Introduction
Understanding the audit requirements under the Indian Income Tax Act is crucial for compliance and efficient financial management. This guide simplifies the audit requirements for businesses and professionals for the assessment year 2024-25.
Key Points
- Section 44AB: Specifies conditions under which a tax audit is mandatory.
- Sections 44AD, 44ADA, and 44AE: Optional presumptive taxation schemes to simplify compliance for small taxpayers.
- Turnover up to Rs. 1 Crore: No tax audit required.
- Gross Receipts up to Rs. 50 Lakhs for Professionals: No tax audit required. Increases to Rs. 75 Lakhs from April 1, 2024, under certain conditions.
- Turnover Exceeding Rs. 10 Crores: Tax audit always required.
- Turnover up to Rs. 2 Crores: No tax audit if declaring 6% (digital) or 8% (cash) of turnover as income.
- Special Cases: Sections 44AE, 44BB, 44BBB, 44ADA have specific conditions for tax audits.
Tax Audit Applicability for Businesses
| Condition | Details |
|---|---|
| Turnover up to Rs. 1 Crore | No tax audit required. |
| Turnover Rs. 1 Crore - Rs. 2 Crores | No tax audit if declaring 6% (digital transactions) or 8% (cash transactions) of turnover as income. |
| Turnover up to Rs. 3 Crores | No tax audit if cash receipts do not exceed 5% of total receipts (effective from April 1, 2024). |
| Turnover up to Rs. 10 Crores | No tax audit if both cash receipts and payments do not exceed 5% of total (effective from April 1, 2024). |
Tax Audit Applicability for Specified Professionals
| Condition | Details |
|---|---|
| Gross receipts up to Rs. 50 Lakhs | No tax audit required. |
| Gross receipts up to Rs. 75 Lakhs (effective from April 1, 2024) | No tax audit if cash receipts do not exceed 5% of total receipts. |
| Income less than 50% of gross receipts | Tax audit required if professional profits are deemed under section 44ADA (50% of gross receipts) and income exceeds the maximum non-taxable limit. |
Section 44ADA: Presumptive Taxation for Professionals
Section 44ADA was introduced in FY 2016-17 to simplify taxation for small professionals. It offers a presumptive taxation scheme for professions specified under Section 44AA(1) of the Income Tax Act, 1961.
Budget 2023 Update
The Budget 2023 revised presumptive taxation limits under Sec 44AD and Sec 44ADA from FY 2023-24 (AY 2024-25) as follows:
| Category | Previous Limits | Revised Limits |
|---|---|---|
| Sec 44AD: For small businesses | Rs. 2 Crore | Rs. 3 Crore* |
| Sec 44ADA: For specified professionals | Rs. 50 Lakh | Rs. 75 Lakh* |
*The increase in limits is subject to the condition that 95% of the receipts must be through online modes.
What is the Presumptive Taxation Scheme?
The presumptive taxation scheme provides relief to small taxpayers from maintaining detailed books of account and getting accounts audited. This scheme simplifies compliance by allowing taxpayers to declare income at a prescribed rate under sections 44AD, 44ADA, and 44AE.
Section 44AD: For Small Businesses
- Eligibility: Resident individuals, HUFs, and partnership firms (excluding LLPs) with turnover up to Rs. 2 crores (increased to Rs. 3 crores if cash receipts are less than 5%).
- Income Declaration: 8% of turnover (6% for digital receipts).
- Conditions:
- No deductions under sections 10A/10AA/10B/10BA or 80HH to 80RRB.
- Excludes businesses like plying, hiring, or leasing goods carriages, agency business, and commission/brokerage businesses.
- Advance Tax: Entire advance tax payable by March 15.
- Consistency Requirement: Must opt for the scheme for 5 consecutive years. Failure to do so results in ineligibility for the next 5 years and requires maintaining books of account and audit.
Example:
- Opting Out: If opted for FY 2016-17 to 2018-19 but not in 2019-20, ineligible for FY 2020-21 to 2024-25.
Section 44ADA: For Specified Professionals
- Eligibility: Professionals like doctors, lawyers, engineers, etc., with gross receipts up to Rs. 50 lakhs (increased to Rs. 75 lakhs if cash receipts are less than 5%).
- Income Declaration: 50% of gross receipts.
- Conditions:
- If declaring less than 50%, must maintain books of account and get accounts audited if income exceeds the basic exemption limit.
- Advance tax provisions are the same as section 44AD.
Example:
Mr. Ram, an interior decorator with gross receipts of Rs. 30 lakh and expenses of Rs. 10 lakh:
- Under Presumptive Scheme:
- Gross receipts: Rs 30,00,000
- Presumptive income (50%): Rs 15,00,000
- Under Presumptive Scheme:
Dr. Geeth, a medical practitioner with gross receipts of Rs. 55 lakh and cash receipts of Rs. 2.5 lakh:
- Under Presumptive Scheme:
- Gross receipts: Rs 55,00,000
- Presumptive income (50%): Rs 27,50,000
- Under Presumptive Scheme:
Section 44AE: For Transporters
- Eligibility: Individuals, HUFs, firms, and companies owning no more than 10 goods carriages.
- Income Declaration: Rs. 7,500 per vehicle per month.
- Conditions:
- If declaring less than Rs. 7,500 per vehicle, must maintain books of account and get accounts audited if income exceeds the basic exemption limit.
Example:
- Transporter with 7 vehicles:
- Income: Rs. 6,30,000 (Rs. 7,500 x 7 vehicles x 12 months).
Benefits of Presumptive Taxation Scheme
- Simplified tax compliance.
- No need to maintain detailed books of account.
- No requirement for audit under section 44AB.
Summary Table for Tax Audit Applicability AY 2024-25
| Condition | Details |
|---|---|
| Turnover up to Rs. 1 Crore | No tax audit required. |
| Turnover Rs. 1 Crore - Rs. 10 Crores | No tax audit under specific conditions (e.g., declaring presumptive income, low cash transactions). |
| Turnover exceeding Rs. 10 Crores | Tax audit required. |
| Gross receipts up to Rs. 50 Lakhs for specified professionals | No tax audit required. |
| Gross receipts up to Rs. 75 Lakhs for specified professionals (w.e.f. April 1, 2024) | No tax audit if cash receipts do not exceed 5% of total receipts. |
| Defaults in applicable conditions | Tax audit required if conditions under sections 44AD or 44ADA are not met. |
Conclusion
Navigating the audit requirements under Section 44AB for the assessment year 2024-25 involves understanding turnover limits, presumptive taxation schemes, and special conditions. Proper compliance ensures smoother financial operations and avoids penalties. Consult with tax professionals to determine specific audit obligations based on turnover, transaction nature, and chosen taxation scheme.
