How to decide whether Audit required or not? Combination of presumptive + business

Taxation
21

If possible, could you link the guidance note or pdf where ICAI says presumptive should not be used for fno. If it did, I think major tax filing institutions(like cleartax, @Quicko ) would have said it. But they all continue to claim presumptive for fno publicly.

Sure. Why do you want to take the view where it’s not beneficial for you. Obviously if you’re small fry, try not to stand out too much or have enough money to fight cases…

22

I don’t think it’s there in icai guidelines too.
If I find anything, I will post here.

1 Like
23

You both are like tom and jerry. Can’t live with or without.

24

Hahaha. I think my question is sidelined or I don’t understand anything. @Jason_Castelino @BB789 . Just I want to know whether in my case do I require any audit?

25

Hello @adianadiadi

  1. Yes, a tax audit will be applicable. Once the presumptive scheme is opted for in any financial year, it must be followed for five consecutive years. If it is not continued, a tax audit becomes mandatory.
  2. Yes, STCG can be treated as normal business income instead of capital gains, provided this approach is followed consistently in subsequent years.
  3. Yes, professional income can be reported under the presumptive scheme, as ITR-3 includes both normal business income and presumptive income.
  4. If STCG is treated as business income, it will be taxed at slab rates. Since the total income is below ₹12 lakhs, you can claim rebate under Section 87A, resulting in no tax liability.
    Thanks
26

Even if turnover is within the 10Cr limit? Is this because of intraday loss?

27

@BB789

Yes, because once opted for presumptive it needs to be opted for 5 consecutive years, if not opted then tax audit becomes mandatory irrespective of the amount of turnover.

28

Assuming, one reports a profit % less than the presumptive rates (6%/8%/50%) used earlier.

Opting out + reporting a Higher profit means tax audit is applicable only based on the turnover condition, not because of opting out. Here, Turnover becomes the criteria, not the action of opting out.

I.e., Tax audit applies only if you satisfy both conditions of, Opting out and claiming lower profits. The act of opting-out doesn’t automatically mandate tax audit, if you are reporting a higher profit than the profit % reported under presumptive taxation.

I.e., One cannot keep switching between presumptive taxation and normal taxation for the benefit of oneself, however, if the switch from presumptive to normal taxation results in the benefit of the Govt, by the way of higher profit %, the tax audit is not required.

Tax Audit Applicability

A tax audit is only applicable when you opt out of presumptive taxation (Section 44AD/44ADA) and report profits lower than the prescribed presumptive rate (6%/8% for business, 50% for professionals).

Key Aspects of Tax Audit Applicability:

Opting Out + Lower Profit: If you have previously claimed presumptive taxation and decide to report lower profits, you must maintain books of accounts and get a tax audit done.

Opting Out + Higher Profit: If you opt out but still report profits equal to or higher than the 6%/8%/50% rates, a tax audit is not mandatory solely due to the opt-out, provided your turnover is below the regular audit threshold.

The 5-Year Lock-in Rule: Under Section 44AD, if you opt out of the presumptive scheme, you cannot claim it for the next five years, which often triggers the audit requirement if your actual profits are low.

Thresholds: Regardless of presumptive taxation, a tax audit is mandatory if business turnover exceeds ₹1 crore (or ₹10 crore if 95% of transactions are digital) or for professionals with gross receipts over ₹50 lakh or ₹75 lakh if 95% receipts are digital.

In summary, the audit is a consequence of “opting out + claiming lower profits,” not just the act of opting out itself.