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Tax Audit u/s 44AB limit increased upto 5 Cr. w.e.f. FY 2020-21 - Is it applicable to all businesses?

Soumya Laha 
on 20 February 2020


Tax Audit U/s 44AB limit has been proposed to increase up to Rs. 5Cr. from FY 2020-21 for MSME sector in Union Budget 2020 but several conditions apply.

 

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 defination of MSME

Limits of Tax Audit (Sec. 44AB) under Income Tax Act 

Currently the account of an assessee need to be audited

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

Amendment of Sec 44AB 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 crore' 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 this audit limit increased (Rs. 5 cr.) for only MSMEs

No. The increased 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 Audit and Income Tax Return filing

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

  • Due date of Income Tax Return of Audited Tax payers (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.

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