Turnover crieteria for tax & vat audit of builders

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Querist : Anonymous

Querist : Anonymous (Querist)

07 November 2014 one of my client is a builder, the following is the case study: -
Project duration - 3 years
Total Flats:- 9
Total Shops:- 4

1st year No agreement done so clolsing WIP is same as actual cost incurred

2nd year:- 4 flat agreements are done, but no revenue recognising in that year. whatever cost incurred till date + profit margin = closing W.I.P. for the project which Exceeds Rs. 1 crore.
so my 1st question is whether Tax audit is applicable or not?
total agreement value is Rs. 92 lacs
so my 2nd question is whether vat audit is applicable or not?

Amol S Joglekar

Amol S Joglekar (Expert)

07 November 2014 01. The word TURNOVER has many facets as decided in various case laws.
02. Why are you including PROFIT margin in WIP?
03. VAT audit is applicable.
04. Income tax, you may take chance. But prudent practice will be to conduct tax audit.

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Querist : Anonymous

Querist : Anonymous (Querist)

08 November 2014 Sir you are saying that vat audit is applicable but the turnover is only Rs. 92 lacs & limit for vat audit applicability is Rs. 1cr. so sir please tell me on what basis you are saying that vat audit is applicble.

Amol S Joglekar

Amol S Joglekar (Expert)

08 November 2014 in VAT turnover may be measured from Purchase side as well as sale side.

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Querist : Anonymous

Querist : Anonymous (Querist)

08 November 2014 SO IN THIS CASE I HAVE TO CONSIDERED BOTH AGREEMENT VALUE RS.92 LACS + PURCHASE COST
RS. 82 LACS FOR APPLICABILITY OF BOTH.
BUT IN VAT LAWS IF SALES OR PURCHASE TURNOVER IS MORE THAN RS.1 CR. THEN ONLY VAT AUDIT IS APPLICABLE.

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

02 August 2025 Here's a clear explanation about **turnover criteria for Tax and VAT audit for builders** based on your case:

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### 1. **Tax Audit Applicability (Income Tax)**

* Tax audit under **Section 44AB** applies if **turnover/gross receipts** exceed Rs. 1 crore (for business).
* For builders, turnover means **total value of sales/agreements made during the year**.
* In your case:

* Agreement value = Rs. 92 lakhs (less than Rs. 1 crore)
* WIP includes costs + profit margin, but profit margin should **not** be included in turnover for tax audit.
* So strictly, if agreement value is Rs. 92 lakhs only, **tax audit may not be mandatory**, but **prudent practice** suggests to do the audit if close to the limit.

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### 2. **VAT Audit Applicability**

* VAT audit applicability depends on **turnover in sales OR purchases** crossing Rs. 1 crore.
* Turnover = Total sales value + Total purchase value.
* In your example:

* Sales (agreements) = Rs. 92 lakhs
* Purchase cost = Rs. 82 lakhs
* Combined = Rs. 1.74 crores > Rs. 1 crore limit
* Hence, **VAT audit is applicable** because either sales or purchases turnover exceeds Rs. 1 crore.

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### Important Notes:

* For VAT, turnover includes both **purchase and sales**.
* Profit margin is not added to WIP for tax audit turnover but may be relevant in valuing inventory.
* WIP is more of accounting concept and may not directly define turnover for audit purposes.
* Tax audit turnover = actual receipts or agreements during the year.
* VAT turnover = sum of sales & purchase transactions.

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### Summary Table

| Audit Type | Turnover Considered | Applicability in Your Case |
| ---------- | ----------------------------------- | -------------------------------------------------------- |
| Tax Audit | Sales/Agreements (excluding profit) | Rs. 92 lakhs Rs. 1 crore → Applicable |

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If you want, I can help you draft an audit compliance checklist or any documentation related to this. Would that be useful?

Amol S Joglekar

Amol S Joglekar (Expert)

24 February 2026 Noted the contents. Thank you very much

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