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Tax Audit Applicability & Penalties for AY 2024-25:

Publish Date: May 1, 2024

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Navigating Tax Audit Applicability and Penalties in AY 2024-25

As the Assessment Year 2024-25 unfolds, understanding tax audit applicability and penalties is essential for taxpayers. This article provides a concise yet comprehensive overview of the key aspects. We delve into the thresholds triggering tax audits, including turnover and gross receipts, shedding light on who needs to comply. Additionally, we explore the potential penalties for non-compliance, such as fines and disallowance of expenses, emphasizing the importance of adherence to audit requirements. By demystifying these complex topics, we aim to empower individuals and businesses to navigate the tax landscape confidently. Join us as we unravel the intricacies of tax audits, equipping you with the knowledge needed to ensure compliance and mitigate risks in AY 2024-25.

Tax Audit Applicability:

Tax audits serve as a vital tool for enforcing compliance with the Income Tax Act, verifying financial records and returns’ accuracy. Understanding their relevance is pivotal for taxpayers in the upcoming Assessment Year 2024-25. Let’s delve into the critical thresholds and factors influencing tax audit applicability for the fiscal year ahead.

  1. Business Turnover Threshold:

    • Businesses are subject to tax audit if their turnover exceeds Rs. 1 crore during the financial year.
    • Finance Act 2021: With effect from 1st April 2021 the threshold limit of Rs 1 Crore is increased to Rs 10 crore in case cash transactins do not exceed 5% of the total transactions.
    • This threshold applies to various types of businesses, ranging from sole proprietorships and partnerships to companies.
  2. Professionals’ Gross Receipts:

    • Professionals such as doctors, lawyers, consultants, and others must undergo a tax audit if their gross receipts surpass Rs. 50 lakhs in the financial year.
    • Gross receipts encompass all income earned from professional services rendered.
  3. Presumptive Taxation Scheme:

    • Taxpayers availing themselves of the presumptive taxation scheme under sections 44AD, 44ADA, or 44AE of the Income Tax Act need to comply with specified conditions.
    • If the declared income falls below the prescribed limits, taxpayers may still be required to undergo a tax audit to verify the accuracy of financial statements.
  4. Exemption for New Businesses:

    • New businesses are granted relief from mandatory tax audits for the initial years of operation.
    • This exemption aims to facilitate the ease of doing business and support startups in their early stages.
  5. Voluntary Tax Audits:

    • While tax audits are mandatory under certain circumstances, taxpayers have the option to voluntarily undergo audits even if not required by law.
    • Voluntary audits can help in identifying potential discrepancies and ensuring compliance with tax regulations.

Penalties of Non-Compliance:

Failure to comply with the provisions of tax audit can attract various penalties and consequences, including:

  1. Section 271B Penalty:

    • Failure to conduct a tax audit when required under section 44AB can lead to a penalty.
    • The penalty is calculated at 0.5% of total sales, turnover, or gross receipts, capped at Rs. 1,50,000.
  2. Disallowance of Expenses:

    • Expenses claimed by the taxpayer may be disallowed if a tax audit is not conducted as required by law.
    • This can result in higher taxable income and potential additional tax liability.
  3. Prosecution:

    • In severe cases of non-compliance, prosecution proceedings may be initiated against the taxpayer.
    • Prosecution can lead to legal repercussions, including fines and imprisonment, if found guilty of tax evasion or fraud.

Importance of Compliance:

  1. Avoidance of Penalties:

    • Compliance with tax audit requirements helps taxpayers avoid penalties and fines imposed for non-compliance.
    • Timely audits ensure adherence to regulatory provisions, mitigating the risk of financial penalties.
  2. Enhanced Credibility:

    • Compliance enhances the credibility of financial statements and tax returns, fostering trust among stakeholders.
    • Accurate financial reporting reflects positively on the taxpayer’s reputation and credibility in the business community.
  3. Smooth Business Operations:

    • Adhering to tax audit requirements promotes efficient financial management practices.
    • Compliance facilitates smooth business operations by providing clarity on financial performance and tax obligations.
  4. Legal Obligations:

    • Compliance with tax laws is a legal obligation for taxpayers, enforced by regulatory authorities.
    • Failure to comply with audit requirements can result in legal consequences, including fines, penalties, and prosecution.
  5. Financial Planning and Decision-making:

    • Compliance enables taxpayers to make informed financial decisions based on accurate financial data.
    • Understanding tax obligations and compliance requirements is essential for effective financial planning and risk management.


Final Thoughts:As the Assessment Year 2024-25 unfolds, it’s imperative for taxpayers to be aware of the tax audit applicability thresholds and the potential penalties for non-compliance. By staying informed and proactively meeting audit requirements, taxpayers can ensure smooth compliance with the tax laws while avoiding unnecessary financial and legal hassles.

At Laudable Legal Solutions, we’re dedicated to helping you navigate the complexities of tax compliance. Contact us today to learn more about how we can assist you in ensuring seamless adherence to tax audit requirements and safeguarding your financial interests.



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