Tax Audit u/s 44AB limit increased upto 5 Cr. w.e.f. AY 20-21 - Is it applicable to all businesses?

Soumya Laha , Last updated: 28 February 2021
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Budget 2021 Update: To incentivise digital transactions and to reduce the compliance burden of the person who is carrying almost all of their transactions digitally, it is proposed to increase the limit for tax audit for persons who are undertaking 95% of their transactions digitally from Rs. 5 crores to Rs. 10 crores.

Update:

The due date for filing of Tax Audit Return for AY 2020-21 has been extended to 31st December 2020

Tax Audit U/s 44AB limit has been proposed to increase up to Rs. 5Cr. from AY 2020-2021 for MSME sector in Union Budget 2020 but several conditions apply.

Tax Audit u/s 44AB limit increased upto 5 Cr. w.e.f. AY 20-21- Is it applicable to all businesses

What is MSME?

The full form of MSME is Micro, Small & Medium Enterprises. According to Micro, Small & Medium Enterprises Development Act (MSMED) 2006, there are two types of MSME such as,

Manufacturing Enterprises.
Service Enterprises.

Click here to read the official definition of MSME

Tax Audit Limit as per Section 44AB of the Income Tax Act 1961

Currently, the account of an assessee needs to be audited

if his annual gross turnover/receipts in Business exceeds Rs. 1 Crore. or
if his annual gross receipts in Profession exceeds Rs. 50 Lakh.

Amendments to Sec 44AB of the Income Tax Axt, 1961 in Budget 2020

Apart from the current provision, a new provision also inserted in Sec. 44AB that has been proposed to increase the tax audit limit from '1 crore' to '5 crores' if a person's

aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed 5% of the said amount and
aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed 5% of the said payment.

Click here to read the clause 23 of THE FINANCE BILL, 2020

Click here to read the notes on clauses

Whether the tax audit limit under section 44AB increased to Rs. 5 crore is for only MSMEs?

No. The increased tax audit limit is applicable to small retailers, traders, and shopkeepers who earn business income. But the increased audit limit is applicable to those whose sales/ receipts in cash and purchases/ payments in cash are less than 5%, otherwise, the limit will remain Rs. 1 Cr.

Change in Due Dates of Tax Audit and Income Tax Return filing

According to Budget 2020, the following are proposed, such as,

Due date of Income Tax Return of Audited Taxpayers (Sec. 44AB, 44ADA, 115JB etc.): 31st October.
Due date to submit Tax Audit Report: One month prior to income tax return filing i.e. 30th September.