Tax audit is compulsory in case of a person is carrying on business whose gross turnover exceeds

The Income Tax Act, 1961 is a comprehensive statute that focuses on the various rules and regulations that govern taxation in the country. It provides for levying, administering, collecting, and recovering income tax for the Indian government. 

A tax audit is an examination of a tax return by the IRS to verify that your income and deductions are precise. 

There are three main types of tax audit namely external audit, internal audit, and Internal Revenue Service (IRS) audit.

As per Section 44AB of the Income Tax Act, 1961:

• Every person carrying on a business is entitled to get his accounts audited, if his turnover, total sales, or gross receipts in business exceeds Rs. 1 crore in the previous year
• Every person carrying on a profession is entitled to get his accounts audited if his gross receipts in profession exceed Rs. 50 lakhs in the previous year.

Therefore, a tax audit is compulsory in case of a person is carrying on a business whose gross turnover exceeds Rs. 1 crore.

With effect from 1st April 2020, that is from the assessment year 2020-21, the above provision is amended as follows:

The threshold limit has been revised to increase it for a person carrying on a business from Rs. 1 crore to Rs. 5 crore if the following conditions are satisfied:

• His aggregate of all the cash receipts in the previous year does not exceed 5% of such receipts.
• His aggregate of all the cash payments in the previous year does not exceed 5% of such payments.