Tax Audit Applicability W.E.F.Financial Year 2020-21

Tax Audit Applicability W.E.F.Financial Year 2020-21

The finance Bill, 2020 Introduced a major amendment to section 44AB regarding Tax Audit Applicability of the income tax act an extract as follows,

23. In section 44AB of the Income-tax Act,––

(A) in clause (a),––

(i) the word “or” occurring at the end shall be omitted;

(ii) the following proviso shall be inserted, namely:––

Provided that in the case of a person whose––

(a) the aggregate of all received Amount including for sales, turnover or gross receipts during the previous year, in cash, does not exceed five percent. of the said amount; and

(b) the aggregate of all payments including incurred for expenditure, in cash, during the previous year does not exceed five percent. of the said payment,

this clause shall affect as if for the words “one crore rupees”, the words “five crore rupees” had been substituted;

(B) in the Explanation, in clause (ii), after the word “means”, the words “date one month before” shall be inserted.

After insertion of such changes, the position stands as follows:

TAX AUDIT APPLICABILITY

TAX AUDIT APPLICABILITY

Where the provisions of 44AD(4) apply to the assessee and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year, he shall be liable to Tax Audit as per section 44AB (e) of the Income Tax Act. (The turnover of the assessee does not exceed 5 crores and having Cash receipts and payments not exceeding 5%)

*1 Presently (i.e FY 19-20), where the turnover of an assessee does not exceed Rs. 2 crores and he does not show profits equal to 6% or 8% as per 44AD, he is liable to maintain books of accounts u/s 44AA and get his accounts audited u/s 44AB.

As per the Budget 2020, (i.e from FY 2020-2021 onwards), an assessee having cash receipts and payments not exceeding 5%, is not liable for tax audit if his turnover does not exceed Rs. 5 crores.

Now- for an Assessee having Turnover below 5 crores and having Cash receipts and cash payments not exceeding 5%. Due to the proposed change in budget 2020, the situation stands as follows,

– For assessee having TO> 2 crores (but below 5 crores and having Cash receipts and cash payments not exceeding 5%), he is NOT liable to Tax Audit. This holds good irrespective of the assessee showing profits up to 6% or 8% as per 44AD or not.

– For assessee having TO< 2 crores (but having Cash receipts and cash payments not exceeding 5%), he is Liable to Tax Audit, if he does not show profits up to 6% or 8% as per 44AD.

Example

A having TO 2.1 crores but NOT showing profits of 6% or 8% is NOT LIABLE to TAX Audit.

A having TO 1.9 crores will be liable to TAX Audit if he does not show Profits of 6% or 8% as per 44AD.

This anomaly exists for Resident IND/HUF/FIRM since 44AD applies to these entities only. No confusion exists about the applicability of tax Audit for companies or other persons.

Since such a situation seems to be illogical and prejudicial to small traders having TO below 2 crores, a notification resolving this issue may be expected from the CBDT in this regard shortly.

Above discussion regarding Tax Audits only with an assessee carrying on Business. Such analysis made above does not apply to a person engaged in the Profession.

The above article is based on the Writers’ own Opinion. and shall not be responsible for any references made.

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