If you’re a business owner, the tax audit limit will determine how much money your company can spend on an audit. The limits are now Rs. 1 Crore for businesses, Rs. 2 Crore for professionals, and Rs. 50 lakhs for those who filed their Presumptive Income Tax Return in the financial year 2016-17 or later. It’s imperative to get your business’ books audited as early as possible. There are many reasons for having your books audited, but the first one is the potential to be penalized for over-claiming.
While audits are inevitable, the ICAI has recently increased the maximum number of tax audits an individual can have in a financial year. This means that an audit by an accountant is no longer a threatening experience, and a company can claim up to 60 tax audits in a financial year. This change has been welcomed by businesses and individuals, as the IRS is looking for ways to reduce the number of audits in a business.
For businesses that have turnovers exceeding Rs. 5 Crores in the previous financial year, the Tax Audit Limit is doubled. Similarly, businesses must not have a cash payment or receipt that exceeds 5 percent of their total receipts. Additionally, the amount of money they can claim under the Tax Audit Limit depends on the type of business they operate. Traders can claim the enhanced threshold limit of INR 10 Cr for businesses that do not conduct any digital transactions.
Generally, the higher the turnover, the higher the risk of being scrutinized by the CRA. Fortunately, there are some ways to avoid this. One option is to file a presumptive return if they have a business turnover of more than Rs. 2 crores. However, self-employed taxpayers must report all of their earnings to the IRS. Despite the increased risk, it is still important to have accurate and up-to-date accounts.
The purpose of a tax audit is to ensure compliance with income tax law. It ensures that all records are accurate and deduction claims are legitimate. Generally, a taxpayer can only claim cash receipts up to 5% of their gross earnings and aggregate payments. The tax audit limit is different for each partner in a firm. The audit limit must be adjusted in the event of any other reason. If you are a film artist, it’s compulsory to have your accounts audited.
If your company is a small and medium-sized business, this new provision will not affect them. However, a new limit is necessary to prevent a tax audit from affecting small and medium-sized businesses. The new audit provision is intended to simplify the process of executing a business. But, it does have its disadvantages. While it can be beneficial, there is always a trade-off. You can have a tax audit limit of up to Rs 10 Crores for businesses, but the benefits outweigh the drawbacks.
The threshold is higher for businesses that have multiple income streams. For example, if a business has a combined turnover of over Rs. 1 crore and more than Rs. 50 lakh in cash receipts, then the audit limit for both professions must be more than Rs. 50 lakh. Besides, a business that makes more than half of its revenue from a business should also have its books audited. This way, the IRS can ensure that the audit limit is not exceeded and it isn’t necessary for a business to have more than one account book.