Lot of professionals and businesses face challenge to determine whether tax audit is applicable in relevant period or not. More specifically if business has incurred loss, then will tax audit will be compulsory for such business?
This article will address all the questions along with few case studies for ease of understanding. This article will also address questions like on whom tax audit is applicable, when it is applicable, how & when tax audit reports should be furnished, penalties for non filing or delay in furnishing of tax audit reports.
Reference of relevant section from Act >> https://incometaxindia.gov.in/Pages/acts/income-tax-act.aspx
On whom Tax Audit is applicable?
Every person as defined in Section 2(31) of the Income Tax Act being Individual, Hindu Undivided Families [HUFs], Association of Persons [AOPs], Body of individuals [BOIs], Firms, LLPs, Companies, Local authority and any artificial juridical person.
When is Tax Audit applicable?
- Person carrying on business if total sales/turnover/gross receipts exceed one crore
However, if Cash Receipts and Cash Payments does not exceed 5% of total cash receipts and payments then tax audit is applicable only if the limit of total sales/turnover/gross receipts exceeds 10 crores.
- Person carrying on profession if gross receipts in profession exceed 50 lacs
- Person carrying on business who has declared Lower profits from as would have been deemed under section 44AE, 44BB or 44BBB
- Person carrying on profession who has declared Lower profits from as would have been deemed under section 44ADA and income so declared exceeds the maximum exemption limit chargeable to tax (i.e., 2.5 lacs)
- Person carrying on business and on whom provision of Section 44AD (4) are applicable and exceeds the maximum exemption limit chargeable to tax (i.e., 2.5 lacs)
Provided if income declared as per section 44AD (1), then audit is applicable under Income Tax only if total sales/turnover/gross receipts from business exceeds 2 crores.
This section not applicable on person who derives income as per Section 44B (Special provision for computing profits and gains of the business of operation of aircraft in the case of non-residents) & 44BBA (Amount received in India or deemed to be received in India by or on behalf of the taxpayer on account of carriage of passenger, livestock, mail or goods from any place outside India.)
Relevant extracts of Section 44AD
44AD (1) – Eligible assessee carrying on eligible business can declare a sum equal to 8% of the total turnover or gross receipts or such higher sum earned, shall be deemed to profits and gains of business chargeable to tax.
44AD (4) Eligible assessee who declares income as per Sub Section 1 above then he has to declare profits for five years in accordance with sub section 1. However, if he opts out in any of the year then he would not be eligible to opt for Sec 44AD (1) for 5 years from the year he opted out
Examples to check the tax audit applicability in case of losses
| Case Study | Particular of Business/Profession | Tax Audit Applicability |
|---|---|---|
| 1 | Ram carrying on business of Retail Store o Turnover of current F.Y. 1.5 crore. o Net Loss from Business – 5 Lacs. o Section 44AD Opted in previous year. o Section 44AD opted in current year | Applicable in current year since income declared is less than 8%/6% of the turnover of the current F.Y. |
| 2 | Ram carrying on business of Retail Store. o Turnover of current F.Y. 1.5 crore. o Net Loss from Business – 5 Lacs. o Section 44AD Opted in previous year. o Opted out of Section 44AD in current year | Not applicable since income does not exceed maximum exemption limit chargeable to tax i.e., 2.50 Lacs. |
| 3 | Ram carrying on business of Retail Store. o Turnover of current F.Y. 1.5 crore. o Net Loss from Business – 5 Lacs. Section 44AD Not Opted in previous year and current year. | Not applicable |
| 4 | Ram carrying on business of Retail Store. o Turnover of current F.Y. 1.5 crore. o Net Loss from Business – 5 Lacs and o This is first year of business. | Not applicable |
| 5 | Ram carrying on profession of Chartered Accountant. o Gross Receipts of current F.Y. 52 Lacs. o Net Loss from profession – 5 Lacs. o Section 44ADA Opted in previous year. o Section 44ADA opted in current year | Not applicable since income does not exceed the maximum limit chargeable to tax. |
| 6 | Ram carrying on profession of Chartered Accountant. o Gross Receipts of current F.Y. 52 Lacs. o Net Loss from profession – 5 Lacs. o Section 44ADA Opted in previous year. o Opted out of Section 44ADA in current year | Applicable. |
| 7 | Ram carrying on profession of Chartered Accountant. o Gross Receipts of current F.Y. 52 Lacs. o Net Loss from profession– 5 Lacs. Section 44ADA Not Opted in previous year and current year. | Applicable. |
| 8 | Ram carrying on profession of Chartered Accountant. o Gross Receipts of current F.Y. 52 Lacs. o Net Loss from profession – 5 Lacs and o This is first year of profession. | Not applicable if income declared as per 44ADA |
How and when tax audit reports shall be furnished?
Taxpayer add CA details on their Income Tax Log in portal. A Chartered Accountant on his Income Tax portal uploads the Tax audit report as per relevant form for the relevant year provided on Income Tax Portal.
Once the report is uploaded same is accepted by Tax payer. However, in case if Tax payer rejects the reports the entire process has to be followed again by Chartered Accountant.
The Last date to file tax audit report is 30 Sept from the end of relevant financial year. However, in transfer price cases the due date is 30 Nov from the end of relevant financial year.
Penalty of non-filing or delay in filing tax audit report
The lower of the following may be levied as a penalty for non-filling of tax audit report:
- 0.5% of the total sales, turnover or gross receipts
- Rs 1,50,000
As per Section 271B, in case of a reasonable cause of failure (non-filling of Tax audit report), penalty shall not be levied
The reasonable causes that are generally accepted by Tribunals/Courts are:
- Calamities such as disaster, fire, floods, earthquake.
- Resignation of the Tax Auditor and Consequent Delay
- Loss of Accounts because of situations beyond the control of the Assesses
- Physical inability or death of the partner in charge of the accounts
Tax Audit assistance in Udaipur and Rajasthan
For Tax Audit or assistance in Tax Audit in Udaipur and Rajasthan, reach our professionals at Tax Ledger Advisor.
Also refer other articles from taxledgeradvisor >> https://www.taxledgeradvisor.com/business-tax-filling/ https://www.taxledgeradvisor.com/itr-3/