In this article, we will try to clear all doubts regarding the applicability of Tax Audit Limit AY 2020-21. But before know the applicability of tax audit, everyone should know the Meaning of The Tax Audit.
What is Tax Audit
Meaning of Tax Audit- As we all know there is various type of audits being conducted under different laws such as cost audit, company audit or stock audit, etc.
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.
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.
Section 44AB comprise following clauses-
44AB (a) Business Turnover exceed Rs. 1 Crore
44AB (b) Professional gross receipts exceed Rs. 50 Lacs
44AB (c)-i Income less than Deemed Income u/s 44AE
44AB (c)-ii Income less than Deemed Income u/s 44BB
44AB (c)-iii Income less than Deemed Income u/s 44BBB
44AB (d) for section 44ADA
44AB (e) for section 44AD
44AB (3) audited under any other law
The all above clauses are described here under this section.
Let’s understand the provision of section 44AB:-
EXTRACT OF Section 44AB – Audit of accounts of certain persons carrying on business or profession.
(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 20-21, 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 20-21.
(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
(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:
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
|Turnover of Previous year||Net profit (%)||Condition of cash payment and cash receipts *||Tax Audit Applicability|
|More than 5 Crore||NA||NA||Yes, 44 AB(a)|
|2-5 crore||NA||If less than 5%||No|
|2-5 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:- Income Tax Slab for AY 2020-21 | FY 2019-20
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)|
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 from 30th September to 31st December 2020.
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 crore for the person who is carrying on business and fulfills 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.
Extension of Tax Audit Due Date for AY 2020-21
As we are aware that, the tax audit date is near and due to the COVID impact the audit could not be completed till the last date i.e 31.12.2020. Considering the challenges faced in COVID-19, the government has extended the due date of the Tax Audit Report again. You can read complete details about the second time extension in the below-mentioned article.
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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)