All About Tax Audit Applicability for AY 2021-22 by CA.Yashika Pittie
Author
CA. Yashika Pittie Bhageria
Section 44AB of the Income Tax Act requires a practicing Chartered Accountant to audit the books of assessee and furnish a report on the same before specified date.
(For AY 2021-22 date is 31st October, 2021)
The purpose of the audit is to ensure that the taxpayer has maintained proper books of accounts and complied with the provisions of the Income Tax Act.
Who is required to get books of accounts audited?
The following persons are required to get their books of accounts audited:
Person carrying on business
- Sales/turnover or gross receipts > Rs 1cr in a financial year (read proviso below)
- Claims profits lower than prescribed u/s 44AE/44BB/44BBB (presumptive taxation for eligible business)
- Claims profits lower than prescribed u/s 44AD and has income exceeding basic exemption limit (presumptive taxation)
Where section 44AD(4) is applicable and income exceeds basic exemption
Person carrying on profession
- Gross receipts > Rs 50 lakhs in a financial year
- Claims profits lower than prescribed u/s 44ADA and has income exceeding basic exemption limit (presumptive taxation)
The following proviso is applicable to the person carrying on business and having sales/turnover/gross receipts > Rs 1cr if:
- Aggregate of all amounts received during the previous year in cash does not exceed five percent of the said amount
AND
- Aggregate of all amounts paid during the previous year in cash does not exceed five percent of the said amount
Then the words Rs 1cr should be read as Rs 10cr
How to compute 5% limit for cash payments/receipts
- The benefit of higher turnover limit of Rs 10cr is available only to person carrying on business. The receipts and payments both should be within limit of 5% to avail the benefit of higher turnover of Rs
- When a sole proprietor introduces capital in cash in his business then it is not included in total receipts of proprietory concern as one cannot transact with
- When a partner introduces capital in cash in partnership firm then it is included in total receipts of partnership firm as both, the partner and the partnership firm are treated as separate entities in the eyes of
- If cash is directly deposited in bank account then it is to be included in total receipts/payments.
- If cash is received for income which is exempt then it will be included in total receipts e.g Agricultural
- If accounts are settled merely by book entries then there is no cash involved hence will not be included in total receipts/payments.
- Credit sales/purchases and payment due/receivable but not paid/received shall not be taken into account for the purpose of 5% cash limits
- Payments made or received through bearer cheques are treated as cash transactions and included in total receipts/payments as the case
How to compute 5% limit for cash payments/receipts
- The following are some general transactions which shall be included in calculating the 5% cash limits:
| Sr No | Receipts | Payments |
| 1 | Receipt from debtors for the current year sales/outstanding receivables from earlier years | Payment to creditors for the current year purchases/outstanding payables from earlier years |
| 2 | Sale of Fixed Assets/Scrap/Investment | Purchase of Fixed Assets/Scrap/Investment |
| 3 | Receipt of Loans/ Advances/Deposits | Repayment of Loans/Advances/Deposits |
| 4 | Receipt from sales | Payment for purchases |
| 5 | Receipt from other operating or non operating income | Payment for other operating or non operating expenses |
Analysis of Applicability of Tax Audit for Business Income
All About Tax Audit Applicability for AY 2021-22 by CA.Yashika Pittie
Penalty for late/non filing of audit report
In case a person fails to get his accounts audited, or he fails to furnish the audit report, the assessing officer may direct such person to pay a penalty of sum equal to lower of:
- 5% of total sales/turnover
OR (ii) Rs 1,50,000/-
