When is Audit Applicable for Partnership Firm?

When is Audit Applicable for Partnership Firm?

Tax Audit For Partnership Firm

Tax Audit for partnership means to Examine the books of accounts maintained by partnership firm & verify the accurateness of the income earned & deduction claimed by the Firm in the Income-tax returns. Tax audit for FY 2019-20 (i.e. AY 20-21) shall be governed by the provisions ( Section 44AB ) & Rules laid down in the Income Tax Act 1961. Partnership firm whose turnover crosses specified limit for those firm Tax audit is applicable. The Chartered Accountants conducting audit needs to record all his observations & findings and submit them in an audit report. The article below discusses tax audit applicability, the due date of filing, tax audit report format, & penalty for a tax audit.  

  • Audit Section is 44 AB of Income Tax Act 1961
  • Appoint CA firm for Tax Audit
  • Due Date of Tax Audit Filing is 30 September 
  • Expected Date of Income Tax Filing 30 September
  • For Non-Filing Penalty up to Rs.150000/-
  • Digital Signature is mandatory


Objectives of Tax Audit

  1. It restricts the manipulation of individual’s or organization Books of accounts by certification through proper authority.
  2. Check tax evasion by Firm, if any.
  3. Provide accurate information about partnership firms & avoid window dressing.
  4. To identify the discrepancy in turnover reported as per Financials Statements  with the returns filed as per the requirement of any other law(Comparing the  turnover with GST and recording the reasons for any differences)


Tax Audit Applicability

Tax audit applicability for partnership firms is given under Section 44AB of Income Tax Act 1961. Tax Audit for partnership firm is applicable if the turnover/ gross receipt exceeds Rupees One Crore in case of business and Rupees Fifty laces in the profession. As per the nature of business of firm turnover criteria changes.

  • Business Activity Turnover > Rs. 1 Cr – Audit Applicable 
  • Professional Services Activity Turnover > Rs. 50 Lac Audit Applicable 


Tax Audit Checklist For Partnership Firm: – 

  1. Verify Deed of Partnership for profit-sharing ratios, interest on capital, salary etc.
  2. Obtain the list of businesses carried by the Firm and ensure to incorporate in the audit report.
  3. Ensure the maximum amount of partners remuneration does not exceed the maximum amount specified in the act
  4. Check Valuation of closing stock 
  5. expenditure of personal nature debited to profit & loss account 
  6. Amount inadmissible under section 40A(3)
  7. particulars of any liability of a contingent nature
  8. loan or deposit in an amount exceeding the limit specified in section 269SS
  9. Examine books of accounts


Tax Audit Penalty For Partnership firm

Any partnership firm where tax audit is applicable & fails in tax audit filing in due date invites penalty under section 271B  of Income Tax Act 1961. Penalty for non-filing of tax audit shall be as below, and the penalty may be levied i.e. lower of

  1. 0.5% of the total sales, turnover or gross receipts
  2. Rs 1,50,000




Created & Posted by (Ramesh Kumar Gupta)

​Senior Accounts Manager at TAXAJ

 

TAXAJ is a consortium of CA, CS, Advocates & Professionals from specific fields to provide you a One Stop Solution for all your Business, Financial, Taxation & Legal Matters under One Roof. Some of them are: Launch Your Start-Up Company/Business, Trademark & Brand Registration, Digital Marketing, E-Stamp Paper Online, Closure of Business, Legal Services, Payroll Services, etc. For any further queries related to this or anything else visit TAXAJ

 

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Address: 1/11, 1st Floor, Sulahkul Vihar, Old Palam Road, Dwarka, Delhi-110078

Contact: 8961228919 ; 8802812345 | E-Mail: connect@taxaj.com

 



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