Enhanced Tax Audit Exemption limit of Rs. 10 crore for Digital Turnover, proposed in Budget 2021

Enhanced Tax Audit Exemption limit of Rs. 10 crore, as against existing limit of Rs. 5 crore, has been proposed in Budget 2021, for taxpayers having 95% or more Digital Turnover.

The turnover threshold for tax audit is proposed to be increased from Rs. 5 crore to Rs. 10 crore, subject to the condition that aggregate cash receipts/ payments of the person carrying on business do not exceed 5% of total receipts/ payments.

To incentivise digital transactions and to reduce the compliance burden of the person who is carrying almost all of their transactions digitally, it is proposed in Budget 2021 to increase the limit for tax audit for persons who are undertaking 95% of their transactions digitally from Rs. 5 crore to Rs. 10 crore.

Currently, if your turnover exceeds Rs. 1 crore, you have to get your accounts audited u/s 44AB. The limit for tax audit was increased to Rs. 5 crore in Budget 2020, for those who carry out 95% of their transactions digitally. To further incentivise digital transactions and reduce compliance burden, Budget 2021 has proposed to increase this limit for tax audit for such persons from Rs. 5 crore to Rs. 10 crore.

Accordingly, Clause 11 of the Finance Bill 2021 seeks to amend Section 44AB of the Income-tax Act relating to audit of accounts of certain persons carrying on business or profession, applicable with effect from 01/04/2021 (AY 2021-22).

In Section 44AB, Clause (a) provides for audit of accounts for every person carrying on business, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year.

The proviso to the said clause provides that in the case of a person whose 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 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, the said clause shall have effect as if for the words “one crore rupees” the words “five crore rupees” had been substituted.

It is proposed by the Budget 2021 to amend the said proviso so as to increase the threshold from “five crore rupees” to “ten crore rupees”.

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