Tax Audit for BusinessTax Audit for Business

Tax Audit for Business

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Tax Audit for Business

Under the Income Tax Act, certain types of businesses are mandatorily required to obtain a tax audit and maintain the book of accounts. Failure to maintain accounts or obtain tax audit can attract penalty under Section 271B of the Income Tax Act. In this article, we look at the tax audit limit for various types of business entities in India.

Tax Audit Limit for Proprietorship

Proprietorship firms are taxed as individuals under Income Tax Act. Hence, in case of a proprietor running a business, tax audit is mandatory, if sales turnover exceeds Rs.1 crores.

If an individual is carrying on a profession with a gross receipts of more than Rs.50 lakhs, then tax audit is mandatory.

Further, a proprietor carrying on a specified profession would be required to maintain the book of account if gross receipts is over Rs.1.5 lakhs in all three previous years. Specified profession under the Income Tax Act includes professions such as:

  1.  Legal
  2. Medical
  3. Engineering
  4. Architectural
  5. Accountancy
  6. Technical Consultancy
  7. Interior Decoration
  8. Authorized Representative
  9. Film Artist

In case a proprietor is receiving income from business or profession (other than specified profession), book of accounts must be mandatorily maintained if income exceeds Rs.2.5 lakhs in any one of the three previous years.

In case a proprietor is involved in business, then maintenance of books of account is mandatory if total sales turnover or gross receipts exceed Rs.25 lakhs in any one of the three previous years.

Tax Audit Limit for Partnership Firm

Partnership firms involved in profession with gross receipts of more than Rs.50 lakhs must complete a tax audit. Partnership firm involved in doing business must complete tax audit, if sales turnover exceeds Rs.1 crores.

Partnership firms involved in carrying on a specified profession would be required to maintain book of accounts as per Income Tax Act, if gross receipts is more than Rs.1.5 lakhs in all three previous years.

In case a partnership firm is receiving income profession (other than specified profession), book of accounts must be mandatorily maintained if income exceeds Rs.2.5 lakhs in any one of the three years previous year.

In case a partnership is involved in business, then maintenance of books of account is mandatory if total sales turnover or gross receipts exceed Rs.25 lakhs in any one of the three preceding years.

Tax Audit Limit for LLP

LLP with an annual turnover of more than Rs.40 lakhs or capital contribution of Rs.25 lakhs are required to be audited by a Chartered Accountant. Maintenance of book of accounts is mandatory for LLP, irrespective of annual turnover.

Tax Audit Limit for Company

All types of companies including private limited company and one person company are required to obtain a tax audit every year, irrespective of annual turnover or capital. Also, maintenance of book of accounts is mandatory for company, irrespective of annual turnover.


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