The Indian government has made significant efforts in recent years to ease the compliance burden for small and medium enterprises (SMEs) and to promote the digital economy. One such measure is the increase in the threshold limit under Section 44AB of the Income Tax Act, 1961 from Rs 5 crore to Rs 10 crore for persons carrying on business. However, this increase in threshold limit has raised certain concerns and issues that need to be addressed.
As per Section 44AB, a person carrying on business is required to get their books of account audited if their gross receipts exceed Rs 5 crore in the financial year. However, with the recent increase in threshold limit to Rs 10 crore, the compliance burden for SMEs has been reduced. This is a welcome move as it would reduce the compliance burden for SMEs and MSMEs.
Concerns and Issues:
The steep increase in the threshold for tax audit from Rs 5 crore to Rs 10 crore may pose concerns relating to revenue leakage especially in the current faceless assessment regime. Tax audit by chartered accountants have compelled assessees to make suo-moto additions on account of various disallowances like payment of taxes, bonus, interest, etc. u/s 43B, disallowances due to non-deduction of tax (TDS) u/s 40(a)
In summary, while increasing the threshold limit under Section 44AB from Rs 5 crore to Rs 10 crore may reduce the compliance burden for SMEs and MSMEs, there are concerns regarding revenue leakage in the current faceless assessment regime. It is suggested that the threshold limit be reduced and necessary clarifications or legislative amendments be made regarding the calculation of cash receipts and payments. Additionally, the anomaly in the manner of applicability of Section 44AB to individuals, HUFs, and firms with turnover up to Rs 2 crores and turnover exceeding Rs 2 crores should be addressed. Overall, it is important to strike a balance between easing the compliance burden for small businesses and ensuring that revenue collection is not impacted negatively.