Partnership Audit clarification

Hey Somit! Let me clarify your doubts about partnership firm audit requirements step-by-step:

1. Is audit mandatory for a partnership firm with turnover Rs. 24 lakh and net profit Rs. 45,000?

• Under Section 44AB of the Income Tax Act, audit is mandatory if:

  • Turnover/Gross Receipts > Rs. 1 crore (for business).

• Since your turnover is Rs. 24 lakh (less than Rs. 1 crore), audit is NOT mandatory purely based on turnover.

• So, for your firm with turnover Rs. 24 lakh and net profit Rs. 45,000, audit is not compulsory.

2. If turnover is Rs. 99 lakh and profit is Rs. 1 lakh in FY 2020-21, do you need audit?

• For FY 2020-21, the audit limit is Rs. 1 crore turnover.

• Since turnover is Rs. 99 lakh (< 1 crore), audit not mandatory on turnover basis.

• However, profit margin condition applies if you opt for presumptive taxation under Section 44AD.

3. If profit is below 6% or 8%, is audit mandatory if not filing under Section 44AD?

• If you opt for presumptive taxation under Section 44AD, minimum profit is:

  • 6% for digital transactions.

  • 8% for non-digital transactions.

• If actual profit is below this, you need to get audit done.

• But if you do not opt for 44AD, and turnover < Rs. 1 crore, audit is not mandatory, irrespective of profit percentage.

• So, if you haven't filed under 44AD and turnover < 1 crore, audit is not mandatory even if profit is less than 6% or 8%.

4. If turnover crosses Rs. 1 crore, is audit mandatory?

• Yes, once turnover crosses Rs. 1 crore, audit under Section 44AB becomes mandatory.

• So audit becomes compulsory once turnover exceeds Rs. 1 crore.

5. Can you show any profit without audit if turnover is below Rs. 1 crore?

• Yes, if turnover < 1 crore and no presumptive scheme is opted, you can declare any actual profit without audit.

• However, profits must be genuine and supported by books as per tax laws.

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