Introduction
Tax audit applicability for business in FY 2024-25 depends on turnover, profit rate, and digital transaction limits. With rising digitisation and compliance scrutiny by the Income Tax Department, understanding when tax audit becomes mandatory is crucial for every Indian business.
What is a Tax Audit?
A tax audit under Section 44AB of the Income-tax Act ensures businesses correctly report their income, expenses, and deductions. It is not the same as a statutory audit, and must be conducted by a Chartered Accountant.
Who Needs Tax Audit in FY 2024-25?
Here’s a breakdown based on business category, turnover, and profit:
| Condition | Applicability (FY 2024-25) |
|---|---|
| Business turnover exceeds ₹1 crore | Tax audit mandatory |
| Turnover between ₹1 crore and ₹10 crore & cash receipts/payments > 5% | Tax audit mandatory |
| Turnover between ₹1 crore and ₹10 crore & cash receipts/payments ≤ 5% | Tax audit not required |
| Turnover exceeds ₹10 crore (regardless of cash/digital split) | Tax audit mandatory |
| Presumptive income (Section 44AD) opted & income < 8% (cash) or 6% (digital) | Tax audit mandatory |
| Presumptive scheme not opted despite eligibility | Tax audit may be applicable |
| Loss in business with turnover > ₹1 crore | Tax audit required if not opting 44AD |
✅ Note: These limits are as per the Finance Act, 2021 and applicable to FY 2024-25 unless amended.
What is the 5% Cash Limit?
To promote digital payments, the government allows businesses with:
- ≤5% cash receipts and
- ≤5% cash payments
to avoid audit if turnover is up to ₹10 crore.
So, if your business is mostly digital, you may escape tax audit even with higher turnover.
Presumptive Taxation and Audit
Under Section 44AD, small businesses with turnover up to ₹2 crore can declare profits at:
- 8% of turnover (cash)
- 6% of turnover (digital)
But if you declare lower profit than this AND your income exceeds the basic exemption limit, tax audit becomes compulsory.
Legal Reference
- Section 44AB of the Income-tax Act, 1961 – Governs tax audit rules
- CBDT Circular No. 10/2020 dated 20.05.2020 – Clarifies cash threshold under 44AB
- Finance Act, 2021 – Raised tax audit threshold to ₹10 crore with 5% digital condition
Expert View: Avoid Unwanted Audit
“Many small businesses can now legally avoid tax audit by shifting to digital modes. A simple change in payment behavior can save compliance costs.”
– CA Manish Rao, Tax Consultant, Bengaluru
Key Takeaways for FY 2024-25
- Turnover < ₹1 crore – No tax audit
- Turnover ₹1–10 crore & cash >5% – Audit mandatory
- Turnover ₹1–10 crore & cash ≤5% – Audit not required
- Turnover > ₹10 crore – Audit compulsory
- Presumptive scheme + low profit – Audit required
FAQs: Tax Audit for Business in FY 2024-25
Q1. Is audit compulsory for all businesses?
No, only those exceeding turnover or profit thresholds need it.
Q2. Does a startup in the first year need tax audit?
Only if it crosses turnover or profit limits defined under 44AB.
Q3. If I receive 100% digital payments, can I avoid audit?
Yes, if turnover is up to ₹10 crore and cash usage is ≤5%.
Conclusion: Don’t Miss Compliance
Tax audit applicability for business in FY 2024-25 is not just about turnover — it’s about cash vs digital usage, presumptive income, and smart compliance. Make sure you assess your business finances early to avoid last-minute penalties.
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Summary
Tax audit for businesses in FY 2024-25 applies based on turnover, profit, and cash usage. If turnover exceeds ₹1 crore or if digital payments are <95%, audit may be required. Presumptive scheme users declaring lower profit must also audit. Learn key limits and exemptions here.