Tax Audit Applicability for FY 2020-21

Finance Act 2020, has introduced a mojor change in Section 44AB of Income Tax Act.

Clause 23 of Finance Act 2020 is as given below:

23. In section 44AB of the Income-tax Act,––

(A) in clause (a),––

(i) the word “or” occurring at the end shall be omitted;

(ii) the following proviso shall be inserted, namely:––

‘Provided that in the case of a person whose––

(a) 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

(b) 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; or’;

(B) in the Explanation, in clause (ii), after the word “means”, the words “date one month prior to” shall be inserted.

This position can be understood with the help of Example:

Tax Audit Applicability for FY 2020-21

Provisions of Presumptive taxation are applicable where income of taxpayer exceeds the maximum amount which is not chargeable to income-tax in any previous year.

Presently (i.e FY 19-20),

• where the turnover of an assessee does not exceed Rs. 2 crores and
• he does not show profits equal to 6% or 8% as per 44AD,

he is liable to maintain books of accounts u/s 44AA and get his accounts audited u/s 44AB.

As per the Budget 2020, (i.e from FY 2020-2021 onwards), an assessee having cash receipts and payments not exceeding 5% of receipts & payments respectively, is not liable for tax audit if his turnover does not exceed Rs. 5 crores.

Lets understand the Anamoly with the help of an Example:

1. Turnover of Mr A is Rs. 3.9 Cr. His cash receipts and payments are not exceeding 5% of receipts & payments. In this case, he is not liable to Audit irrespective of fact whether he shows profits equal to 6% or 8% or not.

2. For Example, Turnover of Mr A is Rs. 1.9 Cr. His cash receipts and payments are not exceeding 5% of receipts & payments. In this case, he is liable to Audit if he shows profits less than 6% or 8% as the case may be.