In this article we tried to clear confusion for TAX AUDIT APPLICABILITY from AY 2020-21. Hope you all find it useful, Please give your valuable feedback & do let me know if any error. Thanks in advance.
The Finance Bill, 2020 has brought a major amendment in section 44AB of Income Tax Act, 1961. Moreover, the proposed amendment is set to make all very confused. In Budget 2020, Govt introduces one more slab of turnover of INR 5 Cr for the person, whose CASH RECEIPTS & CASH PAYMENTS does not exceeds 5% of such payments, and straightway exempted such category from Tax Audit. This is to remind you that section 44AB limit is still 1 crore (except above specified), and section 44AD has limit of Rs. 2 crores.
EXTRACT OF Section 44AB. – Audit of accounts of certain persons carrying on business or profession.
Every person,—
(a) carrying on business shall, 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; or
New provisions of Tax Audit:
from AY
20-21, Govt. inserted a proviso in the said clause so as to provide that
in the case of a person whose aggregate of all amount received including amount
received for sales, turnover or gross receipts during the previous years, in
cash, does not exceed five per cent. Of the said amount; and the 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, this
clause shall have effect as if for the words “one crore rupees”, the words
“five crore rupees” had been substituted.…Applicable from AY
20-21.
The Tax Audit threshold has been increased to INR 5 Crores, from existing INR 1 Crore for person carrying business. This facility comes with 2 conditions:
♦ Cash receipts are not more than 5% of aggregate cash receipts;
♦ Cash Payment is not more than 5% of aggregate cash payments.
(b) carrying on profession shall, if his gross receipts in profession exceed fifty lakh rupees in any previous year; or
(c) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or
(d) carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year; or
(e) carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,
Change
in Due Date of Tax Audit and Income Tax Return Filing:
Due
Date of filing ITR for tax payers who are required to get their Accounts
Audited
|
31st
October
|
Due
Date of filing Tax Audit Report
|
30th
September
(One
month prior to due date of Income Tax Return Filing)
|
In this context, the following points related to the amendment in
the increase of threshold limit for tax audit under section 44AB-
1. The revised threshold limit of turnover for a tax audit is
applicable for a business entity only and not for professionals. The
threshold limit for the applicability of mandatory tax audits for a
professional shall continue to be at Rs. 50 lakhs even if he receives entire
consideration in non-cash mode.
2. It is not provided that who will certify the margin of transactions in cash mode of 5 percent. It appears that the assessee is himself require to declare the percentage of receipt in cash mode and non-cash mode.
3. Even though it is announced in the Budget that the provision to increase the turnover limit for a mandatory tax audit is amended to benefit the MSME sector, it may be noted that under the Income Tax Act, 1961 the provision for mandatory tax audit shall apply to a business entity having the prescribed turnover limit whether registered as an MSME or not.
4. The amendment is carried out only in section 44AB. No amendment
is made in section 44AD and thus the turnover limit of Rs. 2 crores shall
continue.
5. The term 'aggregate of all receipts and aggregate of all
payments' is very wide and covers not only the receipts and payments on account
of turnover or sales but all other business transactions. Capital introduction,
receipt and repayment of a loan, etc., partners' drawings, payment of freights,
etc. Even payment of taxes made in cash will come within the purview of cash
transactions.
Let us understand the practical situation in this regard-
Now- for an Assessee having Turnover
below Rs. 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,
S. No.
|
Practical Situation
|
Answer
|
1.
|
Turnover > 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.)
|
2.
|
Turnover < 2 crores
(but below 5 crores and 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
1. Mr. A having Turnover
Rs. 2.1 crores but NOT showing profits of 6% or 8% is NOT LIABLE to TAX Audit.
2. Mr. B having Turnover
Rs. 1.9 crores SHALL be liable to TAX Audit if he does not show Profits of 6%
or 8% as per 44AD.
This anomaly exists with respect to Resident IND/HUF/FIRM (Not LLP), since
44AD is applicable to these entities only. Since, such a
situation seems to be illogical and prejudicial to small traders having Turnover
below Rs. 2 crores, a notification resolving this issue may be expected from
the CBDT in this regard in the near future.
Applicability of Tax Audit discussed above is
only with respect to an assessee carrying on Business. Such analysis made above
do not apply to a person engaged in Profession.
Well, for assessee having turnover 2 cr to 5 cr, in
their case, Sec. 44AD will not be applicable. So, no requirement of
8% or 6% Net profit to maintain.
And If cash receipts & Cash payments are below 5%, Then there is So NO TAX AUDIT. Fair enough.
BUT Logic changes for
assessee having less than 2 Crore turnover. Those assessee need to maintain 8% / 6% NP or They have to go for TAX AUDIT. From AY 20-21, TAX
AUDIT APPLICABILITY WILL BE VERY CONFUSING.
****
DISCLAIMER : THE ENTIRE CONTENT OF THIS DOCUMENT HAVE BEEN PREPARED ON THE BASIS OF RELEVANT PROVISIONS AND AS PER THE INFORMATION EXISTING AT THE TIME OF PREPARATION. THOUGH UTMOST EFFORTS HAS MADE TO PROVIDE AUTHENTIC INFORMATION, IT IS SUGGESTED TO HAVE BETTER UNDERSTANDING. KINDLY CROSS CHECK THE RELEVANT SECTIONS AND RELATED RULES TO IT. THE OBSERVATION OF THE AUTHOR ARE THE PERSONAL VIEW AND AUTHOR DO NOT TAKE RESPONSIBILITY OF THE SAME. IN NO EVENT I SHALL BE LIABLE FOR ANY DIRECT AND INDIRECT RESULT FROM THIS ARTICLE. THIS IS ONLY A KNOWLEDGE SHARING INITIATIVE.
THE AUTHOR - CA ASHU BANSAL (ASSOCIATE PARTNER AT AMKV & ASSOCIATES)
CAN BE REACHED AT | CAASHUBANSAL5@GMAIL.COM | M: 9034674871 |
Very Clearly explained.
ReplyDeleteThank you so much
DeleteAppreciated..clearly explained .. Keep it up
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