Relaxation from Tax audit in case of business – subject to limit of 5% cash receipts and payments.

Relaxation for Tax audit in case of business

It is proposed to provide for limit of turnover, gross receipts etc.  in case of business from  Rs. One crore to Rs. Five crore. This is however subject to fulfilment of condition of limit of 5%  cash receipts    and 5% of  payment. As discussed later on, some clarifications and mechanism are desired to make the provision workable and to avoid mistakes and avoid litigation.

There will not be relaxation for provisions of TDS and TCS and for applicability of those provisions old limit of turnover shall continue and provisions are being amended in this regard.

Tax audit report will have to be submitted one month prior to due date to file ROI. (Such due date is being revised to 31^st October). Therefore Tax Audit Report will have to be submitted by 30st September of assessment year. For submission of many other audit reports/ certificates in prescribed forms also provision to submit one month prior to due date to file ROI are proposed.

The provisions  of tax audit are well known to readers, therefore detailed discussion on   present and post amendment provision are not made.

The proposal is as follows, with highlights added:

Amendment of section 44AB.

23. In section 44AB of the Income-tax Act,––

(A) in clause (a),––

   (i) the word “or” occurring at the end shall be omitted;

    (ii) the following proviso shall be inserted, namely:––

    'Provided that in the case of a person whose––

   (a) aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent. of the said amount; and 

 (b) aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent. of the said payment,

this clause shall have effect as if for the words “one crore rupees”, the words “five crore rupees” had been substituted; or'; 

 (B) in the Explanation, in clause (ii), after the word “means”, the words “date one month prior to” shall be inserted.

TDS/TCS :

Illustrative proposed amendment for TDS /TCS provisions to be applicable if turnover exceeds Rs. One crore, even if requirement of tax audit is not applicable.

Amendment of section 194A

75. In section 194A of the Income-tax Act,––

(I) in sub-section (1), in the proviso, for the words, brackets, letters and figures “the monetary limits specified under clause (a) or clause (b) of section 44AB”, the words “one crore rupees in case of business or fifty lakh rupees in case of profession”shall be substituted;

xxxx

 From notes on clauses:

Rationalisation of provisions relating to tax audit in certain cases.

Under section 44AB of the Act, every person carrying on business is required to get his accounts audited, if his total sales, turnover or gross receipts, in business exceed or exceeds one crore rupees in any previous year. In case of a person carrying on profession he is required to get his accounts audited, if his gross receipt in profession exceeds, fifty lakh rupees in any previous year.

In order to reduce compliance burden on small and medium enterprises, it is proposed to increase the threshold limit for a person carrying on business from one crore rupees to five crore rupees in cases where,-

(i) aggregate of all receipts in cash during the previous year does not exceed five per cent of such receipt; and

(ii) aggregate of all payments in cash during the previous year does not exceed five per cent of such payment.

Further, to enable pre-filling of returns in case of persons having income from business or profession, it is required that the tax audit report may be furnished by the said assessees at least one month prior to the due date of filing of return of income. This requires amendments in all the sections of the Act which mandates filing of audit report along with the return of income or by the due date of filing of return of income. Thus, provisions of section 10, section 10A,section 12A, section 32AB, section 33AB,section 33ABA,section 35D, section 35E,section 44AB, section 44DA, section 50B, section 80-IA, section 80-IB, section 80JJAA, section 92F,section 115JB,section 115JC and section 115VW of the Act are proposed to be amended accordingly.

Further, the due date for filing return of income under sub-section (1) of section 139 is proposed to be amended by:-

(A) providing 31st October of the assessment year (as against 30th September) as the due date for an assessee referred to in clause (a) of Explanation 2 of sub-section (1) of Section 139 of the Act;

(B) removing the distinction between a working and a non-working partner of a firm with respect to the due date as mentioned in sub-clause (iii) of clause (a) of Explanation 2 of sub-section (1) of Section 139 of the Act.

These amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years.

[Clauses 7, 8, 10, 14, 15, 16, 19, 20, 23, 24, 26, 35, 37, 39, 45, 56, 57, 63 & 66]

The amendment relating to extending threshold for getting books of accounts audited will have consequential effect on TDS/TCS provisions contained in sections 194A, 194C, 194H, 194I, 194J and 206C as these provisions fasten liability of TDS/TCS on certain categories of person, if the gross receipt or turnover from the business or profession carried on by them exceed the monetary limit specified in clause (a) or clause (b) of section 44AB.

Therefore, it is proposed to amend these sections so that reference to the monetary limit specified in clause (a) or clause (b) of section 44AB of the Act is substituted with rupees one crore in case of the business or rupees fifty lakh in case of the profession, as the case may be.

These amendments will take effect from 1st April, 2020.

[Clauses 75, 76, 77, 78, 79 & 93]

 Clarification or changes required about aggregate amounts:

     aggregate of all amounts receivedincluding amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent. of the said amount; and 

 On reading of this clause it seems that ’ aggregate of all amount  received’  will include receipts on account of capital, loans and advances also, sale proceeds of any capital goods as well.

 This seems not justified because even 5% of sales in cash is very low.

In case of capital , and loans there can be many times roll overs. Therefore limit should be of at least 10%  for  cash sales only.

 (b) aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent. of the said payment,

On reading of this clause it seems that ’ aggregate of all payments will include payment against capital,  loans and advances given or repaid etc.

Limit of 10% cash expenses of total expenses can be prescribed to be a reasonable limit.

 Certification:

Another important question is who will certify the amount of cash received and paid and percentage?

A self- declaration, by assesse can be provides.