Till a few years ago, applicability of tax audit was a simple issue: If your turnover crosses a particular limit, you were required to get your accounts audited. However, since the introduction of Section 44AD, the applicability of audit has become a cumbersome issue.
So to make it easier for you all to know whether tax audit is applicable to you or not, I have shared below a few simple examples. (these examples have been shared at an earlier discussion in this forum too)
Case 1.
Turnover : Below Rs 1 cr
Gains/Loss from Business: 240000
Salary Income: No
any other income: Nil
Audit not required as condition of income exceeding maximum exemption limit not fulfilled
Case 2
Turnover: below Rs 1 cr
Gains: Rs 50000 (assumed)
Salary: Rs 250000
Audit required as condition of income exceeding maximum exemption limit and profit less than 8% fulfilled
Case 3
Turnover: Below Rs 1cr:
losses: 5 lakhs (assumed)
Interest Income: Rs 5 lakhs
Audit not required as losses will get set off against Interest income resulting in maximum income not exceeding maximum exempted limit.
In the above case, had the interest income exceeded Rs 7.5 lakhs, the audit would have become applicable.
Case 4
Turnover: Below Rs 1 cr
losses 5 lakhs (assumed)
Interest Income: Rs 2.5 lakhs,
Salary: Rs 3 lakhs
Audit required as only Rs 2.5 lakhs losses are set off against interest and remaining losses are to be carried forward (set off against salary not allowed). So income exceeds exempted limit.
Case 5
Turnover: Below Rs 1 cr
Speculative Losses: 2 lakhs
Interest Income : Rs 2.6 lakhs,
Salary: NiL
Audit required as speculative losses cannot be set off against interest income and both the conditions : income exceeding basic exemption limit and profit less than 8% are satisfied.
Case 6:
Turnover : Above Rs 1 cr. Don't bother. Audit is compulsory.
Kindly note that in the above examples it has been assumed there are no deductions available under section 80C, 80D etc.
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