Income tax audit applicability depends on turnover, gross receipts, and the method of taxation followed by the taxpayer. Many businesses and professionals are unsure whether they fall under mandatory audit requirements. Understanding the threshold limits and conditions helps avoid penalties and ensures timely compliance. If you are planning Income Tax Audit in Delhi, knowing the applicability rules under Section 44AB is essential.
Applicability for businesses based on turnover
Businesses must undergo a tax audit if their turnover exceeds the prescribed limit.
Turnover-based applicability:
Tax audit is mandatory if business turnover exceeds ₹1 crore.
The limit increases to ₹10 crore if cash receipts and cash payments do not exceed 5 percent of total transactions.
Both sales and gross receipts are considered for calculating turnover.
This higher threshold benefits digital and banking-based businesses.
Applicability for professionals based on gross receipts
Professionals such as doctors, lawyers, consultants, and architects have a different threshold.
Professional audit criteria:
Tax audit is mandatory if gross receipts exceed ₹50 lakh.
Gross receipts include all fees, retainers, and service income.
Reimbursement of expenses may be excluded if properly accounted.
Professionals must maintain proper books to determine applicability.
Applicability under presumptive taxation scheme
Tax audit may be required even if turnover is below the threshold when presumptive taxation rules are not followed.
Presumptive taxation cases:
If a business declares income lower than the prescribed percentage under presumptive taxation.
If total income exceeds the basic exemption limit.
If the taxpayer opts out of presumptive taxation after opting in earlier.
In such cases, maintaining books and conducting an audit becomes mandatory.
Applicability for loss-making businesses
Tax audit may still apply even when the business incurs losses.
Loss scenarios:
If turnover exceeds ₹1 crore, audit is mandatory even if there is a loss.
Under presumptive taxation, audit is required if income is lower than the prescribed percentage and total income exceeds exemption limit.
Loss does not automatically exempt a business from audit.
Special considerations for partnership firms and companies
Partnership firms and companies must comply with audit provisions based on turnover.
Key points:
Companies are required to maintain proper books regardless of turnover.
Partnership firms must follow audit rules similar to businesses.
Tax audit is separate from statutory audit under the Companies Act.
Both audits may be required in certain cases.
Calculation of turnover for audit purposes
Correct calculation of turnover is crucial for determining audit applicability.
Turnover calculation guidelines:
Include total sales and service receipts.
Exclude GST collected if shown separately.
Include advances received for services.
Adjust for sales returns and discounts.
Incorrect turnover calculation may lead to non-compliance.
Due date for tax audit report
The tax audit report must be filed before the due date of the income tax return.
Key deadline:
The audit report must be uploaded before filing the income tax return.
Generally, the due date is 30 September of the assessment year.
Late filing may attract penalties and interest.
Forms used for tax audit reporting
Tax audit reports must be filed in prescribed forms on the income tax portal.
Applicable forms:
Form 3CA for taxpayers whose accounts are already audited under another law.
Form 3CB for taxpayers not covered under other audits.
Form 3CD containing detailed financial particulars.
These forms must be certified by a Chartered Accountant.
Penalty for non-compliance with audit provisions
Failure to conduct a tax audit attracts penalty under the Income Tax Act.
Penalty details:
0.5 percent of turnover or gross receipts.
Maximum penalty of ₹1,50,000.
Penalty may be waived if reasonable cause is established.
Practical examples of audit applicability
Understanding practical scenarios helps determine whether audit is required.
Examples:
Business with turnover of ₹1.2 crore – tax audit mandatory.
Business with ₹8 crore turnover and minimal cash transactions – audit not required.
Professional with ₹60 lakh receipts – tax audit mandatory.
Presumptive business declaring lower income – audit required.
These examples clarify applicability conditions.
Common mistakes in determining audit applicability
Many taxpayers face penalties due to incorrect assessment.
Frequent errors:
Ignoring cash transaction limits.
Incorrect turnover calculation.
Confusing GST turnover with income.
Not considering presumptive taxation rules.
Delaying audit planning.
Proper evaluation prevents non-compliance.
Conclusion
Understanding the applicability of tax audit is essential for businesses and professionals in Delhi. Turnover limits, cash transaction thresholds, presumptive taxation rules, and income levels determine whether an audit is mandatory. Correct calculation of turnover and timely appointment of a Chartered Accountant ensure smooth compliance. A properly conducted Income Tax Audit in Delhi helps avoid penalties and ensures accurate tax reporting.
FAQs
Q1 What is the turnover limit for tax audit for businesses?
Tax audit is mandatory if turnover exceeds ₹1 crore, or ₹10 crore where cash transactions are within prescribed limits.
Q2 What is the threshold for professionals?
Tax audit is required if gross receipts exceed ₹50 lakh.
Q3 Is audit required if there is a loss?
Yes, audit may still be required depending on turnover and presumptive taxation provisions.
Q4 Is GST included in turnover for audit?
GST is excluded if it is shown separately in the books.
Q5 Can tax audit be avoided under presumptive taxation?
Yes, if income is declared at the prescribed percentage and conditions are met.
Q6 Who can conduct a tax audit?
Only a practicing Chartered Accountant can conduct and certify the audit.
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