No Audit if the turnover is below Rs. 10 Cr: Confusion & Clarification
- As per Sec 44AD, Assessee is not required to maintain books for turnover up to 2 Cr if the Cash receipts /expense do not exceed 5 %. In the absence of books, how to ensure compliance with the limits of 5% particularly of expenses?
- If an assessee has Turnover of say Rs. 6.50 Crores and his Cash receipts/ expenses are within limits of 5%, he will not be covered by Sec 44AD & 44AB. Should he file his return by preparing an unaudited Balance Sheet & P & L A/c even if Profit is say 3 % of turnover? [firstname.lastname@example.org]
- Initially, there was a compulsory audit requirement under section 44AB if the turnover in business was exceeding Rs. 1 Cr. However, almost the entire audit related provision has been revised over a period of time & now there are different limits Vis a Vis different terms and conditions. Audit provision under the Income Tax law with regard this is summarized hereunder.
- If the turnover exceeds Rs. 10 Cr:
If the turnover of any person exceeds Rs. 10 Crore, taxpayers would be required to get the accounts audited under section 44AB. No matter whether the income offered for taxation exceeds 8% or 6% or not, audit would be compulsory in such a case.
- If the turnover is in between Rs. 2 Cr to Rs. 10 Cr:
In case turnover is more than Rs. 2 Cr but not exceeding Rs. 10 Cr but then the tax audit (u/s 44AB r/w section 44AD) would not be required if the aggregate receipt or payment in cash doesn’t exceed 5% of total receipt/payment. In short, audit will not be compulsory if the turnover is in between Rs. 2 Cr to Rs. 10 Cr if;
(a) Aggregate of all amount receipt including amount received for sales, turnover or gross receipts in cash doesn’t exceed 5% of total amount and
(b) Aggregate of all payments including amount paid towards expenditure in cash doesn’t exceed 5% of total payment.
In such a case, audit would not be compulsory even if the net profit offered for taxation is less than 6% of the turnover or even if there is a loss. Taxpayers are required to feed the complete Balance sheet and Profit and Loss A/c in the ITR form and required to click the column that the aggregate receipt or payment in cash do not exceed 5%.
- If the turnover is not exceeding Rs. 2 Cr:
If the turnover is not exceeding Rs. 2 Cr then tax audit (u/s 44AB r/w section 44AD) will be mandatory if the net profit from such transactions is less than 8% of the turnover or if there is a loss. The rate of 8% can be taken as 6% in case of turnover done through digital mode.[For Point No. 2 & 3 above, readers may note that the Finance Act-2023, applicable from FY 2023-24, has enhanced the limit of Rs. 2 Cr to Rs. 3 Cr if the aggregate of the amounts received in cash do not exceed 5% of the total turnover or gross receipts]
There is no immunity from audit provision in such cases even if it meets the criteria of 5% receipts/payment in cash as stipulated above. It is only if the profit of 8% or 6% is offered for taxation that the taxpayers will not be required to get the books of accounts audited.
With above overview, replies to your specific queries are as under:
- If the turnover is not exceeding Rs. 2 Cr then the rule of maximum 5% transaction in cash is not at all applicable. If the turnover is within the limit of Rs. 2 Cr then you can straightway opt for section 44AD irrespective of the fact that the transaction in cash is exceeding 5% as discussed above. Under section 44AD, you would be required to offer a minimum of 8% or 6% of the turnover as your income.
- If the assessee has a turnover of say Rs. 6.50 Crores and his Cash receipts/ expenses are within limits of 5% then he can file the return by preparing unaudited Bal-Sheet & P&L A/c and offer the actual profit for taxation which may be even less than 8% or 6% (i.e., 3 % in your case).
Query 2] My wife is a doctor and her professional receipt is Rs. 71 Lakh. She is a medical professional and the entire receipt was via digital mode only from just 3 hospitals with which she is associated as a freelancer. Whether the audit would be compulsory even if she is offering around Rs. 47 Lakh as her professional income? I have read somewhere in The Tax Talk that the audit would not be compulsory if the gross receipt is less than Rs. 10 Cr and the cash transaction is less than 5%. Please advice. [AKS]
- Audit provisions are different for taxpayers engaged in business vis a vis those engaged in the profession.
- Person engaged in profession are compulsorily required to get the books of accounts audited if the gross receipts exceeds Rs. 50 Lakh. There is no immunity from audit for the professionals even if the transaction in cash is less than 5%. For FY 2022-23, audit would be compulsory as her gross receipt is more than Rs. 50 Lakh even though she is offering more than 50% as her income.
- Amendment by the FA-2023 applicable from FY 2023-24:
Finance Act-2023, applicable from FY 2023-24, has enhanced the limit of Rs. 50 Lakh to Rs. 75 Lakh if the aggregate of the amounts received in cash do not exceed 5% of the total turnover or gross receipts. If the receipts of your wife in the FY 2023-24 is below Rs. 75 Lakh then audit would not be compulsory if she offers a minimum of 50% of the receipts as income.