Reconsider tax audit threshold limit of ₹10 crore, ICAI tells Govt

The CA Institute has urged the government to reconsider its Budget 2021 introduced new threshold limit of ₹10 crore for tax audit of individuals and small entrepreneurs.

This suggestion has been made in the pre-budget memorandum submitted by the CA Institute to the Finance Ministry last week, sources said. It has highlighted that digital economy cannot be propped up at the cost of revenue loss to the exchequer.

It maybe recalled that the government had in Budget 2021 offered major relief for companies that transact digitally. To incentivise non-cash digital transactions and reduce the burden of compliance of small and medium enterprises, the government had this year increased the threshold limit for tax audit from ₹5 crore to ₹10 crore in the case of certain individuals.

The Finance Act 2020 had increased the tax audit limit for a person carrying on business from ₹1 crore to ₹5 crore, subject to a condition that cash receipts and cash payments during the year do not exceed 5 per cent of the total receipts/payments. The Finance Act 2021 further increased this limit to ₹10 crore. Accordingly, any person carrying on business shall not be required to get his account audited by an accountant (and file tax audit report) if his total sales/turnover/gross receipts do not exceed ₹10 crore and cash payments during the year do not exceed 5 per cent of total receipts/payments.

ICAI viewpoint

Although the resolve of the government in respect of ease of doing business especially for small and medium enterprises and moving towards digital economy is appreciable, there are certain concerns and issues that merit consideration from a revenue augmentation and tax collection standpoint, the ICAI has said in its pre-Budget memorandum.

Digital economy cannot be done at the cost of revenue loss to the exchequer. Some small and medium enterprises do want to pay taxes because of fear of audit as they are complying with various laws, the ICAI has said.

“The steep increase in the threshold for tax audit from ₹5 crore to ₹10 crore may pose concerns relating to revenue leakage especially on the current faceless assessment regime,” the ICAI said.

Importantly, these assessees presently maintain books only because they are liable for tax audit. By raising the threshold for tax audit, these entities may get to indiscipline of no proper records, the ICAI has said.

The particulars required to be filled in the various clauses in Form 3CD ( tax audit report) facilitates the Assessing Officers in carrying out and completing the Assessment. “Further, considering the thrust on faceless assessments, a tax audit is in fact all the more important now. It will help the tax department get information from the tax audit,” ICAI said.

The ICAI highlighted that since the time tax audit was first introduced in 1984, the gross tax collections had risen leaps and bounds. From a level of ₹3,000-4,000 crore in 1984, the tax collection is now ₹13.5- lakh crore and tax audit has contributed significantly to such increase.

The importance of tax audit, therefore, cannot be undermined as a mere compliance which is viewed as burdensome, without appreciating its contribution to the exchequer, the ICAI has said.

Tax audit report revision

CA Institute also wants the Finance Ministry to allow tax audit reports to be revised for minor clerical errors on the lines of revision allowed for income tax returns.

Currently, the system allows revision of filed audit report, but in this case a new audit report has to be uploaded and new UDIN has to be generated. The CA Institute wants a mechanism where for clerical errors, the audit report can be revised with the same UDIN and thereby delays can be avoided.

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