Are You Covered Under Tax Audit

[Satya.]

Instead of answering several scenarios you have drawn, follow the simple maxims:

1. If the turnover is above the audit limit (Rs 2 cr at present), the audit is compulsory irrespective of the profit or loss.

2. If the turnover is below 2 cr but the profit is above 8%, then no audit is required. File the return under 44AD (use ITR4 or ITR4s depending on other conditions)

3. If the turnover is below 2cr and the net profit is below 8% of the turnover but the total income (including all sources) (before providing for 80C deductions etc) is above the exempted limit (currently Rs 2.5 lakhs), then audit is required.

4. If the turnover is below 2cr and the net profit is below 8% of the turnover but the total income (including all sources) (before providing for 80C deductions etc) is below the exempted limit (currently Rs 2.5 lakhs), then no audit is required. In such a scenario, another factor that arises is that you are not required to file the tax return either (as per section 139). However, it is advisable to file the return every year to account for all the incomes irrespective of taxability

thanks for the quick reply.I'm more confused with this line only(profit is below or above 8% of turnover).

When we say 8%-
1)for turnover,8% of 2Crs or 8% of my f&o turnover we are considering?
8% of 2Crs=16L
8% of my f&o turnover 32L=2.56L

So,you are considering 2Crs mark as turnover only?But what abt my turnover which is 32L

 

[TraderRavi]

thanks for the quick reply.I'm more confused with this line only(profit is below or above 8% of turnover).

When we say 8%-
1)for turnover,8% of 2Crs or 8% of my f&o turnover we are considering?
8% of 2Crs=16L
8% of my f&o turnover 32L=2.56L

So,you are considering 2Crs mark as turnover only?But what abt my turnover which is 32L

8% of your FNO turnover , not 2 crs.

 

[travi]

thanks for the quick reply.I'm more confused with this line only(profit is below or above 8% of turnover).

When we say 8%-
1)for turnover,8% of 2Crs or 8% of my f&o turnover we are considering?
8% of 2Crs=16L
8% of my f&o turnover 32L=2.56L

So,you are considering 2Crs mark as turnover only?But what abt my turnover which is 32L

Can you clearly mention how you are computing the F&O Turnover?

 

[canikhil]

thanks for the quick reply.I'm more confused with this line only(profit is below or above 8% of turnover).

When we say 8%-
1)for turnover,8% of 2Crs or 8% of my f&o turnover we are considering?
8% of 2Crs=16L
8% of my f&o turnover 32L=2.56L

So,you are considering 2Crs mark as turnover only?But what abt my turnover which is 32L

I am not sure where is the scope of confusion here. 2 cr is the turnover limit for 44AD. While computing your individual case, you will have to consider 8% of your own turnover.

 

[Satya.]

I am not sure where is the scope of confusion here. 2 cr is the turnover limit for 44AD. While computing your individual case, you will have to consider 8% of your own turnover.

2. If the turnover is below 2 cr but the profit is above 8%, then no audit is required. File the return under 44AD (use ITR4 or ITR4s depending on other conditions)

I am confused with the word 8%.I was nt sure which one is right-
A)If the turnover is below 2 cr but the profit is above 8%
here,8% of 2Cr=16L.
So my profit should be above 16L to avoid audit?

or

B)If the turnover is below 2 cr but the profit is above 8%
here,8% of my actual individual f&o turnover which is 32L=2.56L
So,my profit should be above 2.56L to avoid audit??

Thats why I came up with this to clear my doubt-
Pls reply point by point for me.Sorry i m little dumb.Below are jst Yes-No type questions only.

-----------------------

hi,canikhil,travi & others who knw mch abt this IT stuffs-

I hv few queries,lot of cobwebs is there.pls clear my doubts.I found contradictory replies all over the internet.pls answer it point by point.

When we say 8%-
1)for turnover,8% of 2Crs or 8% of my f&o turnover we are considering?
8% of 2Crs=16L
8% of my f&o turnover 32L=2.56L

44AD-
2)if profit is jst 50k or no trades taken whole yr & we jst hv to show some FD interst,do we file ITR4 using 44AD?or some other section?

mock examples-
3)f&o turnover is 35L,8% of 35L is 2.80L
Profit made is just 1.5L.
Do we need audit?

4)f&o turnover is 35L,8% of 35L is 2.80L
Profit made is 4L
But tax is nil after deduction,Do we need audit?

5) f&o turnover is 35L,8% of 35 is 2.80L
Profit made is 6.68L
Do we need audit?

6)f&o turnover is 1.25Cr,8% of 1.25Cr is 10L
Profit made is 14.33L
Do we need audit?

7)if we have an income above the tax slab(2.5L),we have to do an audit anyhow?

8)if we have an income Zero,but turnover is abv 2Crs,we anyhow have to do an audit?

 

[Satya.]

pls clear abv doubt canikhil,travi,TraderRavi & others who knw mch abt this IT stuffs.

 

[travi]

pls clear abv doubt canikhil,travi,TraderRavi & others who knw mch abt this IT stuffs.

I had posted earlier, can you first specify how you computed the turnover?

 

[vijkris]

Can you clearly mention how you are computing the F&O Turnover?

Most people make mistake in calculating turnover. Assume he is not making any mistake and please answer some of the queries....

 

[travi]

When we say 8%-
1)for turnover,8% of 2Crs or 8% of my f&o turnover we are considering?
8% of 2Crs=16L
8% of my f&o turnover 32L=2.56L
8% of my f&o turnover

44AD-
2)if profit is jst 50k or no trades taken whole yr & we jst hv to show some FD interst,do we file ITR4 using 44AD?or some other section?
if under 2.5L no need for audit, and just file NIL return, or normal ITR4 declaring no audit(Books not maintained) incase you need refund TDS from FD etc

mock examples-
3)f&o turnover is 35L,8% of 35L is 2.80L
Profit made is just 1.5L.
Do we need audit?
NO

4)f&o turnover is 35L,8% of 35L is 2.80L
Profit made is 4L
But tax is nil after deduction,Do we need audit?
Yes

5) f&o turnover is 35L,8% of 35 is 2.80L
Profit made is 6.68L
Do we need audit?
No But advisable to maintain books of accounts.

6)f&o turnover is 1.25Cr,8% of 1.25Cr is 10L
Profit made is 14.33L
Do we need audit?
No But advisable to maintain books of accounts bcos since this FY, 1Cr limit is raised to 2Cr. For previous years and late filing audit required.

7)if we have an income above the tax slab(2.5L),we have to do an audit anyhow?
No Audit unless any of your income falls under Business Income.
This includes professionals, freelancers etc
If your income is purely from Salary, Bank Interest (FD etc) or income from one house property(unless loss brought forward) then no Audit required.


8)if we have an income Zero,but turnover is abv 2Crs,we anyhow have to do an audit?
YES, even loss needs audit.
Advantage is that. loss can be carried forward to next year and you can offset against that profit. Loss upto 8yrs can be carried forward if properly audited.

 

[canikhil]

When we say 8%-
1)for turnover,8% of 2Crs or 8% of my f&o turnover we are considering?
8% of 2Crs=16L
8% of my f&o turnover 32L=2.56L
8% of my f&o turnover

44AD-
2)if profit is jst 50k or no trades taken whole yr & we jst hv to show some FD interst,do we file ITR4 using 44AD?or some other section?
if under 2.5L no need for audit, and just file NIL return, or normal ITR4 declaring no audit(Books not maintained) incase you need refund TDS from FD etc

mock examples-
3)f&o turnover is 35L,8% of 35L is 2.80L
Profit made is just 1.5L.
Do we need audit?
NO

4)f&o turnover is 35L,8% of 35L is 2.80L
Profit made is 4L
But tax is nil after deduction,Do we need audit?
Yes

5) f&o turnover is 35L,8% of 35 is 2.80L
Profit made is 6.68L
Do we need audit?
No But advisable to maintain books of accounts.

6)f&o turnover is 1.25Cr,8% of 1.25Cr is 10L
Profit made is 14.33L
Do we need audit?
No But advisable to maintain books of accounts bcos since this FY, 1Cr limit is raised to 2Cr. For previous years and late filing audit required.

7)if we have an income above the tax slab(2.5L),we have to do an audit anyhow?
No Audit unless any of your income falls under Business Income.
This includes professionals, freelancers etc
If your income is purely from Salary, Bank Interest (FD etc) or income from one house property(unless loss brought forward) then no Audit required.


8)if we have an income Zero,but turnover is abv 2Crs,we anyhow have to do an audit?
YES, even loss needs audit.
Advantage is that. loss can be carried forward to next year and you can offset against that profit. Loss upto 8yrs can be carried forward if properly audited.

To add to what Travi shaid

in example 5 and 6 ...Travi has advised to maintain books. There is a very important reason for this advice that everyone following this post needs to understand.

Declaring profit at 8% or more without maintaining books is a double edged sword. Because once you choose this option, you need to follow the same for next 5 years. So lets say you choose to declare profits under "no accounts" option for this year and declare profit (under example 6) at 8% ie 10 lakhs or actual profit ie 14.33 lakhs, you will have continue offering profit at atleast 8% or more for next five years regardless of the actual profit or loss. This could really hurt if you earn losses in next years. So lets say your turnover is 1 cr next year but you incur loss of Rs 2 lakhs, you will still have to declare profit of Rs 8 lakhs at least.

So, ideal situation now is this:

1. Maintain books regardless of profit or loss.

2. If the audit becomes applicable on account of

- turnover exceeding Rs 2 cr or
- where the turnover is less than 2 cr but the profit margin is below 8% and the total income exceeds minimum taxable limit (Rs 2.5 lakh at present);

get the audit done.