TAX AUDIT LIMIT FOR AY 2018-19 FY 2017-18

Tax audit means a Audit required to be conducted under the provisions of the Income tax as prescribed under section 44AB.The audit repor...

Tax audit means a Audit required to be conducted under the provisions of the Income tax as prescribed under section 44AB.The audit report under this section is required to be furnished before the due date of filing of Income tax return of respective persons.In this post we have covered the cases where the tax audit is required to be audited

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• 1. Tax audit Limit for ay 2018-19 Fy 2017-18 is as under

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• 1.1 Tax audit limit for Business :

Rs. 1 Crore. It means an assessee need to be audited under Sec.44AB if his annual gross turnover/receipts in business exceeds Rs. 1 Crore. This provision is applicable from F.Y. 2016-17 (A.Y. 2017-18) & onwards. It means the limit of Tax Audit u/s 44AB is Rs. 1 Cr. for Business in FY 2017-18 / AY 2018-19.

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• 1.2 Tax audit limit for Profession :

Rs. 50 Lakh. It means an assessee need to be audited under Sec 44AB if his annual gross receipts in profession exceeds Rs. 50 Lakh. This provision is applicable from F.Y. 2016-17 (A.Y. 2017-18) & onwards. It means the limit of Tax Audit u/s 44AB is Rs. 50 Lakh for Profession in FY 2017-18 / AY 2018-19.

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• 1.3 Chart showing Tax audit Limit year wise

SR No	FINANCIAL YEAR	LIMIT (BUSINESS)	PROFESSIONAL
1	2009-10	40   LAKH	10 LAKH
2	2010-11 & 2011-12	60   LAKH	15 LAKH
3	2012-13 to 2015-16	100 LAKH	25 LAKH
4	2016-17 onwards	100 LAKH	50 LAKH

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• 1.4 Tax audit required for Financial Year 2017-18 ay 2018-19

Nature of Business or Profession	Category of Taxpayer	Threshold Limits for Gross Turnover or Receipts
Specified Professions	Any	Rs. 50 lakhs
Non-Specified Professions	Any	Rs. 50 lakhs
Business	Any	Rs. 1 Crore
Business	Opted 44AD	Rs 2 crore
Presumptive Tax Scheme under Sec. 44AD	Resident Individual or HUF	Taxpayer opted for this scheme in any of the last 5 previous years but do not opt for it in current year and his total income exceeds the maximum amount which is not chargeable to tax.
	Resident Partnership Firm	Taxpayer opted for scheme in any of last 5 previous years but do not opt for in current year.
Presumptive Tax Scheme under Sec. 44ADA	Resident Assessee	Taxpayer claims that his profits from profession are lower than the profits deemed under Section 44ADAand total income exceeds the maximum amount which is not chargeable to tax.
Presumptive Tax Scheme under Sec. 44AE	Any Assessee engaged in plying, hiring or leasing goods carriage	Taxpayer claims that his profits are lower than the deemed profit under section 44AE.
Presumptive Tax Scheme under Sec. 44BB	Non-resident assessee engaged in exploration of mineral oil	Taxpayer claims that his profits are lower than the deemed profits under Section 44BB.
Presumptive Tax Scheme under Sec. 44BBB	Foreign Co. engaged in civil construction	Taxpayer claims that his profits are lower than the deemed profits under Section 44BBB.

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• 2.0 Case where Higher Limit is applicable of Rs 2 crore

However if person has opted for presumptive income scheme then he is not required to get its accounts audited upto Rs 2 crore subject to that he has declared his profits more than or up to the % prescribed under the presumptive income scheme. The same issue has clarified by the CBDT in press release dated 20.06.2016.The CBDT has already clarified that 2 crore limit was given only if person is eligible for presumptive scheme and opted the same as per section 44AD

PRESS RELEASE New Delhi, the 20th June, 2016
Sub: Threshold Limit of tax audit under section 44AB and section 44AD – clarification regarding

"Section 44AB of the Income-tax Act (‘the Act’) makes it obligatory for every person carrying on business to get his accounts of any previous year audited if his total sales, turnover or gross receipts exceed one crore rupees. 

However, if an eligible person opts for presumptive taxation scheme as per section 44AD(1) of the Act, he shall not be required to get his accounts audited if the total turnover or gross receipts of the relevant previous year does not exceed two crore rupees. The higher threshold for non-audit of accounts has been given only to assessees opting for presumptive taxation scheme under section 44AD."

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• 3.0 Cases Where turnover Limit not applicable

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• 3.1 Cases where audit mandatory for turnover of business less than one crore wef ay 2017-18 onwards

As per section 44AD , if eligible person having turnover upto 2 crore and Taxpayer opted for this scheme in any of the last 5 previous years but do not opt for it in current year and his total income exceeds the maximum amount which is not chargeable to tax he is required to get books of accounts audited irrespective of turnover in previous year (even if less than one crore also)

According to Section 44AD(1) an eligible person having turnover up to Two crore from eligible business may adopt presumptive income scheme by declaring his business income as 8 % (6% in case of non cash transactions)of the turnover.

Further as per Section 44AD (5) raed with section 44AD(4)

(4) Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1).

(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.

Following Conditions must be satisfied to cover a person under tax audit as per section 44AB read with section 44AD(5)

1. Person must be Individual ,HUF,or Partnership Firm (LLP ,Companies and other not covered ) and he must be resident as per income Tax act/rules.

"eligible assessee" means,—

(i) an individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited liability partnership firm and

(ii)who has not claimed deduction under any of the sections 10A, 10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading "C. - Deductions in respect of certain incomes" in the relevant assessment year;

2 . Person must be carrying on eligible business

"eligible business" means,—

• (i) any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and
• (ii) whose total turnover or gross receipts in the previous year does not exceed an amount of two crore rupees

3. Following are Excluded /not covered under 44AD

(i) a person carrying on profession as referred to in sub-section (1) of section 44AA;

(ii) a person earning income in the nature of commission or brokerage; or

(iii) a person carrying on any agency business.

4. Turnover /sales /total sales  of the person does not exceeds Two crore rupees.

5. Taxpayer opted for this scheme in any of the last 5 previous years but do not opt for it in current year means Profits from Business claimed is less than 8 %/6% in case of non cash transactions of the turnover.

6. Taxable income of the person must be more than general exemption limit of income Tax .

• This rules is effectively applicable on Individual and HUF only as there is no general exemption limit for partnership firms.Further in case of loss the section 44AD does not applicable.

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• 3.1.1 Cases where audit mandatory for turnover of business less than one crore upto  AY 2016-17 

Up to Financial year 2015-16 audit under section 44AD was required if eligible person has not declared his income in previous year lower than deemed income % given under this section 8% of turnover.

PERSON REQUIRED TO OBTAIN TAX AUDIT REPORT U/S 44AB read with 44AD up to ay 2016-17 Fy 15-16
Particulars	Resident Individual / Partnership Firm / HUF		Others
	Taxable Income up to exemption limit	Taxable Income exceeds exemption limit
Gross turnover up to one crore from eligible business & profit less than    8 % of turnover	No	Yes	No
Gross turnover up to one crore from eligible business & profit more than 8 % of turnover	No	No	No

Old Section reproduced hereunder

44AD(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.

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• 3.1.2 Summary of Section 44AD  read with 44AB  

• Applicable to small taxpayers engaged in any business having Sales Value < 2Cr Per Annum.
• Applicable only to Proprietorship Firm, HUF and Partnership Firm and Not To Company Or LLP Or NRI’s
• If a person feels that his Income is lower than 8% of Sales he may not opt for the scheme of Presumptive Taxation and rather opt for the Normal Taxation Scheme. In such cases, the person will be required to maintain proper books of accounts under Section 44AA if his Annual Income exceeds Rs. 1,50,000 or Annual Sales exceed Rs. 25,00,000.
• If Total sale is <  Rs. 1 Crore and he has never opted for Section 44AD earlier – he will not be liable to tax audit.
• If total sale is < Rs. 1 Crores and he has opted for Section 44AD in any of the 5 previous years – he will be liable to tax audit.
• However, if a person opts out of the scheme of Presumptive Taxation, then he cannot avail the benefit of the scheme of Presumptive Taxation for the next 5 years. Tax Audit is mandatory for the next 5 years in case a person opts out of the scheme of presumptive taxation.

By CA JAIN ALOK 9899259011

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• 3.2 Cases where audit mandatory for Gross receipts  of profession less than 50 lakh 

Taxpayer claims that his profits from profession are lower than the profits (50% of gross receipts) deemed under Section 44ADA and total income exceeds the maximum amount which is not chargeable to tax are required to get their books of accounts audited

Assessee eligible for Section 44ADA

An assessee, being a resident in India, who is engaged in any specified  profession  and whose total gross receipts do not exceed fifty lakh rupees in a previous year, a sum equal to fifty per cent of the total gross receipts of the assessee in the previous year on account of such profession or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee, shall be deemed to be the profits and gains of such profession chargeable to tax under the head "Profits and gains of business or profession".

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• 3.3.In other cases

Similarly the Tax audit is required in case Taxpayer eligible for presumptive scheme under section  44AE or 44BB or 44BBB but claims that his profits are lower than the deemed profit under section 44AE or 44BB or 44BBB as the case may be.

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• 4.0 Assessee having more than one Businesses 

In cases, where the assessee carries on more than one business activity, the aggregate sales, turnover and/or gross receipts of all such businesses carried on by the assessee would be taken into consideration in determining whether the prescribed limit laid down under section 44AB has exceeded or not.

However, in case the Turnover of a particular business of the assessee is covered under section 44AD/44AE/44B/44BBA /44BBB and if the assessee opts to be assessed under these sections on presumptive basis, the Turnover of such business shall be excluded to arrive at the limit prescribed by section 44AB. (i.e. Rs. 1 Crore at present).

Also Read [Meaning of Turnover -gross receipt Inclusions-exclusions]
[Implementation guidelines for Tax audit by ICAI-2018]
[guidance note on Tax audit report 44AB by ICAI-2014]

Please Note that if Audit is Not mandatory as per Income Tax act or any other law of the Land other than Income Tax act and person have got his books audited on voluntarily basis (like on the instance of the Bank) , then Due date of Income Tax return in non audit case shall be applicable.

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• 5.0 Text of the Section 44AB 

Audit of accounts of certain persons carrying on business or profession.

44AB. 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

(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,

get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed :

Provided that this section shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD and his total sales, turnover or gross receipts, as the case may be, in business does not exceed two crore rupees in such previous year:]

Provided further that this section shall not apply to the person, who derives income of the nature referred to in section 44B or section 44BBA, on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later :

Provided also that in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section.

Explanation.—For the purposes of this section,—

 (i)  "accountant" shall have the same meaning as in the Explanation below sub-section (2) of section 288;

(ii)  "specified date", in relation to the accounts of the assessee of the previous year relevant to an assessment year, means the due date for furnishing the return of income under sub-section (1) of section 139.

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• 6.0 Text of the Section 44AD

Special provision for computing profits and gains of business on presumptive basis.

44AD. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession" :

Provided that this sub-section shall have effect as if for the words "eight per cent", the words "six per cent" had been substituted, in respect of the amount of total turnover or gross receipts which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.

(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.

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(3) The written down value of any asset of an eligible business shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.

^57a[(4) Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1).

(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.

(6) The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply to—

 (i)  a person carrying on profession as referred to in sub-section (1) of section 44AA;

(ii)  a person earning income in the nature of commission or brokerage; or

(iii)  a person carrying on any agency business.

Explanation.—For the purposes of this section,—

(a)  "eligible assessee" means,—

 (i)  an individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited liability partnership firm as defined under clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009); and

(ii)  who has not claimed deduction under any of the sections 10A, 10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading "C. - Deductions in respect of certain incomes" in the relevant assessment year;

(b)  "eligible business" means,—

 (i)  any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and

(ii)  whose total turnover or gross receipts in the previous year does not exceed an amount of two crore rupees.