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

Rohan Traders, a proprietary business, has a turnover of Rs. 1.8 crore for the tax year. Cash receipts are 3% of total receipts and 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 required. Because cash receipts (3%) and cash payments (4%) each do not exceed 5%, the turnover threshold is Rs. 10 crore under section 63, and turnover of Rs. 1.8 crore is below it.

  1. AYes, because turnover exceeds Rs. 1 crore and the higher limit applies only if cash receipts and payments are nil
  2. BNo, because cash receipts and cash payments each do not exceed 5%, so the limit is Rs. 10 croreCorrect
  3. CYes, because the Rs. 10 crore limit applies only to companies
  4. DNo, because a proprietor is never required to get accounts audited

Explanation

Section 63 raises the turnover limit from Rs. 1 crore to Rs. 10 crore where cash receipts and cash payments each do not exceed 5%. Here 3% and 4% satisfy both conditions, and turnover of Rs. 1.8 crore is below Rs. 10 crore. The first option wrongly requires nil cash transactions.

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