Section 44ab(e) of Income Tax Act For AY 2020-21

In this article, we will try to clear all doubts regarding the applicability of Section 44ab(e) of Income Tax Act For AY 2020-21.

Section 44 AB of Income Tax Act

Section 44 AB- This section deals with the tax audit limit and provision of Tax Audit. Through Finance Act 2020, the government has inserted a new limit of turnover of Rs. 5 crores and exempt them from tax audit subject to some specified condition.

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 AY 2020-21.

Here in this post we will discuss only Section 44ab(e) of Income Tax Act For AY 2020-21

Must Read:- Tax Audit Limit: Section 44ab(e) of the Income Tax Act For AY 2021-22

Section 44ab(e) of Income Tax Act For AY 2020-21

Section 44AB of Income Tax Act, 1961, comprises many clauses and sub-clauses but here we only discuss clause (e) of this section.

Let’s understand the provision of section 44AB (with clause “e” only):-

EXTRACT OF Section 44AB – Audit of accounts of certain persons carrying on business or profession.

Every person,—

(e) carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case (Person declare his income lower than the deemed profit) 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:

Also Read:- Section 40b of Income-tax Act- (AY 2020-21) Remuneration and Interest paid to Partners

Tax Audit Limit AY 2020-21

The chart below will throw some extra lights on the provision mention above and show clearly about Tax Audit Limit for AY 2020-21.

Tax Audit Limit for Individual/HUF/firm engaged in Business

Here is the chart for all sub-clause of section 44AB, you can refer to each of them, and for Section 44ab(e) of Income Tax Act For AY 2020-21 refer to the last row of the below chart-

Turnover of Previous yearNet profit (%)Condition of cash payment and cash receipts *Tax Audit Applicability
More than 5 CroreNANAYes, 44 AB(a)
 2-5 croreNAIf less than 5%No
 2-5 croreNAIf more than 5%Yes, 44 AB(a)
1-2 CroreMore than 8% or 6% of turnoverNANo
1-2 CroreLess than 8% or 6% of turnoverNAYes, 44 AB(a)
Up to 1 CroreMore than 8% or 6% of turnoverNANo
Up to 1 CroreLess than 8% or 6% of turnoverNAYes, 44AD (e)
Section 44ab(e) of Income Tax Act For AY 2020-21

Also Read:- For a Complete understanding of Section 44AB you can read this article

Notes

Due date of Tax Audit:- The Tax Audit due date is 30th September of the assessment year. Due to COVID-19 govt has extended this date to 15th January 2021.

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 Individual/HUF/ firm.

Changes:- Due to proposed changes it can be summarized as below:

* The tax audit limit AY 2020-21 is Rs. 5 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.

Join our Social Community

FacebookTwitterInstagram
LinkedInPinterestTelegram

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.

Feedback/Suggestion- Hope you all find it useful, please give your valuable feedback & let us know if there is an error. Thanks in Advance

Compiled by- CA Chirag Agarwal (Practicing Chartered Accountants)

Spread the knowledge of Tax

Leave a Comment