The Income Tax Act mandates businesses and professionals to undergo an audit under certain conditions to ensure transparency and accuracy in financial reporting. Section 44AB specifies the circumstances under which an audit is compulsory, including different provisions for presumptive tax schemes like Section 44AD, 44ADA, and Section 44AE.
From AY 2024-25, the turnover limits for audit exemption have been updated, providing some relief to businesses and professionals with low cash transactions. This guide simplifies the conditions under which an audit is required or exempted and provides a clear breakdown of the relevant clauses and subsections for each scenario.
Key Checkpoints Before Deciding Audit Requirement:
- Turnover Limit: The turnover or gross receipts of your business or profession for the financial year.
- Cash Receipts & Payments: Whether cash transactions exceed 5% of total receipts and payments.
- Presumptive Taxation: Are you opting for Section 44AD, 44ADA, or 44AE, and if so, are you declaring profits as per the prescribed percentage?
- Previous Years: If you’ve opted out of Section 44AD after choosing it earlier, you'll need an audit for the next 5 years.
- Audit under Other Laws: If your accounts are already audited under other laws (e.g., Companies Act), check whether a separate audit is still necessary.
Audit Requirement Table for AY 2024-25
| S. No. | Condition | Turnover / Receipts | Audit Required | Clause & Subsection of Section 44AB |
|---|---|---|---|---|
| 1 | Business with turnover up to Rs. 1 Crore | Up to Rs. 1 Crore | No | Not applicable |
| 2 | Business with turnover exceeding Rs. 1 Crore but up to Rs. 2 Crores (Opting for Section 44AD) | Rs. 1 Cr. to Rs. 2 Cr. | No, if profit ≥ 6% (digital) or 8% (cash) | Clause (a), Section 44AD |
| 3 | Business with turnover up to Rs. 3 Crores (From 1st April 2024) | Up to Rs. 3 Crores | No, if cash receipts ≤ 5% | Proviso to Clause (a) |
| 4 | Business with turnover up to Rs. 10 Crores (From 1st April 2024) | Up to Rs. 10 Crores | No, if cash receipts & payments ≤ 5% | Proviso to Clause (a) |
| 5 | Business with turnover exceeding Rs. 10 Crores | Above Rs. 10 Crores | Yes | Clause (a) |
| 6 | Professional with receipts up to Rs. 50 Lakhs (Opting for Section 44ADA) | Up to Rs. 50 Lakhs | No, if 50% profit declared | Clause (b), Section 44ADA |
| 7 | Professional with receipts up to Rs. 75 Lakhs (From 1st April 2024) | Up to Rs. 75 Lakhs | No, if cash receipts ≤ 5% | Proviso to Clause (b) |
| 8 | Professional with receipts exceeding Rs. 75 Lakhs | Above Rs. 75 Lakhs | Yes | Clause (b) |
| 9 | Business opting out of Section 44AD after opting in | N/A | Yes for 5 years after opting out | Clause (e), Section 44AD(4) |
| 10 | Business or profession declaring lower profits than required under Section 44AD / 44ADA | N/A | Yes | Clause (d), Section 44AD/44ADA |
| 11 | Goods carriage business under Section 44AE declaring lower profits | N/A | Yes | Clause (c), Section 44AE |
| 12 | Oil exploration or aircraft operations under Section 44BB / 44BBB declaring lower profits | N/A | Yes | Clause (c), Section 44BB/44BBB |
| 13 | Accounts audited under any other law (e.g. Companies Act) | N/A | No, if audit report filed on time under other law | Clause (f) |
Audit Exemptions:
- Businesses with turnover up to Rs. 10 Crores are exempt from audit if cash receipts and cash payments are less than 5% of total transactions.
- Professionals with receipts up to Rs. 75 Lakhs (from 1st April 2024) can avoid audit if they declare 50% profits and have cash receipts ≤ 5%.
- Presumptive Tax schemes provide relief if businesses and professionals meet the required profit percentages and turnover limits.
Conclusion:
Audits under Section 44AB ensure that businesses and professionals maintain proper financial records and compliance. With recent amendments increasing turnover thresholds, many small businesses and professionals can benefit from audit exemptions, provided they maintain low cash transactions and declare adequate profits under presumptive taxation schemes. Always refer to the specific conditions under each clause to determine your audit obligations and avoid penalties.
