CS Professional · Advanced Direct Tax Laws and Practice

Tax Audit: formula sheet

Full chapter guide

Key formulas

Business limit (general): Turnover / gross receipts > ₹1,00,00,000; Audit is required for a person carrying on business. Applies unless the cash conditions for the higher limit are met.
Business limit (higher): Limit = ₹10,00,00,000 if cash receipts ≤ 5% of total receipts AND cash payments ≤ 5% of total payments; Both conditions must be met. Cash is tested for the tax year. Receipts include sales, turnover and gross receipts amounts received.
Profession limit: Gross receipts > ₹50,00,000; There is no ₹10 crore-type relaxation for profession.
Presumptive case: Profit claimed < deemed profit under section 58(2) or 61(2) → audit under section 63(1) Sl. No. 2; Section 63(1) Sl. No. 2 has no total-income condition. Section 58(3) separately adds, for section 58 assessees claiming lower profit, the duty to keep books and get them audited where total income exceeds the maximum amount not chargeable to tax. Section 63(2): the section does not apply if you declare profit as per section 58(2) or 61(2).
Specified date: Due date for return under section 263(1) − 1 month; Both the audit and the furnishing of the report must be done by this date.
Non-account payee cheque or draft: Non-account payee cheque or bank draft = cash; Section 63(5)(b) deems such payments and receipts to be cash for the 5% tests.
Presumptive turnover caps (section 58): Business: ₹2 crore (₹3 crore if cash receipts ≤ 5%); Profession: ₹50 lakh (₹75 lakh if cash receipts ≤ 5%); Presumptive profit rates: 6% on banking or online mode receipts, 8% on the rest; 50% for specified professions.
Section 348 audit trigger (registered non-profit organisation): Total income (before giving effect to the Part) > maximum amount not chargeable to tax in the tax year ⇒ audit by an accountant; The test is total income without giving effect to the provisions of the Part, against the basic exemption limit. Do not use taxable income after the exemptions.
Section 348 report requirement: Audit report by the prescribed date + prescribed form + signed and verified by the accountant; The person in receipt of the income furnishes the report. The auditor does not file it on the assessee's behalf as a legal duty.
Section 59(4) audit for specified assessee: Specified assessee = non-resident (not a company) or foreign company. Books per section 62, audit by an accountant by the date in section 63, report in prescribed form; Applies where royalty or fees for technical services are computed as business income under section 59(1).
Who signs: Report must be signed and verified by the accountant who audited; An unsigned report, or one signed by someone who is not an accountant, does not satisfy the section.
Duty to furnish report: Report of audit, in prescribed form, signed and verified by the accountant, furnished by the specified date (s 63(3)); The form and particulars are prescribed. The Act fixes the duty.
Specified date: Specified date = due date for return under s 263(1) − one month (s 63(5)(a)); Audit must be done before this date, and the report furnished by it.
Audit under another law: Audit under that law before the specified date + furnish its report with the accountant's report in prescribed form by that date (s 63(4)); Avoids a second audit, but the prescribed-form report is still needed.
Turnover limits for business: Business: turnover above ₹1 crore; ₹10 crore if cash receipts and cash payments are each at most 5%. Profession: gross receipts above ₹50 lakh (s 63(1)); Triggers the audit that leads to the report.
Non-account-payee cheque or draft: Non-account-payee cheque or bank draft = cash (s 63(5)(b)); Counts for the 5% cash tests.
Preliminary expenses claim: Non-company, non-co-operative assessee: audit before the specified date, plus report for the first claim year (s 44(6)); Without this, no deduction under s 44(1).
Non-profit audit: Total income before Part exemptions above the maximum amount not chargeable to tax: audit by an accountant and report by the prescribed date (s 348); Report is in the prescribed form, signed and verified.
Audit threshold for business: Total sales, turnover or gross receipts in business > ₹1,00,00,000 (one crore); Section 63(1), Table Sl. No. 1(a). The limit becomes ₹10,00,00,000 if cash receipts and cash payments each do not exceed 5% of the respective aggregate amount (clause (b)).
Audit threshold for profession: Gross receipts in profession > ₹50,00,000; Section 63(1), Table Sl. No. 1(c).
Audit where profit is lower than deemed profit: Profits claimed lower than deemed profits under section 58(2) or 61(2) → audit required; Section 63(1), Table Sl. No. 2. Section 63(2) says the section does not apply where the assessee declares profits as per those provisions.
Specified date: Specified date = one month before the due date for furnishing return under section 263(1); Section 63(5)(a). Both the audit and the report must be furnished by this date.
Non-account payee cheque or draft: Cheque or draft that is not account payee = deemed cash payment or receipt; Section 63(5)(b). This matters for the 5% cash tests and for the cash particulars you report.
Fee for failure to audit and furnish report: ₹75,000 for delay up to one month; ₹1,50,000 thereafter; Section 428(c). Applies where the person fails to get accounts audited and furnish the report as required under section 63.
Penalty for books not kept or retained: ₹25,000; Section 441. For failure to keep and maintain books and documents per section 62 or retain them for the prescribed period.
Section 348 trigger: Total income of registered non-profit organisation (without giving effect to this Part) > maximum amount not chargeable to tax in the tax year → audit by an accountant; Compare income before exemption, not income after exemption. If the income is exactly at the limit, the audit is not triggered, because the test is 'exceeds'.
Section 348 report: Report in prescribed form, signed and verified by the accountant, furnished by the prescribed date; The duty to furnish the report is on the person in receipt of the income.
Grounds for special audit, section 268(5): Nature and complexity, volume, doubts about correctness, multiplicity of transactions, specialised nature of business + interests of revenue; The AO must be of the opinion that a direction is necessary. Any one ground with the interests of revenue is enough to be considered.
Procedure conditions, section 268(5) and (6): Reasonable opportunity of being heard + previous approval of PCCIT / CCIT / PCIT / CIT + auditor nominated by that authority; Missing any of these makes the direction open to challenge.
Report time limit, section 268(8) to (10): Period fixed by AO; extension for good and sufficient reason; total period ≤ 6 months from the end of the month in which the direction is received; The AO may extend on his own motion or on the assessee's application. Count the six months from the end of the month of receipt.
Expenses, section 268(11): Audit or inventory valuation expenses (incl. incidental expenses and remuneration) = determined by the approving authority per guidelines + paid by the Central Government; The assessee does not bear the cost.
Other points, section 268(7) and (12): Applies whether or not accounts are audited under any other law; assessee must be heard on material proposed to be used; The hearing on material is not needed where assessment is made under section 271.

Quick revision

Section 63 requires audit by an accountant for the tax year's accounts, before the specified date.
Business: audit if sales, turnover or gross receipts exceed ₹1 crore in the tax year.
Business limit becomes ₹10 crore if cash receipts and cash payments each do not exceed 5% of the respective totals.
Profession: audit if gross receipts exceed ₹50 lakh in the tax year.
Presumptive cases under section 58(2) or 61(2): audit applies if you claim profit lower than the deemed profit.
Section 63 does not apply if you declare profit as per section 58(2) or 61(2).
Specified date is one month before the return due date under section 263(1).
A non-account-payee cheque or draft is treated as a cash payment or receipt.
If another law requires audit, you comply by getting that audit done and furnishing its report with the accountant's report in the prescribed form.
Section 348: a registered non-profit organisation with total income above the basic exemption amount, before the Part's exemptions, must get accounts audited and furnish the report.
The accountant signs and verifies the report in the prescribed form with the prescribed particulars.

Common mistakes

Applying the ₹10 crore limit when only cash receipts are within 5%. Fix: Check both receipts and payments. Both must be at or below 5% for the higher limit.
Applying the ₹10 crore relaxation to professionals. Fix: The relaxation is in the business clause only. A professional is tested at ₹50 lakh of gross receipts.
Saying any professional can sign a tax audit report. Fix: Remember that the Act requires an accountant. Test the person against that definition first.
Using taxable income to test the section 348 trigger. Fix: The test is total income without giving effect to the Part's provisions, compared with the amount not chargeable to tax.
Treating the return due date as the date for the report. Fix: The report is due on the specified date, one month before the return due date.
Saying audit under the Companies Act removes the tax audit report. Fix: You still furnish the accountant's report in the prescribed form by the specified date.
Treating the ₹10 crore limit as automatic for everyone. Fix: Apply it only when cash receipts and cash payments each do not exceed 5% of the respective aggregate amounts. Check both.
Ignoring non-account payee cheques when counting cash. Fix: Add non-account payee cheques and drafts to cash receipts and payments before testing the 5% limit.
Testing the section 348 limit on income after exemption. Fix: Write 'income before exemption' in your answer and compare that figure with the basic exemption limit.
Saying the assessee appoints the auditor in a special audit. Fix: Remember that the Commissioner-level authority nominates the accountant or cost accountant.

Exam tips

Write the structure the paper wants: provision, facts, analysis, conclusion. Quote section 63(1) and the figures you test.
Show the cash percentage calculations explicitly. Marks go for the working, not just the verdict.
Always address whether the person is in business or profession first, since the limits differ.
Mention section 63(4) and the specified date in a short closing line when the question involves another audit law or a compliance deadline.
In presumptive-case questions, quote section 63(2) and section 58(3) together to show when audit does and does not apply.
Begin every answer with the provision that requires the audit, then the trigger.
Use the word accountant as in the Act, and say the report is signed and verified.
Mention the prescribed form and the due date in your conclusion.