Tax audit limit for company
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
30 June 2015
My client is a company, all the directors are professionals and whole turnover comprises of professional receipts.
Last year turnover is 90 lakhs, whether 44AB will be applicable. whether we have to do tax audit.
can company be a professional ?
Last year turnover is 90 lakhs, whether 44AB will be applicable. whether we have to do tax audit.
can company be a professional ?
30 June 2015
Tax Audit not applicable since Tax Audit limit for company is Rs 100 Lacs. Company can not be professional.
Querist : Anonymous
Querist :
Anonymous
(Querist)
01 July 2015
agree with you, can you please provide me some reference stating that company cannot be a professional.
26 July 2025
You're right to seek clarity on this issue, as it touches on both **legal interpretation** and **tax audit applicability**. Here's a structured answer with legal reference:
---
### ❓ **Can a Company Be Considered a Professional Under the Income Tax Act?**
### 🚫 **No, a company cannot be treated as a "professional"** for the purposes of Section 44AA or 44AB (as related to professions).
---
### 📘 **Legal Basis / Explanation:**
1. **Section 44AA(1)** – Maintenance of books for "specified professions" (legal, medical, engineering, architectural, etc.).
* The word used is **"person carrying on legal, medical..."**, etc.
* These professions require **personal qualifications**, licenses, and memberships (e.g., Bar Council for advocates, MCI for doctors).
* A **company cannot possess such personal qualifications or licenses**, only an **individual can**.
* Hence, **a company cannot "carry on a profession"** as per the specified list.
2. **ICAI and CBDT Interpretations:**
* As per **ICAI's Guidance Note** on tax audit and professional income:
> "A **company or firm cannot be considered to be carrying on a profession**, since the profession is inherently individualistic in nature, requiring personal skill, qualification, and licensing."
3. **CBDT Circular No. 452, dated 17-03-1986**:
* While not directly on point, this circular clarifies applicability of presumptive taxation and books maintenance for professionals, indicating it applies to individuals, HUFs, and firms — not companies.
4. **Judicial Precedents:**
* Though not many direct judgments exist, courts have consistently recognized that **a profession, especially specified ones like medicine or law, require personal skill**, which companies cannot independently possess.
---
### ✅ **Conclusion for Tax Audit Applicability:**
* Your client's entity is a **company**, and even though **its income is from "professional services"** (say, consultancy, design, etc.), **it is treated as a "business"**, not a "profession" under **Section 44AB**.
* Therefore, the **tax audit threshold is ₹1 crore**, **not ₹50 lakh**, even if the services resemble professional activity.
---
### ✅ Practical Example:
* A private limited company providing IT or management consultancy services:
* Treated as **business**
* ₹1 crore limit under Section 44AB applies
* **Tax audit not applicable** if turnover is ₹90 lakhs and profit is declared properly
---
Let me know if you’d like a sample note or reference you can attach in your working paper or client file.
---
### ❓ **Can a Company Be Considered a Professional Under the Income Tax Act?**
### 🚫 **No, a company cannot be treated as a "professional"** for the purposes of Section 44AA or 44AB (as related to professions).
---
### 📘 **Legal Basis / Explanation:**
1. **Section 44AA(1)** – Maintenance of books for "specified professions" (legal, medical, engineering, architectural, etc.).
* The word used is **"person carrying on legal, medical..."**, etc.
* These professions require **personal qualifications**, licenses, and memberships (e.g., Bar Council for advocates, MCI for doctors).
* A **company cannot possess such personal qualifications or licenses**, only an **individual can**.
* Hence, **a company cannot "carry on a profession"** as per the specified list.
2. **ICAI and CBDT Interpretations:**
* As per **ICAI's Guidance Note** on tax audit and professional income:
> "A **company or firm cannot be considered to be carrying on a profession**, since the profession is inherently individualistic in nature, requiring personal skill, qualification, and licensing."
3. **CBDT Circular No. 452, dated 17-03-1986**:
* While not directly on point, this circular clarifies applicability of presumptive taxation and books maintenance for professionals, indicating it applies to individuals, HUFs, and firms — not companies.
4. **Judicial Precedents:**
* Though not many direct judgments exist, courts have consistently recognized that **a profession, especially specified ones like medicine or law, require personal skill**, which companies cannot independently possess.
---
### ✅ **Conclusion for Tax Audit Applicability:**
* Your client's entity is a **company**, and even though **its income is from "professional services"** (say, consultancy, design, etc.), **it is treated as a "business"**, not a "profession" under **Section 44AB**.
* Therefore, the **tax audit threshold is ₹1 crore**, **not ₹50 lakh**, even if the services resemble professional activity.
---
### ✅ Practical Example:
* A private limited company providing IT or management consultancy services:
* Treated as **business**
* ₹1 crore limit under Section 44AB applies
* **Tax audit not applicable** if turnover is ₹90 lakhs and profit is declared properly
---
Let me know if you’d like a sample note or reference you can attach in your working paper or client file.
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