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What does the Income tax audit means?
Before understanding what income tax audit, let us firstly understand about the term audit. Audit is an examination or inspection of various books of accounts by a person called auditor. Audit is of many kind like cost audit, stock audit, Gst audit, internal audit, concurrent audit, income tax audit, statutory audit, etc. mandate by various law.
Similarly, income tax law also mandates an audit called ‘Tax Audit’. As the name itself suggests, tax audit is an examination or review of accounts of any business or profession carried out by taxpayers from an income tax viewpoint. It makes the process of income computation for filing of return of income easier.
Applicability of tax audit?
A taxpayer is required to have a tax audit carried out if the sales, turnover or gross receipts of business exceed Rs 1 crore in the financial year. However, a taxpayer may be required to get their accounts audited in certain other circumstances. We have categorized the various circumstances in the tables mentioned below:
| Eligibility | Threshold limit |
| Business | |
| Carrying on business (not opting for presumptive taxation scheme) | Total sales, turnover or gross receipts exceed Rs 1 crore in the FY |
| Carrying on business eligible for presumptive taxation under Section 44AE, 44BB or 44BBB | Claims profits or gains lower than the prescribed limit under presumptive taxation scheme |
| Carrying on business eligible for presumptive taxation under Section 44AD | Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit |
| Carrying on the business and is not eligible to claim presumptive taxation under Section 44AD due to opting out for presumptive taxation in any one financial year of the lock-in period i.e. 5 consecutive years from when the presumptive tax scheme was opted | If income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for |
| Carrying on business which is declaring profits as per presumptive taxation scheme under Section 44AD | If the total sales, turnover or gross receipts does not exceed Rs 2 crore in the financial year, then tax audit will not apply to such businesses. |
| Business Loss | |
| In case of loss from carrying on of business and not opting for presumptive taxation scheme | Total sales, turnover or gross receipts exceed Rs 1 crore |
| If taxpayer’s total income exceeds basic threshold limit but he has incurred a loss from carrying on a business (not opting for presumptive taxation scheme) | In case of loss from business when sales, turnover or gross receipts exceed 1 crore, the taxpayer is subject to tax audit under 44AB |
| Carrying on business (opting presumptive taxation scheme under section 44AD) and having a business loss but with income below basic threshold limit | Tax audit not applicable |
| Carrying on business (presumptive taxation scheme under section 44AD applicable) and having a business loss but with income exceeding basic threshold limit | Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit |
| Profession | |
| Carrying on profession | Total gross receipts exceed Rs 50lakh in the FY |
| Carrying on the profession eligible for presumptive taxation under Section 44ADA | 1. Claims profits or gains lower than the prescribed limit under the presumptive taxation scheme
2. Income exceeds the maximum amount not chargeable to income tax |
Rationalization of provisions relating to tax audit in certain cases
- Under section 44AB, a person carrying on business is required to get his books of accounts audited if its receipts exceed Rs.1crore. For professionals this limit is Rs.50lacs. It is proposed to increase the threshold limit for person carrying on business from Rs.1 crore to Rs.5 crores in case the aggregate of receipt in cash and aggregate of all payment in cash does not exceed 5% of such receipts/ payments.
- The constitutional effect is also given in the TDS/TCS provision by substituting the reference of monetary limit specified u/s 44AB with Rs.1 crores in case of business and Rs.50 lakhs in case of profession.
- Amendment w.e.f. 01.04.2020
Pre-filing of Returns in case of Income from Business or Profession
In order to enable pre‐filling of returns in case of persons having income from business or profession, it is required that the tax audit report may be furnished by the said assessee at least one month prior to the due date of filing of return of income. Therefore, it is proposed to make amendments in all the sections of the Act which mandates filing of audit report along with the return of income or by the due date of filing of return of income.
Due date of filing of return u/s 139
- Due date of filing of return u/s 139(1) is proposed to be amended to 31st October of the A.Y. as against 30th September.
- Distinction between working and non-working partner is removed.
- Amendment w.e.f. 01.04.2020.
Penalty of non filing or delay in filing tax audit report
- If any taxpayer who is required to get the tax audit done but fails to do so, the least of the following may be levied as a penalty:
- 0.5% of the total sales, turnover or gross receipts
- Rs 150000
