income tax

Tax Audit Exemptions for Businesses Under 10 Crore: Key Insights

Clarification on Tax Audit Requirements for Businesses with Turnover Under 10 Crore

Understanding the tax audit regulations can be complex, especially for businesses whose turnover does not exceed Rs. 10 Crore. Here, we clarify the conditions under which a tax audit may not be required.

Section 44AB: Exemption from Audit

According to Section 44AB, businesses with a turnover below Rs. 10 Crore are exempt from the requirement to get their books of accounts audited, provided they meet specific conditions:

  1. Cash Receipts Limit:

    • The total cash receipts for all sales, turnover, or gross receipts during the previous year must not exceed 5% of the total receipts.

  2. Cash Payments Limit:

    • The total cash payments incurred for expenditures during the previous year must not exceed 5% of the total payments.

It is important to note that any payment or receipt made by cheque or bank draft that is not account payee will be considered a cash transaction.

Section 44AD: Presumptive Taxation Scheme

Section 44AD allows eligible assessees, including Individuals, Hindu Undivided Families (HUF), and Partnership Firms (residents), whose turnover is below Rs. 2 Crore, to declare profits presumptively as follows:

  • For Cash Transactions: A minimum profit of 8%
  • For Non-Cash Transactions: A minimum profit of 6%

Exceptions to Section 44AD

This provision does not apply to:

  • Professionals
  • Individuals earning commissions or brokerage
  • Those conducting any form of agency business
  • Businesses involving the plying, hiring, or leasing of goods carriages as outlined in Section 44AE

Important Dates

It's crucial to adhere to the deadlines for filing returns associated with tax audits:

  • Due date to file the Income Tax Return (non-tax audit): 31/12/2021
  • Due date for Tax Audit: 15/01/2022
  • Due date to file the Income Tax Return (tax audit): 15/02/2022

Conclusion

Businesses with turnover not exceeding Rs. 10 Crore can benefit from exemptions from tax audits under certain conditions specified in Sections 44AB and 44AD. Understanding these provisions can aid in compliance and strategic financial planning. Always stay updated with current tax regulations to ensure timely filing and avoid penalties.