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CS Professional · Advanced Direct Tax Laws and Practice · Tax Audit

Rohan, a trader, had sales of Rs 8 crore in the tax year. He received Rs 8 crore in total, of which Rs 30 lakh was in cash and Rs 20 lakh was by a non-account-payee cheque. His total payments were Rs 6 crore, of which Rs 15 lakh were in cash. Under section 63 of the Income-tax Act, 2025, is a tax audit required?

A tax audit is required. A non-account-payee cheque is deemed cash, so cash receipts are Rs 50 lakh, which is 6.25% of Rs 8 crore and exceeds 5%. The higher Rs 10 crore limit is lost, and turnover above Rs 1 crore triggers the audit.

  1. ANo, because cash receipts are only Rs 30 lakh, below 5% of Rs 8 crore
  2. BNo, because turnover is below Rs 10 crore and the cash payment is below 5%
  3. CYes, because the non-account-payee cheque is deemed cash, so receipts in cash are Rs 50 lakh, which exceeds 5% of Rs 8 crore, and turnover exceeds Rs 1 croreCorrect
  4. DYes, because turnover exceeds Rs 10 crore

Explanation

Under section 63(5)(b) a non-account-payee cheque is deemed cash. Cash receipts are Rs 30 lakh + Rs 20 lakh = Rs 50 lakh, which is 6.25% of Rs 8 crore and exceeds 5%. So the Rs 10 crore limit is not available and the Rs 1 crore limit applies. Turnover of Rs 8 crore exceeds it, so audit is required. Payments in cash (Rs 15 lakh is 2.5% of Rs 6 crore) do not change this.

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