TAX AUDIT LIMIT U/S 44AB

An amendment was made to Sec 44AB(a), which stated that an audit was required if the turnover exceeded 1 crore, but if the turnover was less than 5 crore and the percentage of cash receipts or payments was less than 5% in aggregate for each of them, the turnover limit for tax audit was not 1 crore but increased to 5 crores.

1. TAX AUDIT LIMIT u/s 44AB
An amendment was made to Sec 44AB(a), which stated that an audit was required if the
turnover exceeded 1 crore, but if the turnover was less than 5 crore and the percentage of cash
receipts or payments was less than 5% in aggregate for each of them, the turnover limit for tax
audit was not 1 crore but increased to 5 crores. In this budget 2021 this limit has been
increased to 10 crores, but there is a minor amendment in section 44AB, where a clause has
been inserted that could result in the limit being reduced to 1 crore in certain cases.
The provision has been added that if the receipts or transfers are made through bank cheques,
bank draft, the same has to be through account payee cheques or draft only to be not
considered as cash.
Let us understand with example if the assessee turnover is 6 crores and he argues that his cash
receipt and payment requirements are less than 5%. The assessing officer then says that
although the cash portion is less than 5%, you have made some payments through account
payee cheque or draft, kindly evidence that they are account payee. The burden of evidence is
now on the assesse that they were Account payee. However, since payments and receipts are
made by check or draft, proving that they were the account payee will be the big challenge.
There will be several cases where assessee receive and make payments through NEFT, RTGS,
and ECS, so those will undoubtedly be covered. So now it's up to the assessee to keep those
evidences that show to the assessing officer that his receipt and payment were made by
account payee cheque or draft, so in that case his limit will be 10 cr, otherwise it would be 1
crore, so he'll have to keep those evidences.
It is the Assessee decision, not the auditors', if the evidence is not kept properly. Assessee
needs to get accounts audited if they don’t have the reliable evidence of account payee. The
audit will be covered under 44AB (a) if the assesses do not have proof that the payments and
receipts were made by account payee cheque or account payee bank draft is not evidenced is in
the hands of the assessee. In this situation, the audit limit will be 1 crores only.