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

Meera Traders, a proprietary concern, had sales of Rs. 3 crore in the tax year. Its cash receipts were 4% of total receipts and its cash payments were 3% of total payments. Under section 63 of the Income-tax Act, 2025, is a tax audit required?

No tax audit is required. Because cash receipts (4%) and cash payments (3%) each stay within 5%, the turnover threshold becomes Rs. 10 crore under section 63, and Rs. 3 crore is below it.

  1. AYes, because turnover exceeds Rs. 1 crore
  2. BNo, because turnover does not exceed Rs. 10 crore and both cash limits of 5% are satisfiedCorrect
  3. CYes, because turnover exceeds Rs. 50 lakh
  4. DNo, because tax audit applies only to companies

Explanation

The limit rises to Rs. 10 crore when cash receipts and cash payments each do not exceed 5%. Here 4% and 3% satisfy this, and Rs. 3 crore is below Rs. 10 crore, so no audit is needed. The Rs. 1 crore option ignores the higher limit.

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