as if for the words “one crore rupees”, the words “five crore rupees” had been substituted. …Applicable from AY 2020-21.
further, in order to boost non-cash-transaction to promote the digital economy and to further reduce the compliance burden of small and medium enterprises, it is proposed to increase the threshold from “Rs. five crores” to “Rs. ten crores” in the cases listed above.
(b) Carrying on profession shall if his gross receipts in profession exceed fifty lakh rupees in any previous year; or
(c) carrying on the business shall if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or
(d) carrying on the profession shall if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year; or
Also Read- AY 2022-23: Depreciation Rate Chart As Per Income Tax Act, 1961
(e) carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year, get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed :
Provided that this section shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD and his total sales, turnover, or gross receipts, as the case may be, in business does not exceed two crore rupees in such previous year:
Revised Income Tax Audit Limit for AY 2022-23
The chart below will throw some extra light on the provision mention above and show clearly about Tax Audit Limit for AY 2022-23.
Tax Audit Limit for Individual/HUF/firm engaged in Business
| Turnover of Previous year (Rs.) | Net profit (%) | Condition of cash payment and cash receipts * | Tax Audit Applicability |
| More than 10 Crore | NA | NA | Yes, 44 AB(a) |
| 2-10 crore | NA | If less than 5% | No |
| 2-10 crore | NA | If more than 5% | Yes, 44 AB(a) |
| 1-2 Crore | More than 8% or 6% of turnover | NA | No |
| 1-2 Crore | Less than 8% or 6% of turnover | NA | Yes, 44 AB(a) |
| Up to 1 Crore | More than 8% or 6% of turnover | NA | No |
| Up to 1 Crore | Less than 8% or 6% of turnover | NA | Yes, 44AD (e) |
Also Read:- Fixed Assets: Depreciation Rate as Per Companies Act 2013 for AY 2022-23
Income Tax Audit Limit for Individual/HUF/firm engaged in Profession
| Turnover of Previous year | Net profit (%) | Tax Audit Applicability |
| More than 50 lakh | NA | Yes, 44 AB(b) |
| Less than 50 Lakh | More than 50 % of turnover | No |
| Less than 50 Lakh | Less than 50 % of turnover | Yes, 44 AB(d) |
Notes- Important Points
Due date of Tax Audit:- The Tax Audit’s original due date is 30th September of the assessment year.
The penalty u/s 44AB- If the assessee fails to conduct the audit, he is liable for a penalty of the lower of the following:-
👉 0.5% of Turnover or gross receipts.
👉 Rs. 1,50,000/-
Section 44AD applicability- This section is only applicable to individuals/HUF/ firm.
Also Read- Standard Deduction on Salary For AY 2022-23
Changes:- Due to proposed changes it can be summarized as below:
* Tax Audit Limit for AY 2022-23 is Rs. 10 crores for the person who is carrying on business and fulfills the below conditions-
(i) The aggregate of all amounts received including the amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five percent of the total turnover/gross receipts; and
(ii) The aggregate of all payments made including the amount incurred for expenditure, in cash, during the previous year does not exceed five percent of the total payment.
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Disclaimer: The information contained in the above article are solely for informational purpose after exercising due care. However, it does not constitute professional advice or a formal recommendation. The author does not own any responsibility for any loss or damage caused to any person, directly or indirectly, for any action taken on the basis of the above article.
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Compiled by- CA Chirag Agarwal (Practicing Chartered Accountants)
Very comprehensively explained. Most doubts are cleared. Thank you.
However, one of the provision is still confusing!
Whether tax audit is necessary for a firm for business sales of Rs20 lakhs (which is below the threshholds of 1 crore / 2 crore), if it has loss (so, no taxable income), without considering partner remuneration). If yes, is it not harsh on a small firm making losses to incur further expense of audit fees?
Will the answer to the above be different for a small LLP (instead of a Partnership Firm) – because LLP with such a turnover level is not required to be audited under the LLP Act?
(If possible, please reply to the email id – thank you once again)
(e) carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year……
Provided that this section shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD and his total sales, turnover, or gross receipts, as the case may be, in business does not exceed two crore rupees in such previous year:
So, reading from the above, can we presume that a firm/LLP below Rs2 cr turnover but making losses, does not need a tax audit?