Under the Union Budget 2021, Finance Minister Nirmala Sitharaman has announced the notification to increase the tax audit threshold limit from Rs. 5 crores to Rs. 10 crores. Also, this decision provides much-needed help to organisations and businesses that transact electronically. It aims to promote cashless digital transactions and reduce the burden of compliance for small and medium enterprises. In this article, we will cover the notification on the Increases Tax Audit Limit in Budget 2021.
Government Increases Tax Audit Limit to Rs. 10 crores
As specified under Section 44AB of the Income Tax Act, 1961, individuals carrying on a business in India have to get their accounts inspected and audited by a qualified accountant and file an audit report if the total turnover/gross receipts exceed Rs. 1 crore during the year. In the case of presumptive taxation, as defined u/s 44AD, this limit is Rs. 2 crores. However, for people engaged in any profession, an audit of books of accounts is compulsory if total sales/turnover/gross receipts exceed Rs. 50 lakhs.
In the Union Budget 2020, the government raised the tax audit limit from Rs. 1 crore to Rs. 5 crores for persons carrying on business in India. The reason for the decision was to ease the burden of compliance for small and medium taxpaying enterprises and to promote cashless business transactions, provided they satisfied the following conditions:
- The sum of all cash receipts during the year does not exceed 5% of total receipts.
- The sum of all cash payments during the year does not exceed 5% of total payments.
The Implications of the Announcement
The Income Tax Act, 1961 requires individuals engaged in business and professionals to get their business books and accounts audited by a certified accountant. Also, file a tax audit report if the total sales/turnover/gross receipts exceed a specific amount.
Last year, the government increased this limit from Rs. 1 crore to Rs. 5 crores, provided that cash receipts and cash payments do not exceed 5% of the total receipts and payments during the year.
The Finance Bill 2021 further increases tax audit limit to Rs. 10 crores. It means that now, individuals engaged in business shall not be required to get their accounts audited and file a tax audit report if their total turnover/gross receipts do not exceed Rs. 10 crores, and cash receipts and cash payments do not exceed 5% of the total receipts and payments during the year.
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