TAX AUDIT APPLICABILITY & PENALTIES FOR AY 2023-24

It outlines the criteria for tax audit requirements for businesses, professionals, and other entities. Additionally, it highlights the penalties imposed for failing to comply with tax audit regulations. Understanding the consequences of non-compliance is crucial to maintaining financial integrity and avoiding potential penalties.

 

 

Tax Audit Applicability & Penalties for Non compliances for AY 2023-24 – The tax audit applicability for AY 2023-24 is as follows:

 

Businesses:

  • If the gross receipts or turnover of a business exceeds Rs. 1 crore, then a tax audit is required.

 

  • If the gross receipts or turnover of a business exceeds Rs. 10 crores, but is less than Rs. 50 crores, and the percentage of cash transactions is less than 5%, then a tax audit is not required.

 

  • If the gross receipts or turnover of a business exceeds Rs. 50 crores, regardless of the percentage of cash transactions, then a tax audit is required.

 

 

tax audit

 

 

Professionals:

  • If the gross receipts of a professional exceed Rs. 75 lakhs, then a tax audit is required.

 

  • If a professional is eligible for the presumptive taxation scheme under Section 44DA, and claims a profit below the prescribed limit, then a tax audit is required.

 

 

Other entities:

  • Entities that are registered under Section 10(23C) of the Income Tax Act, 1961, and whose annual receipts exceed Rs. 5 crore, require the services of a statutory audit firm.

 

 

Please note that these are the general applicability criteria. There may be other circumstances that may require a tax audit, such as if a taxpayer is involved in a high-risk business or if the taxpayer has been under investigation by the tax authorities.

 

If you are unsure whether you are required to have a tax audit, you should consult with a chartered accountant.

 

The penalty for non-compliance with tax audit is as follows:

 

For businesses:

  • If the gross receipts or turnover of a business exceeds Rs. 1 crore, and the taxpayer fails to get the accounts audited, then a penalty of 0.5% of the total sales, turnover or gross receipts, or Rs. 1,50,000, whichever is less, will be levied.

 

  • If the gross receipts or turnover of a business exceeds Rs. 10 crores, but is less than Rs. 50 crores, and the percentage of cash transactions is less than 5%, and the taxpayer fails to get the accounts audited, then a penalty of 0.5% of the total sales, turnover or gross receipts, or Rs. 75,000, whichever is less, will be levied.

 

  • If the gross receipts or turnover of a business exceeds Rs. 50 crores, regardless of the percentage of cash transactions, and the taxpayer fails to get the accounts audited, then a penalty of 0.5% of the total sales, turnover or gross receipts, or Rs. 1,50,000, whichever is less, will be levied.

 

 

For professionals:

  • If the gross receipts of a professional exceed Rs. 75 lakhs, and the taxpayer fails to get the accounts audited, then a penalty of 0.5% of the total gross receipts, or Rs. 75,000, whichever is less, will be levied.

 

  • If a professional is eligible for the presumptive taxation scheme under Section 44DA, and claims a profit below the prescribed limit, and the taxpayer fails to get the accounts audited, then a penalty of 0.5% of the total gross receipts, or Rs. 37,500, whichever is less, will be levied.

 

 

The penalty for non-compliance with tax audit is a serious matter. If you are unsure whether you are required to have a tax audit, you should consult with a chartered accountant.

 

 

tax audit

 

 

Here are some of the reasons why non-compliance with tax audit can be a serious matter:

 

  • It can lead to the imposition of penalties by the tax authorities.
  • It can make it more difficult to defend yourself in the event of an audit.
  • It can damage your reputation with the tax authorities.
  • It can make it more difficult to obtain loans or other financial products.

 

 

If you are required to have a tax audit, it is important to comply with the requirements. This will help to ensure that your tax affairs are in order and that you avoid any potential penalties.

 

 

 

Read More: Scrutiny of ITRs using Advanced AI Tools

 

 

 

Understanding the tax audit applicability and penalties for non-compliance is crucial for taxpayers in AY 2023-24. This article has provided valuable information on the criteria for tax audit requirements for businesses, professionals, and other entities. Additionally, it has highlighted the penalties incurred for failing to comply with tax audit regulations. By ensuring tax affairs are in order and meeting the necessary requirements taxpayers can avoid penalties, maintain their financial integrity, and safeguard their reputation with tax authorities.

Tax Audit Last Date extended to 7th October

Given the difficulties that taxpayers and other stakeholders have had in reporting the various audit reports for the Assessment year 2022-23, the CBDT has decided to extend the due date for the A.Y 2022-23, which was 30th Sep 2022, till 7th Oct 2022.

Circular No. 19/2022

F. No. 225/49/2021/ITA-II

Government of India

Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

****************************

New Delhi, dated 30th September 2022

Subject: – Extension of timeline for filing of various reports of audit for the Assessment Year 2022-23– reg.

 

 

Given the difficulties encountered by taxpayers and other stakeholders in the electronic filing of various audit reports under the provisions of the Income-tax Act, 1961 (Act), the Central Board of Direct Taxes (CBDT), in exercising its powers under Section 119 of the Act, extends the due date for furnishing of audit reports under any provision of the Act for the Previous Year 2021-22, which was 30th September 2022 in the case of assessees referred to in clause (a).

Calculate Turnover for Tax Audit u/s 44AB in Case of OPTIONS!!

From time to time ICAI has issued the updated version of Guidance Note on Tax Audit u/s 44AB (eight edition) after incorporating the changes/ amendments in provisions relating to tax audit and reporting requirements for the relevant assessment year, for information and support of the Members.

How to calculate the turnover in a transaction of options?

As per the Seventh Edition of GN issued in 2014 As per the Eighth Edition of GN issued in 2022
(i) The total of favourable and unfavourable differences shall be taken as turnover.
(ii) Premium received on sale of options is also to be included in turnover.
(iii) In respect of any reverse trades entered, the difference thereon, should also form part of the turnover.		(i) The total of favourable and unfavourable differences shall be taken as turnover.
(ii) Premium received on sale of options is also to be included in turnover. However, where the premium received is included for determining net profit for transactions, the same should not be separately included.
(iii) In respect of any reverse trades entered, the difference thereon, should also form part of the turnover.

Note: Earlier in the calculation of turnover, the premium received was in principal considered twice i.e both in point (i) and point (ii) above. The portion of the premium during the sale was already included in the total of favourable and unfavourable differences.

Practical Example to understand the change in the calculation of turnover

Mr. Suresh did the following option trading transactions

  • Bought 1 lot of call option 500 shares of EFG for Rs. 80 & sold at Rs. 100 (Call Option) and
  • Bought 1 lot of put Option, lot size 500 share of KLM for Rs 50 and sold at Rs. 45.
  • Sold 1 lot of Call option, lot size 500 shares of XYZ for Rs. 60 and contract not squared off on expiry and delivery is given.

The first two transactions are examples of squared-off transactions and the third transaction is the example of the contract not expired and settled through delivery.

Script NameTransaction TypeLot SizePurchase ValueSales Value (Premium received on Sale)Gain / (Loss)Turnover as per GN 2022Turnover as per GN 2014
(1)(2)(3)(4)(5)(6)(7) =(5)-(4)(8) = (5)+(6)
EFGCall Option50040,00050,00010,00010,000(Note-1)60,000(Note-2)
KLMPut Option5002500022,500(2,500)Loss2,50025,000
XYZCall Option (Not squared off)500–30,000–30,000(Note-3)30,000
Total42,5001,15,000

As we can see in the above example Turnover as per New Guidance Note 2022 would be Rs. 42,500/- and as per old Guidance Note 2014 would be Rs. 1,15,000/-.

Note -1: Turnover = As premium received is included for determining profit/loss so it’s not included in turnover i.e. Absolute Profit/Loss = 10,000/-

Note -2: Turnover = Premium received on sale 50,000 + Absolute Profit/Loss Rs. 10,000 = 60,000

Note -3: Turnover = Premium received on the deemed sale of that contract on the expiry date, premium received is not included in determining profit/loss. {SEBI mandates physical settlement if a trader holds a position in any of the stock F&O contracts on the expiry date if the contract is not squared off.}

Let us see the various categories of taxpayers below:

Category of personThreshold
Business
Carrying on business (not opting for presumptive taxation scheme*)Total sales, turnover or gross receipts exceed Rs.1 crore in the FY
If cash transactions are up to 5% of total gross receipts and payments, the threshold limit of turnover for tax audit is increased to Rs.10 crores (w.e.f. FY 2020-21)
Carrying on business eligible for presumptive taxation under Section 44AE, 44BB or 44BBBClaims profits or gains lower than the prescribed limit under presumptive taxation scheme
Carrying on business eligible for presumptive taxation under Section 44AD Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit.
Carrying on the business and is not eligible to claim presumptive taxation under Section 44AD due to opting out for presumptive taxation in any one financial year of the lock-in period i.e. 5 consecutive years from when the presumptive tax scheme was optedIf income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for
Carrying on business which is declaring profits as per presumptive taxation scheme under Section 44ADIf income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for
Carrying on business which is declaring profits as per presumptive taxation scheme under Section 44ADIf the total sales, turnover or gross receipts does not exceed Rs 2 crore in the financial year, then tax audit will not apply to such businesses.
Profession
Carrying on profession Total gross receipts exceed Rs 50 lakh in the FY 
Carrying on the profession eligible for presumptive taxation under Section 44ADA1. Claims profits or gains lower than the prescribed limit under the presumptive taxation scheme 
2. Income exceeds the maximum amount not chargeable to income tax
Business loss
In case of loss from carrying on of business and not opting for presumptive taxation schemeTotal sales, turnover or gross receipts exceed Rs 1 crore
If taxpayer’s total income exceeds basic threshold limit but he has incurred a loss from carrying on a business (not opting for presumptive taxation scheme)In case of loss from business when sales, turnover or gross receipts exceed 1 crore, the taxpayer is subject to tax audit under 44AB
Carrying on business (opting presumptive taxation scheme under section 44AD) and having a business loss but with income below basic threshold limitTax audit not applicable
Carrying on business (presumptive taxation scheme under section 44AD applicable) and having a business loss but with income exceeding basic threshold limitDeclares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit