Changes in Rules related to Tax Audit under the Income Tax Act, 1961

There are various types of audits prescribed under different laws like company law requires a company audit, cost accounting law requires a cost audit, etc. The Income-tax Law requires the taxpayer to get the audit of the accounts of his business/profession from the view point of Income-tax Law.

Section 44AB gives the provisions relating to the class of taxpayers who are required to get their accounts audited from a chartered accountant. The audit under section 44AB aims to ascertain the compliance of various provisions of the Income-tax law and the fulfillment of other requirements of the Income-tax law. The audit conducted by the chartered accountant of the accounts of the taxpayer in pursuance of the requirement of section 44AB is called tax audit.

The chartered accountant conducting the tax audit is required to give his findings, observation, etc., in the form of audit report. The report of tax audit is to be given by the chartered accountant in Form Nos. 3CA/3CB and 3CD.

Audit Requirements under Section 44AB of the Act:

Every person who derives income by way of Business or profession and has not opted for computation of income on presumptive basis under section 44AD, 44ADA or 44AE of the Income-tax Act, 1961 has to get tax audit done provided his income exceeds the prescribed threshold limit.

As per section 44AB, following persons are compulsorily required to get their accounts audited:

A person carrying on business if the total sales/ turnover exceed Rs. 1 crore during the previous year relevant to assessment year.
A person carrying on profession if the Gross receipts exceed Rs. 50 lakhs during the previous year relevant to assessment year.

Audit Requirements under Presumptive Taxation:

Normally, an assessee who opts for presumptive taxation is not required to get his books of accounts audited. However, in certain cases such assessees may also become liable for tax audit.

The person who has opted for computing profits and gains of business on presumptive basis under section 44AD earlier and 5 years have not lapsed since then but the assessee has opted out of such presumptive income and his income exceeds the ceiling for chargeability of income tax, is also required to get tax audit done.
Further where a person has opted for presumptive scheme under section 44ADA and he claims his income lower than the deemed profits and his income exceeds the ceiling for chargeability of income tax, is also required to get tax audit done.
Tax audit is also mandatory for the assessees opting for presumptive scheme under section 44AE, 44BB and 44BBB and claiming income lower than the deemed profits.

Increase in Threshold Limit for Tax Audit:

In order to reduce compliance burden on small and medium enterprises, it is proposed in the Budget 2020 to increase the threshold limit for a person carrying on business from 1 Crore to Rs. 5 Crore in cases where:

Aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent of the said amount;
AND
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.

Audit Report Submission Due Date:

In case of persons having income from business or profession and required to get their accounts audited, the tax audit report may be furnished by the said assessee at least one month prior to the due date of filing of return of income under sub-section (1) of Section 139.
Accordingly, the due date for filing return of income under section 139 (1) is proposed to be amended.
For aforesaid assessees the due date of filing of Income Tax Return would be 31st October of the assessment year (as against 30th September).
Similarly, the Audit Report must be submitted on or before 30th September of the assessment year.

Refer to below table for clarity:

Tax Audit Applicability for AY 2020-21 & Onwards
Business Assessee (Individual/HUF/Firm)
Turnover	Net Profit %	Cash Payment & Cash Receipts	Audit Applicable?
Up to 1 Cr.	<8% OR 6%	Irrespective of Cash Payment & Receipts	Yes, U/s 44AD(e)
Up to 1 Cr.	>8% OR 6%	Irrespective of Cash Payment & Receipts	No
If a person is not declaring profit in accordance with 44AD(1) than he will be barred to claim benefit from 44AD(1) for next 5 AYs. He must Compulsorily get his books of accounts audited for next 5 AYs. So, for next 5 years you don’t have to check above conditions, you have to do tax audit u/s 44AB.

> 1 Cr but up to 2 Cr.	<8% OR 6%	Irrespective of Cash Payment & Receipts	Yes, 44AB(a)
> 1 Cr but up to 2 Cr.	>8% OR 6%	Irrespective of Cash Payment & Receipts	No
If a person is not declaring profit in accordance with 44AD(1) then he will be barred to claim benefit from 44AD(1) for next 5 AYs. He must Compulsorily get his books of accounts audited for next 5 AYs. So, for next 5 years you don’t have to check above conditions, you have to do tax audit u/s 44AB.

> 2 Cr. but up to 5 Cr.	Irrespective of %	If cash payments & Cash Receipts more than 5%	Yes 44AB(a)
> 2 Cr. but up to 5 Cr.	Irrespective of %	If cash payments & Cash Receipts less than 5%	No*
The above exemption is only for Income Tax purpose. An assessee having a turnover of more than 2 Crore has to undergo GST audit as per the provisions of the GST law.

> 5 Crore	Irrespective of %	Irrespective of cash payment and receipts	Yes, u/s 44AB(a)

For Professionals
Turnover	Net Profit %	Cash Payment & Cash Receipts	Audit Applicable?
> 50 Lakh	Irrespective of %	Irrespective of cash payment or cash receipt	Yes, 44AB(b)
< 50 Lakh	<50%		Yes, 44AB(d)
< 50 Lakh	>50%		No

Due date if tax audit is applicable from AY 2020-21
To upload Tax Audit Report	30-Sept-2020
To File Income Tax Return	31-Oct-2020
Note: The same due dates are applicable to all partners.