Tax audit requirement post the amendment to section 44 ad (4&5) and 44 ab (e)

Ralph Praveen Pinto (Partner) (24 Points)

06 August 2018  

As per Section 44 AB of the Act (as amended by Finance Act, 2016) for a regular business (not being a profession) tax audit is required in the below 2 situations:

  • when the turnover exceeds Rs 1 crore (as per clause a)
  • when section 44 AD (4) is applicable AND income exceeds the taxable limit ( as per clause e)

Section 44 AD (4) talks about a situation where an assesee has opted for presumptive based taxation opts out of the scheme in any of the subsequent years.

In other words, as per my understanding post the amendment if the turnover is not exceeding Rs 1 cr, audit is required only if an assessee opts out of the presumptive based taxation after opting for it post AY 2017-18 (irrespective of the percentage of profit declared).

Based on the above, need your input on the audit requirements in the below situations (even if it is declaring profits of less than 8%,):

1. A firm which has started its business during FY 2017-18 and with a turnover of less than 1 crore is not required to go through tax audit as it had never opted for 44 AD and hence, 44 AD (4) is not applicable to it.

2. A firm whose turnover was more than 1 crore during earlier years and hence, subject to 44 AB audit during those years and its turnover has fallen below Rs 1 crore during the FY 2017-18 will not be subject to tax audit for same reason as given in point 1 above.

3. A firm which had opted for presumptive based taxation during FY 2015-16 could opt not to go through audit during FY 2016-17, even while declaring a profit of less than 8%, as it had not opted for presumptive based taxation post the above amendment.

Happy to you have your thoughts on the above.