TogglIcon
HOMELEARNABOUTGET STARTED

Increase in Tax Audit Limit as per Budget 2021

In Budget 2020 Finance Minister Nirmala Sitaraman announced a change in the turnover limit for tax audit from 1 Cr. to 5 Cr. In Budget 2021, the turnover limit for Tax Audit changes again. This time FM announced to increase the turnover limit for tax audit from 5 Cr. to 10 Cr. (where 95% transactions are done digitally) to reduce the compliance burden on taxpayers.

Applicability of Tax Audit Changes

The increased limit for tax audit is applicable to:

  1. Retailers, traders, shopkeepers, etc. who earn Business Income and,
  2. Digital transaction of 95% or more during the year.

Factors to Keep in Mind for Tax Audit

The following factors play a vital role:

  1. Turnover from Business/ Trading.
  2. Profit/Loss incurred during the year.
  3. The conditions of section 44AB read with the conditions of section 44AD.

Tax Audit Applicability as per New Changes

Turnover upto INR. 1 Cr.

In case of losses = Tax Audit Applicable (Due to conditions of sec 44AD)
If the profit is less than 6% of turnover = Tax Audit Applicable (Due to conditions of sec 44AD)
If the profit is more than or equal to 6% of turnover = Tax Audit not Applicable and a taxpayer can file ITR-4.

Turnover between INR. 1 Cr. to INR. 2 Cr.

In case of losses = Tax Audit Applicable
If the profit is less than 6% of turnover = Tax Audit Applicable
If the profit is more than or equal to 6% of turnover = Taxpayer has two options

  • A taxpayer opts for the Presumptive Taxation Scheme = Tax Audit not applicable and can file ITR-4.
  • A taxpayer doesn’t opt for the Presumptive Taxation Scheme = Tax Audit is applicable, need to maintain books of accounts and file ITR-3.

Turnover between INR. 2 Cr. to INR. 10 Cr.

Tax Audit is not applicable irrespective of profits/losses. The turnover limit in Sec 44AD is INR. 2 Cr. or less and the turnover limit of Sec 44AB has been increased to INR. 10 Cr.

Note: This is an anomaly, where neither Sec 44AB nor Sec 44AD gets hit. Hence, under this turnover limit, a tax audit is not applicable to taxpayer/trader irrespective of profits/losses. Here a taxpayer will not be able to file ITR-4 but will have to file ITR-3 without audit. Clarification form CBDT is awaited.

Turnover more than INR. 10 Cr.

Tax Audit is applicable irrespective of profits/losses. A taxpayer needs to maintain books of accounts and file ITR-3.

The compliances when tax audit is applicable make tax filing a cumbersome process. Hence, the update in the tax audit limit announced in Budget 2021 was a relief, welcomed by capital market participants.

Tweet Us--Like Us--Join Us

3 Likes

Share
facebook twitter

V RAMACHANDRAN says:

2021-02-03 13:56:24

As you have correctly pointed out where the turnover is more than 2 crores and less than 10 crores Sec 44 AB and 44 AD do not apply whereas poor share traders like me who have a turenover of 90 odd lakhs get hit with a compulsory audit. MAY I REQUEST ZERODHA AND ITS AFFLIATES TORAISE THIS GLARING ANOMALY AND HAVE THE SECTIONS 44 AB AND AD REMOVED FOR LESSER TURNOVERS. THIS DOES NOT MAKE SENSE.

Reply

Post a comment

Scroll to Top Quicko
Close Bitnami banner
Bitnami