TogglIcon
ToolsLearnBytesTax Q&AGet 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 (to come into effect from AY 2021-22). This time FM announced to increase the turnover limit for tax audit from 5 Cr. to 10 Cr. (where 95% of 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

4 Likes

Share
facebook twitter

Start the discussion at Continue the conversation on TaxQ&A

Comments

Build Now GG says: (Awaiting Approval)

2024-12-19 06:34:25

Under nya regler krÀvs skattrevision om förlust uppstÄr eller vinsten Àr under 6% av omsÀttningen. För vinster över 6% kan skattebetalare Build Now GG anvÀnda ITR-4, vilket förenklar processen.

Reply

helendam says: (Awaiting Approval)

2024-11-28 02:14:27

I would like to express my heartfelt appreciation for slither io the exceptional quality and depth of your insightful content. Your expertise shines through every word, leaving readers like myself inspired and enlightened.

Reply

Kaley Ullrich DDS says: (Awaiting Approval)

2024-11-21 01:20:13

These tax policies remain the same this year and are currently having a small change, you can grasp and know the situation through geometry dash scratch, which will provide you with all the necessary information.

Reply

Charlie York says: (Awaiting Approval)

2024-11-20 03:44:26

I won some amount in fantasy sites. They deducted TDS and sent me a certificate. The amount is below 250000. Do i still need to file ITR? IF not, am i going to get double Tax for not filing ITR? I also invested some amount in share market which i keep it for some weeks and then sell the shares. Do i need to pay taxes on those profits too? (the amount is less than 250000, very very less). Thanks for sharing this great news and slope game.

Reply

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