| Question And Answer | |
|---|---|
| Subject: | tax audit applicable |
| Category: | Income-Tax |
| Querist: | kollipara sundaraiah |
| Answered by: | Law Intern |
| Tags: | Presumptive taxation, Tax Audit |
| Date: | March 18, 2025 |
For FY 23-24 – Turnover Rs 1.50 Cr. Showed 15% Profit. Filed ITR 4. In FY 24-25 – Turnover Rs 90 Lakh. Ready To Prepare PL And BS Fully And File ITR 3 With Full Disclosure. Profit 15%. Should The Client Do Audit In FY 24-25?
Under Section 44AD(4), if a taxpayer opts for presumptive taxation in any of the previous five years and then opts out in a subsequent year (by filing ITR-3 with books of accounts), a tax audit is required if:
The income exceeds the basic exemption limit (Rs. 3 lakh for FY 24-25 under the new tax regime, assuming the client is an individual below 60 years), and
The profit declared is less than the presumptive rate (6% or 8% of turnover).
In your client’s case:
Income (profit) = Rs. 13.5 lakh (15% of Rs. 90 lakh), which exceeds the basic exemption limit of Rs. 3 lakh.
However, the profit of 15% is significantly higher than the presumptive rate of 6% (Rs. 5.4 lakh for digital transactions) or 8% (Rs. 7.2 lakh for cash transactions).
Since the profit declared (15%) exceeds the presumptive rate, the condition for triggering an audit under Section 44AD(4) read with Section 44AB(e) does not apply.