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. Section 44AB gives the provision relating to the class of taxpayers who are required to get their account audited from a chartered accountant. In this article, we will try to clear all doubts regarding the applicability of Section 44ab(e) of the Income Tax Act For AY 2022-23.
Section 44 AB 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 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 the 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.
Section 44ab(e) of the Income Tax Act For AY 2022-23
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.
(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
Here is the chart for all sub-clause of section 44AB, you can refer to each of them, and for Section 44ab(e) of the Income Tax Act For AY 2022-23 refer to the last row of the below chart-
|Turnover of Previous year||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)|
Notes- Important Points
Due date of Tax Audit:- The Tax Audit 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 Individual/HUF/ firm.
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)