Our client is a partnership firm with 2 partners. Total turnover of the firm is 50 lakh. Total book profit of Rs 5 lakh . After paying remuneration and interest to all partners N P is Nil. Is it compulsory for audit in any Sec. In the same case if the book profit is Rs. 3 lakh and net profit is Nil . Is it compulsory for audit in any Sec.

Reply—As per section 44AB of Income Tax Act, following persons are compulsorily required to get their accounts audited :

A person carrying on business, if his total sales, Turnover or gross receipts (as the case may be) in business for the year exceed or exceeds Rs. 1 crore. This provision is not applicable to the person, who opts for presumptive taxation scheme under section 44AD and his total sales or Turnover doesn't exceeds Rs. 2 crores.

w.e.f. Assessment Year 2020-21, the threshold limit is increased from Rs. 1 Crore to Rs. 5 crore in case when cash receipt and payment made during the year does not exceed 5% of total receipt or payment, as the case may be. In other words, more than 95% of the business transactions should be done through banking channels.

If turnover is less than 2 cr, taxpayer is not required to get your accounts audited if you declare profit more than 8% as per 44AD.

The presumptive taxation scheme of section 44AD is designed to give relief to small taxpayers engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE). The presumptive taxation scheme of section 44AD can be adopted by following persons :

1) Resident Individual

2) Resident Hindu Undivided Family

3) Resident Partnership Firm (not Limited Liability Partnership Firm)

The amendment made via the Finance Act, 2016 to disallow deduction of expenditure in the nature of salary, remuneration, interest paid to the partner as per section 40(b) out of presumptive income. Therefore, no deduction of partners salary and interest will be available.