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Changes in Tax Audit Turnover Limit to Rs. 10 Crore under section 44AB: Budget 2021

changes-in-tax-audit-turnover-limit-to-rs.-10-crore-under-section-44ab-budget-2021

In Budget 2021, Finance Minister Nirmala Sitharaman announced major relief for persons who are subject to tax audit under the Income Tax Act, 1961 (“Act”). In order to incentivise digital transactions and to reduce the burden of compliance of small and medium enterprises, the government has now changed and increased the turnover threshold limit from Rs. 5 crore to Rs. 10 crore for the applicability of tax audit under section 44AB of the Act.


In para 161 of the Budget speech, the Finance Minister announced the relief from tax audit in the following words-



“Exemption from Audit


161. Currently, if your turnover exceeds  Rs. 1 crore, you have to get your accounts audited. In the February 2020 Budget, I had increased the limit for tax audit to  Rs. 5 crore for those who carry out 95% of their transactions digitally. To further incentivise digital transactions and reduce compliance burden, I propose to increase this limit for tax audit for such persons from Rs. 5 crore to Rs. 10 crore.”


Thus, to incentivise digital transactions and to reduce the compliance burden of the person who is carrying almost all of their transactions digitally, it is proposed to increase the limit for tax audit for persons who are undertaking 95%  of their transactions digitally from Rs. 5 crore to Rs. 10 crore.



Rationalisation of provisions relating to tax audit in certain cases 


Under section 44AB of the Act, every person carrying on business is required to get his accounts audited, if his total sales, turnover or gross receipts, in business exceed or exceeds one crore rupees in any previous year. In case of a person carrying on profession, he is required to get his accounts audited,  if his gross receipt in profession exceeds, fifty lakh rupees in any previous year.  In order to reduce the compliance burden on small and medium enterprises, through Finance Act 2020, the threshold limit for a person carrying on business was increased from one crore rupees to five crore rupees in cases where,-


(i) aggregate of all receipts in cash during the previous year does not exceed five per cent of such receipt; and 


(ii) aggregate of all payments in cash during the previous year does not exceed five per cent of such payment. 


Read More on How to compute 5% Cash Limit of Receipts and Payments for Tax Audit under Section 44AB


In order to incentivise non-cash transactions to promote digital economy and to further reduce compliance burden of small and medium enterprises, it is proposed to increase the threshold from five crore rupees to ten crore rupees in cases listed above.


This amendment will take effect from 1st April, 2021 and will accordingly apply for the assessment year 2021-22 and subsequent assessment years.


For this purpose, Clause 11 of the Finance Bill, 2021 has amended the provisions of section 44AB.


Amendment of section 44AB.


11. In section 44AB of the Income-tax Act, in clause (a), in the proviso, in long line, for the words “five crore rupees”, the words “ten crore rupees” shall be substituted. 


Amended provisions of section 44AB explained


Clause 11 of the Bill seeks to amend section 44AB of the Income-tax Act relating to audit of accounts of certain persons carrying on business or profession.  


Clause (a) of the said section provides for audit of accounts for every person carrying on business, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year. The proviso to the said clause provides that in the case of a person whose aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent. of the said amount; and aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent. of the said payment, the said clause shall have effect as if for the words “one crore rupees” the words “five crore rupees” had been substituted.


It is proposed to amend the said proviso so as to increase the threshold from “five crore rupees” to “ten crore rupees”


This amendment will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.


Implications: 


Every person carrying on business or profession is required to get his accounts audited by an accountant and is required to furnish Tax Audit Report in Form 3CA-CD or Form No. 3CB-3CD if his total sales/turnover/gross receipts exceed Rs. 1 crore.


Finance Act, 2020 has increased the turnover limit from 1 crore to Rs. 5 crore for a person carrying on business, subject to a condition that cash receipts and cash payments during the year do not exceed 5% of the total receipts/payments. 


The Finance Bill 2021 proposes to further increase this limit from Rs. 5 crore to Rs. 10 crore. Accordingly, any person carrying on business shall now not be required to get his accounts audited by an accountant only if his total sales/turnover/gross receipts do not exceed Rs. 10 crore and cash receipts and cash payments during the year do not exceed 5% of total receipts/payments.


The margin of 5% in cash transactions is required to be computed by the assessee himself. No audit report or certificate is required to be taken by the assessee from any CA in this regard.



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