Income Tax Audit Limit and Other Provisions under Income Tax Act for AY 2023-24
As the financial year draws to a close, taxpayers are getting ready to file their income tax returns for Assessment Year 2023-24 (AY 2023-24). One of the critical aspects of tax compliance is the income tax audit, which is conducted under Section 44AB of the Income Tax Act. Let’s delve into the details of income tax audit and its applicability, along with other important provisions for AY 2023-24.
Income Tax Audit – An Overview:
An income tax audit is an examination and review of the financial records of a taxpayer who receives income from a business or profession. The primary objective of the audit is to ensure that the taxpayer has maintained accurate financial records and complied with the tax laws. A practicing Chartered Accountant is appointed to conduct the income tax audit, who assesses the books of accounts’ accuracy and provides their observations.
Applicability of Income Tax Audit for FY 2022-23:
According to Section 44AB of the Income Tax Act, the following persons are required to get their accounts audited:
- Businesses: If the total sales, turnover, or gross receipts in a business exceed Rs. 1 crore and the taxpayer has not opted for Section 44AD, then an income tax audit is mandatory. The limit of Rs. 1 crore can be increased to Rs. 10 crores if the cash receipts and payments made during the year do not exceed 5% of the total receipts or payments, i.e., more than 95% of business transactions should be done through banking channels.
- Professionals: If the gross receipts in a profession for the year exceed Rs. 50 lakhs, then an income tax audit is required.
- Other Criteria: An income tax audit is also necessary for individuals who have opted for Section 44AD, Section 44ADA, or Section 44AE in the previous year, but in the current year:
- Their declared profit is less than 8% (or 6% for digital transactions) and their income exceeds the non-taxable amount.
- Their declared profit is less than 50%, and their income exceeds the non-taxable amount.
- Their profits and gains are lower than the profits and gains computed as per the taxation scheme of Section 44BB or Section 44BBB.
Revised Income Tax Audit Limit for FY 2023-24:
From FY 2023-24, the presumptive taxation limit for Section 44AD is increased from Rs. 2 crore to Rs. 3 crore, and for Section 44ADA, it is increased from Rs. 50 lakhs to Rs. 75 lakhs if cash receipts during the fiscal year are less than 5% of total gross receipts or turnover. These changes are applicable from April 1, 2024, and will apply to assessment years 2024-25 and onwards.
Due Date for Income Tax Audit and Filing:
The last date for filing the tax audit report with the income tax department is September 30 of the relevant assessment year. The due date for filing the income tax return (ITR) for audited assesses is October 31.
Tax Audit Report Form:
The tax audit report must be furnished in the forms prescribed below:
- If the books of accounts are audited under any other law: Form 3CA (Audit Report) and Form 3CD (Annexure to Audit Report).
- In any other case: Form 3CB (Audit Report) and Form 3CD (Annexure to Audit Report).
It is essential to comply with the tax audit provisions and file the income tax returns diligently to avoid penalties and ensure tax compliance. Seek professional advice when needed to navigate through the complexities of tax laws and fulfill your tax obligations with confidence. Stay informed, file your taxes on time, and contribute to the nation’s growth and development.
Penalty for Tax Audit under Section 44AB:
If a taxpayer is liable for income tax and fails to get the books of accounts audited as required under Section 44AB, they may be liable to pay a penalty. The penalty for failure to complete tax audit as per Section 44AB is calculated as the lower of the following two amounts:
- Rs. 1,50,000, or
- 0.5% of the total receipts
In case the taxpayer fails to submit the tax audit report on time or before the deadline, no penalty under Section 271B will be enforced if reasonable causes are shown. However, if the tax audit report is not submitted within the specified deadline and there are no reasonable causes for the delay, the provisions of Section 271B of the Income Tax Act, 1961, may apply, and the taxpayer may be subject to penalty.