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CA Final · Direct Tax Laws & International Taxation · Tax Audit and Ethical Compliances

Meera Traders, a proprietary business, has a turnover of Rs. 1.4 crore in a tax year. Its cash receipts are 3% of total receipts and its cash payments are 4% of total payments. Under section 63 of the Income-tax Act, 2025, is a tax audit required?

No tax audit is needed. Cash receipts of 3% and cash payments of 4% both stay within 5%, so the turnover threshold rises from Rs. 1 crore to Rs. 10 crore under section 63. Turnover of Rs. 1.4 crore is below that enhanced limit.

  1. AYes, because turnover exceeds Rs. 1 crore
  2. BNo, because both cash limits are within 5%, so the threshold becomes Rs. 10 croreCorrect
  3. CYes, because cash payments exceed 2% of total payments
  4. DNo, because the turnover is below Rs. 5 crore

Explanation

Section 63 raises the turnover limit from Rs. 1 crore to Rs. 10 crore if cash receipts and cash payments each do not exceed 5%. Here they are 3% and 4%, so the Rs. 10 crore limit applies and Rs. 1.4 crore is below it. The option saying audit is required ignores the enhanced limit.

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