Peer Review Applicability for CAs in 2025: Turnover, Foreign JV, Tax Audit & Audit Thresholds

 The Peer Review Mechanism of ICAI is no longer limited to audits of listed entities, banks, and insurance companies. With the launch of Audit Quality Maturity Model (AQMM v.2.0), ICAI has widened the mandatory scope in a phased manner starting April 1, 2026.

This has direct implications for signing of financial statements for FY 2024-25 (31.03.2025) and FY 2025-26 (31.03.2026). Firms must now carefully examine:

• Entity type (listed / unlisted / group entity / JV / foreign subsidiary)

• Thresholds of turnover, paid-up capital, and borrowings

• Date of signing (before or after April 1, 2026)

Applicability Framework

For signing 31.03.2025 financials (FY 2024-25):

Peer Review + AQMM mandatory only if firm audits:

1. Listed entity (equity/debt listed in India)

2. Banks (other than co-operative banks, except multi-state co-operative banks)

3. Insurance companies

 No threshold of turnover or capital applies yet.
 Group entities (subsidiaries/JVs) not covered yet.

For signing 31.03.2026 financials (FY 2025-26):

(A) If report signed before 01.04.2026 → Old rules apply

• Only listed entities / banks / insurance audits require Peer Review.

(B) If report signed on or after 01.04.2026 → Expanded scope applies

Category 1 – Group Entities (Holding / Subsidiary / Associate / JV)

• If firm audits Holding, Subsidiary, Associate, or JV of:

  • Listed entity (India listed)

  • Banks (other than co-operative banks, except multi-state co-op banks)

  • Insurance companies

• Branch audits are excluded.

• Foreign subsidiaries/JVs are covered only if parent is an Indian listed / Indian bank / Indian insurer.

Category 2 – Large Unlisted Public Companies
Peer Review mandatory if any one threshold is met as on 31st March of preceding year:

• Paid-up share capital ≥ ₹500 crores, OR

• Turnover ≥ ₹1,000 crores, OR

• Aggregate loans + debentures + deposits ≥ ₹500 crores

(Standalone financials, not consolidated, unless specified otherwise in law).

Category 3 – Effective from 01.04.2027 (future)

• Entities raising funds > ₹50 crores from public / banks / FIs during period under review, OR

• Any body corporate (including trusts) classified as a Public Interest Entity (PIE).

Year-wise Matrix

FS Year	Signing Date	Entity Type	Thresholds / Conditions	Peer Review Mandatory?
31.03.2025	Anytime (before 31.03.2026)	Listed entities	Listing in India	✅ Yes
		Banks	All banks except co-op (but incl. multi-state co-op)	✅ Yes
		Insurance Companies	N/A	✅ Yes
		Large unlisted public companies	Thresholds not yet in force	❌ No
		Holding/Subsidiary/Associate/JV of listed/bank/insurance	Not applicable yet	❌ No
31.03.2026	Before 01.04.2026	Same as above	Same	✅ Yes only for listed / banks / insurance
31.03.2026	On/After 01.04.2026	Listed entities / Banks / Insurance	N/A	✅ Yes
		Holding/Subsidiary/Associate/JV of listed/bank/insurance	Parent is Indian listed / bank / insurer	✅ Yes
		Unlisted public companies	Paid-up cap ≥ ₹500 Cr OR Turnover ≥ ₹1,000 Cr OR Borrowings (loans+debts+deposits) ≥ ₹500 Cr	✅ Yes
		Private companies / foreign companies without Indian listing	N/A	❌ No

Special Cases

1. JV of Indian Listed + Foreign Company → Covered (because of Indian listed linkage).

2. Indian subsidiary of a foreign listed company → Not covered (unless foreign parent also listed in India).

3. Indian audit of foreign subsidiary/JV of Indian listed company → Covered (group linkage test satisfied).

4. Private companies → Not covered (unless they themselves become listed or fall under PIE category from April 2027).

Disclosure Requirements

• ICAI will now publish AQMM Levels (v.2.0) on its website for all peer-reviewed firms.

• Peer Review Certificates will explicitly mention the AQMM Level alongside validity.

• Clients, regulators, and banks will increasingly rely on this publicly available benchmark for firm selection.

Practical Checklist for Firms

Before accepting / signing an audit engagement for FY 2024-25 or 2025-26, check:

Step 1 – Identify entity type

• Listed (equity/debt) in India?

• Bank / Insurance company?

• Unlisted public company?

• Holding/Subsidiary/JV of listed/bank/insurance?

Step 2 – Check thresholds (for unlisted public co.)

• Paid-up capital ≥ ₹500 Cr?

• Turnover ≥ ₹1,000 Cr?

• Borrowings (Loans + Debentures + Deposits) ≥ ₹500 Cr?

Step 3 – Signing date

• Before 01.04.2026 → Old rules apply

• On/after 01.04.2026 → Expanded rules apply

Step 4 – Cross-border check

• If foreign group entity → Ask: is the Indian parent listed / bank / insurer? If yes → Covered. If no → Not covered.

Step 5 – Documentation

• Ensure valid Peer Review Certificate (with AQMM level) is available and uploaded with NFRA / SEBI / RBI filings wherever applicable.

• Maintain internal checklist and minutes of peer review compliance before signing audit reports.

Conclusion

• For 31.03.2025 FS → Peer Review applies only to listed entities, banks, and insurance audits.

• For 31.03.2026 FS →

  • If signed before 01.04.2026 → old rule continues.

  • If signed on/after 01.04.2026 → expanded scope applies: group entities of listed/bank/insurance + large unlisted public companies (₹500 Cr/₹1,000 Cr thresholds).

• Foreign JVs/subsidiaries are covered only if tied to Indian listed/bank/insurance companies.

With ICAI publishing AQMM levels publicly, Peer Review will now act as a quality seal, and firms must prepare well in advance to ensure compliance.

GST ITC & Taxability Checklist for Hotels, Resorts, PGs & Hostels

Hotels, resorts, hostels, and recreational clubs operate in one of the most compliance-heavy sectors under GST. The line between eligible Input Tax Credit (ITC) and blocked ITC often gets blurred when it comes to building construction, architectural upgrades, furniture, or interior designing. This creates significant risks during audit and departmental scrutiny.

A structured checklist is therefore essential — both for audit readiness and for future tax planning. It helps taxpayers:

• Avoid wrongful ITC claims that may later be disallowed.

• Maximize credit by proper structuring of contracts and invoices.

• Segregate revenue vs. capital expenditure with clarity.

• Ensure consistency between GST returns, books of accounts, and Income-tax records.

The following Audit & Taxability Checklist has been curated with minute distinctions, judicial references, and practical insights to guide hotels, resorts, PGs, and hostels in safeguarding ITC claims while staying compliant.

1. Building Construction / Major Repairs

• Was the expense incurred on original construction / reconstruction / major civil work?
   → If Yes → ITC blocked u/s 17(5)(c) (unless plant & machinery).
   → If Repairs (revenue in nature) → ITC allowed (subject to capitalization test).

• If capitalized as building in books → ITC blocked.

• If capitalized as plant & machinery (lift, DG sets, AC systems, kitchen equipment, fire-fighting) → ITC allowed.

2. Architectural / Interior Designing / Upgradation Fees

• Architectural fees linked to construction of immovable property (building/rooms) → ITC blocked.

• Architectural fees for interior works, furniture design, brand revamp, ambiance improvement → ITC allowed (if not capitalized into immovable property).

• Tax planning: bifurcate contracts – separate invoices for building (blocked) vs. interiors (eligible).

3. Furniture, Fixtures & Furnishings

• Movable furniture (sofas, tables, beds, modular furniture) → ITC allowed.

• Built-in wardrobes, fixed partitions, false ceilings (immovable) → ITC blocked.

• Audit step: verify capitalization treatment in fixed asset register.

4. Repairs & Maintenance

• Routine repairs (painting, plumbing, electrical, tiling) → ITC allowed.

• Major renovation altering structure (treated as civil construction) → ITC blocked.

• Audit check: ensure repairs not wrongly clubbed under construction.

5. Hotel-Specific Areas

• Kitchen equipment, exhausts, refrigeration, cold storage → ITC allowed (plant & machinery).

• Gym, spa, swimming pool – if movable equipment → ITC allowed; if civil construction → ITC blocked.

• Banquet halls / conference rooms – ITC blocked if structural modification, allowed on movable equipment.

6. PGs / Hostels / Lodges

• If providing residential accommodation (long stay, monthly rent) → Exempt supply → No ITC.

• If providing short-term stay (<30 days) like hotel → Taxable → ITC available (same rules as hotels).

• Dual-use property → Segregation required (Rule 42 reversal).

7. ITC Reversal & Apportionment

• If partly exempt (PG/hostel + restaurant/catering) → Apply Rule 42 proportionate reversal.

• Verify reversal workings during audit.

8. Income Tax Perspective (for planning)

• Capitalized repairs → No GST ITC (blocked) but eligible for depreciation under IT Act.

• Revenue repairs → Allowed as expense under IT Act + ITC under GST.

• Architectural & design fees → If blocked in GST, claim as capital/revenue deduction under IT Act depending on treatment.

• Always align Books of Accounts, GST ITC register, and Income Tax depreciation schedules.

Tax Planning Strategies

✅ Keep separate contracts & invoices for movable vs. immovable items.
✅ Do not capitalize interiors/furniture as “building” – classify under furniture & fixtures/plant & machinery.
✅ For long-stay PGs/hostels, evaluate option to charge GST (if commercially viable) to unlock ITC.
✅ Use advance tax planning – claim blocked ITC via depreciation in Income Tax.
✅ Maintain a fixed asset ITC eligibility matrix reviewed annually.

Judicial Support:

• Safari Retreats Pvt Ltd v. Union of India (Orissa HC, 2019) – ITC on mall construction (used for letting) allowed, though stayed by SC → strong taxpayer-friendly precedent.

• Bangalore Turf Club Ltd. (Karnataka AAR) – Civil structure ITC blocked.

• Multiple AARs have clarified furniture & fixtures movable in nature → ITC allowed.

Recognizing Export Incentives in FY 2024–25 – A Guide to Avoid Tax Misstatements

By CA Surekha Ahuja

A scheme-wise guide to timing recognition of incentives like Duty Drawback, RoDTEP, PLI, and subsidies – with full impact on FY 2024–25 income tax reporting

Introduction

For export-oriented and manufacturing businesses, government incentives play a pivotal role in financial performance. In Financial Year 2024–25, schemes such as Duty Drawback, RoDTEP, EPCG benefits, Production Linked Incentive (PLI), and various state subsidies are commonly availed.

A recurring question during audit or finalization is:

Should these incentives be accrued as income (provision) in the books, or recognized only upon actual receipt?

This blog presents a clear answer based on Indian Accounting Standards, ICAI guidance, and the practical realities of FY 2024–25.

Key Incentives Relevant in FY 2024–25

The schemes actively availed during FY 2024–25 include:

• Duty Drawback under the Customs Act, 1962

• RoDTEP (Remission of Duties and Taxes on Exported Products)

• EPCG Scheme (Export Promotion Capital Goods)

• PLI (Production Linked Incentive Scheme) across key sectors

• State Subsidies – including electricity, SGST refund, interest reimbursement

• Interest Equalization Scheme for MSME exporters

Note: MEIS/SEIS are discontinued and generally not applicable unless past-year claims are pending.

Applicable Accounting Standards

a. AS 9 – Revenue Recognition (for non-Ind AS entities)
Under AS 9, income can be accrued when it is measurable and collectability is reasonably certain. Uncertainty in entitlement or collection defers recognition.

b. Ind AS 20 – Accounting for Government Grants
For Ind AS-compliant entities, Ind AS 20 permits recognition only when:

• Conditions attached to the grant will be complied with, and

• Receipt of the grant is reasonably assured

ICAI Guidance (Applicable in FY 2024–25)

The ICAI Guidance Note on Accounting for Government Grants supports:

• Accrual of income when entitlement arises, supported by documents or statutory approval

• Deferral of income recognition if any material condition remains unfulfilled

Visual Matrix – Incentive Recognition Logic for FY 2024–25

This decision matrix simplifies the accounting treatment of major incentives under current schemes:

Incentive / Scheme	Eligible Activity Completed	Claim Filed / Documentation	Assurance of Receipt	Recognize Income in FY 2024–25?
Duty Drawback	Yes	Yes	Yes	✅ Accrue (Provision)
RoDTEP	Yes	ICEGATE ledger updated	Yes	✅ Accrue (Provision)
EPCG Scheme (Capital Goods)	Yes	Yes	Not a direct income	❌ No P&L income – amortize benefit
PLI Scheme	Yes	Application filed	Approval pending	❌ Defer till approved
State Subsidy – Revenue	Yes	Sanction letter available	Yes	✅ Accrue (Provision)
Interest Equalization	Yes	Bank confirmation available	Yes	✅ Accrue (Provision)
MEIS / SEIS (Legacy only)	Possibly (prior FY)	Claim pending or litigated	Case specific	⚠️ Recognize only if enforceable

When to Accrue and When to Defer

Accrue income in FY 2024–25 when:

• Export or activity completed

• Claim is filed and trackable

• Reasonable assurance exists (ledger credit, sanction letter, bank endorsement)

Defer income to later year when:

• Verification is pending

• Sanction or approval not received

• Benefit is subject to audit or cancellation risk

• Performance thresholds (e.g., PLI) not yet validated

Disclosure Requirements for FY 2024–25

Entities must ensure proper disclosure in financial statements, including:

• Nature of each government incentive

• Whether recognition is accrual or receipt-based

• Any unfulfilled conditions or clawback clauses

• Accounting policy note in “Significant Accounting Policies”

Audit working papers should include:

• ICEGATE entries for RoDTEP

• Claim forms and acknowledgment receipts

• Sanction letters or email confirmations

• Past-year realization history (where relevant)

Real Example – FY 2024–25

XYZ Exports Pvt Ltd completed eligible exports and capital imports in FY 2024–25. Its incentives:

• ₹12 lakh Duty Drawback – claim filed

• ₹8 lakh RoDTEP – ledger credit reflected by 31 March 2025

• ₹3 lakh power subsidy – sanctioned by state nodal agency

• ₹15 lakh PLI – application submitted, review pending

Accounting Treatment:

• Recognize Duty Drawback, RoDTEP, and Power Subsidy in FY 2024–25

• Defer PLI incentive to FY 2025–26 (subject to approval)

Strategy for FY 2024–25

For Financial Year 2024–25:

• Duty-based and invoice-traceable incentives (e.g., Duty Drawback, RoDTEP) are eligible for provisioning

• Performance-based schemes (e.g., PLI) require a conservative approach

• Documented entitlement and government interface evidence are key

• Align recognition with AS 9 or Ind AS 20 and ICAI's guidance note

• Ensure robust audit trail and transparent disclosure

Income Tax and Related Party Transactions: An In-depth Guide

 

Understanding income tax laws and their implications is essential for individuals, businesses, and charitable trusts. One aspect that attracts the attention of tax authorities is related party transactions. In this comprehensive guide, we will explore key sections of the income tax law that pertain to related party transactions. We will break down these sections and their implications in simple terms, ensuring a clear understanding of the subject. By delving into Section 13(2), Section 40A(2)(b), Section 56, and Section 64, we will shed light on the provisions governing related party transactions and their impact on tax obligations. So, let's dive in and demystify the intricacies of income tax and related party transactions.

Section 13(2): Related Party Transactions and Charitable Trusts

ü       If a charitable trust's income benefits specific individuals directly or indirectly, the entire income of the trust may not qualify for tax exemption under sections 11 or 12.

ü     Interested persons can include the trust's creator, founder, substantial contributor, member, trustee, or manager.

ü     Examples of benefiting individuals include interest-free loans, inadequate rent charges, overpriced property purchases, or selling at below-market prices.

ü      In such cases, the tax exemption for the entire trust can be denied.

Section 40A(2)(b): Treatment of Expenditures and Allowances

ü      This section determines how certain expenditures or allowances involving related parties should be treated.

ü     Examples of related party transactions under this section:

Ø  Payment of office rent by a lawyer to his wife.

Ø  Payment of office rent by a company to one of its directors.

Ø  Purchase of goods by a company from an individual holding a significant stake or being a relative of a director.

Ø  Payment of office rent by a company to another company with a substantial shareholding and a common director.

Section 56: Gifts and Tax Exemptions

ü       Certain gifts are exempt from tax for the recipient under Section 56.

ü      Examples of tax-exempt gifts:

Ø  Cars, mobile phones, watches, laptops, and similar items.

Ø  Gifts of money or property exceeding certain thresholds.

ü      Gifts received from relatives, on the occasion of marriage, or through inheritance are generally exempt from tax.

Section 64: Clubbing of Income

ü    Section 64 deals with the concept of "clubbing" of income.

ü    It means that the income earned by certain individuals, such as spouses or minor children, is combined with the income of the person who transferred the asset.

ü     Exceptions to clubbing:

Ø  If a professional, like a model, earns income in her own right, it should not be combined with her spouse's income.

Ø  However, the income tax department sometimes applies clubbing provisions even to the income of relatives, including wives and minor children.

Understanding these provisions related to income tax and related party transactions is crucial for individuals, businesses, and charitable trusts. By complying with these rules, you can ensure that your transactions align with the law and avoid potential issues with the tax authorities. Consulting a tax professional can provide personalized guidance based on your specific circumstances. Staying informed and proactive in income tax matters will help you navigate the financial landscape smoothly and avoid unnecessary complications.

Financial Due Diligence Checklist

While investing in a business or a start-up, there is a due diligence process, which primarily has two parts, viz. Financial Due Diligence (FDD) and Legal Due Diligence (LDD).

Here's a basic checklist that we use during the Financial Due Diligence process as a preliminary list of requirements.

GENERAL INFORMATION

Business Presentation

Description / details on the following (if not covered in as much detail as part of Business Presentation mentioned above):

a. Detailed description of the business model of the Company including business verticals of the past and present and verticals that the Company plans to cater to in the near future post investment.

b. Revenue Streams (past, current and future revenue streams, include description of all revenue streams to be captured)

c. Areas of Focus – Target Customer types (include segmentation undertaken based on size, needs or other criteria)

d. Detailed description of the product offerings provided, including breakup of margin % earned on each product offered

e. provide a list of all existing and under development products and services & its versions, along-with timelines.

f. List of large / key customers (cumulatively accounting for at least 50% of current revenues) and their product usage patterns (over the past 12 months). If the Company is consumer / user based company, please provide details of user data (e.g. DAU, MAU, No of registered users, CAC, user churn etc)

g. List of Key Vendors and Partners and a brief on transactions with these parties

h. List of Competitors in India and globally

i. Description or copy of company's purchasing policy, credit policy

j. All surveys and market research reports, done by the company (For E.g. Weblinks of articles and press releases etc)

k. Key areas that the Company faces challenges in when running and growing the business and the action plan to address these.

BASIC REGISTRATION/OTHER SPECIFIC DOCUMENTS

Certificate of Incorporation, MOA and AOA.

Copy of PAN, TAN, Registration Certificates of VAT, Service Tax, GST, Excise, PF, ESIC, PT, Shop and Establishments for all premises used, IEC code, and any other registration certificate as applicable to the company

Descriptive list of all significant acquisitions, restructurings, reorganizations, spin-offs and other transactions (intercompany or otherwise) not in the ordinary course of business which have occurred in the Company history.

Copies of any letter rulings, non-privileged tax opinions obtained for all such transactions.

FINANCIAL STATEMENTS/REPORTS & MIS INFORMATION

Signed Audited Financial statements along with, annexures, notes to accounts, trial balance, audit reports, CARO report, cash flow statements and any other report that forms part of the annual financial statements for Target Company for the Historical Period (from Inception till last financial year for which audit has been completed).

Unaudited financials for that part of the Historical period where audit is not complete.

Accounting Data for the Historical Period that matches the audited and unaudited financials as provided above. (Tally Backup / Quickbooks login / Xero.com Login or any other accounting software used for the historical period)

Internal Audit Reports (if any)

Management letters issued by the auditors during the historical period

Transfer Pricing - Provide copy of Form 3CEB filed, Transfer Pricing Study Report, Inter-Company agreements, Arm’s Length Pricing workings, if any.

MIS prepared, key KPI's for the Historical Period. (Customer Acquisition cost, Life Time Value, Product wise bifurcation, No of bookings and customers, Average cost etc). Where for any reason MIS and financial accounting data do not match, please provide reconciliation statements.

Altman Z-Score: Financial Strength Test in Your MIS

The pandemic has brought many businesses to its knees, which now have an even higher amount of debt, continuing fixed costs, and lower contribution margins owing to sub-par sales figures.

Such times bring about the need for greater discipline in financial management. At this juncture, we recommend businesses to use the following test to track its credit strength and financial performance over the next few months, to ensure that it's on the path to recovery.

Objective of the Altman Z-Score

1. Predicting Bankruptcy: The Z-score is a value derived by running a test of credit strength on a business. The formula is used to predict the probability of an entity going into bankruptcy within two years.

2. MIS Reporting: Companies may use the formula to check their financial health by using simple values as taken from their profit & loss statements and balance sheet, computed as part of its MIS report. The score takes into account profitability, leverage, liquidity, solvency and activity of the enterprise.

3. Investment Decisions: Consider purchasing a stock if its Z-Score value is near 3, and consider selling if the value is closer to 1.8.

4. Economic Analysis: Prof. Altman had calculated that the median Z-score of manufacturing companies in the US in 2007 was 1.81. Such companies had a credit rating of B, mostly. This indicated that 50% of the firms should have had lower ratings, were highly distressed and had a high probability of becoming bankrupt. These calculations led him to believe a crisis would occur due to corporate defaults, which trickled in during 2009.

Calculation Formula

Where

A = Working Capital / Total Assets

B = Retained Earnings / Total Assets

C = Earnings Before Interest & Tax (EBIT) / Total Assets

D = Book (or Market) Value of Equity / Total Liabilities

E = Sales / Total Assets

For Privately Held Manufacturers: Z = 0.72A + 0.84B + 3.107C + 0.42D + 1.0E

For Publicly Traded Manufacturers: Z = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

For Non Manufacturers: Z = 6.56A + 3.26B + 6.72C + 1.05D

For Emerging Markets: Z = 3.25 + 6.56A + 3.26B + 6.72C + 1.05D

 

Evaluation

Private Manufacturing Companies:

Score                        Meaning

Below 1.23               Distress Zone - heading towards bankruptcy

1.23 to 2.9                Grey Zone - focus should be on improvement

Above 2.9                Safe Zone - good financial health

Public Manufacturing Companies:

Score                        Meaning

Below 1.8                 Distress Zone - heading towards bankruptcy

1.8 to 3                     Grey Zone - focus should be on improvement

Above 3                    Safe Zone - good financial health

Private Non Manufacturing Companies:

Score                        Meaning

Below 1.1                Distress Zone - heading towards bankruptcy

1.1 to 2.6                 Grey Zone - focus should be on improvement

Above 2.6               Safe Zone - good financial health

Calculation Sheet for Your MIS

Link

Requirement of Tax Audit under Income Tax Act

Section 44AB of the Income Tax Act gives the provisions relating to the class of taxpayers who are required to get their accounts audited from a chartered accountant. This audit aims to ascertain the compliance of various provisions of the Income Tax law and​ is called a Tax Audit.

The auditor is required to give his observations in an audit report, which may be in Form Nos. 3CA/3CB and ​3CD.

The following business will have to get themselves audited under the Income Tax Act.

1. Gross Receipts of Business > Rs. 1 Crore or Rs. 5 Crore

a) Tax Audit will be applicable for any business entity whose total sales turnover or gross receipts in a previous year exceeds Rs. 1 crore (except if they are declaring income under section 44AD/44AE and other such sections for presumptive income)

b) However, for the person defined in "a" above, if the aggregate cash receipts from sales in a year, and the aggregate cash payments for expenses in a financial year do not exceed 5% of the total sales or total expenses, respectively, then the turnover threshold for tax audit is Rs. 5 crore.

2. Gross Receipts of Profession > Rs. 50 lakhs

Tax Audit will be applicable for a professional whose gross receipts from profession in a previous year exceed Rs. 50 lakh.

Professions include those lines of business as specifically covered under section 44AA(1):

- legal

- medical

- engineering

- architectural

- accountancy

- technical consultancy

- interior decoration

- any other as may be notified under such section

3. Less than 6% or 8% of Gross Receipts shown as Taxable Profits for Business u/s 44AD (when Turnover exceeding Rs. 1 crore but not exceeding Rs. 2 crore)

In case an eligible assessee engaged in an eligible business has a turnover above Rs. 1 crore in a previous year, and has taken the option of showing his taxable business profits on presumptive basis u/s 44AD, then:

(i) The presumptive taxable income is minimum 6% of the gross receipts of the year, for receipts through the banking channel only such as through bank transfer, account payee cheque or account payee bank draft. For receipts through cash and bearer cheque, etc., the presumptive taxable income is minimum 8% of gross receipt - in this case, tax audit is not applicable.

(ii) However, if such business as covered u/s 44AD declares a taxable profit less than 8% or 6% of the total turnover or gross receipts of any previous year on account of such business, then the same shall be covered under tax audit.

Section 44AD does not apply to persons earning commission incomes or brokerage or engaged in agency business. Further, it does not apply to person in the business of plying, hiring goods carriages as covered separately in Section 44AE.

​If an eligible assessee opts out of the presumptive taxation scheme, he cannot choose to revert to the presumptive taxation scheme for a period of five assessment years thereafter.

4. Presumptive Tax for Professional under Section 44ADA

In case of a resident assessee who is engaged in a profession referred to in Section 44AA(1), such as that of legal, medical, engineering, architectural, accountancy, technical consultancy or interior decoration and whose total gross receipts do not exceed Rs. 50 lakhs in a previous year, then he has the option to declare minimum taxable profit from such profession as 50% of the total gross receipts of the year.

However, if he declares lower than 50% of such receipts as income and his income exceeds the amount which is not chargeable to tax, then tax audit would be mandatory.

5. Presumptive Tax for Plying, Hiring, Leasing Goods Carriages (44AE)

If a person who is in the business of plying, hiring, leasing goods carriages and does not own more than 10 goods carriages at any time during the previous year, he has the option of presumptive taxable income as follows.

(i) For Heavy Goods Vehicle (HGV), taxable income will be computed at the rate of Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the HGV is owned by taxpayer.

(ii) For vehicles other than HGV, income is computed at the rate of Rs. 7,500 for every month or part of a month during which the goods carriage is owned by taxpayer.

However, if the person shows taxable income lower than as computed using these presumptive rates, then tax audit will be applicable.

Similarly, if the income declared is less than the presumptive rates as given under Section 44BB for Business of Exploration of Mineral Oils or under Section 44BBB, which applies to Business of Civil Construction by Foreign Companies in Turnkey Power Projects, then tax audit shall apply.