Tax Audit Requirements in India: Clause 63 of the Income Tax Bill, 2025 vs. Section 44AB of Income Tax Act, 1961

Clause 63 Tax audit.

Income Tax Bill, 2025

Introduction

The Income Tax Bill, 2025, introduces significant changes to the tax audit requirements for businesses and professionals through Clause 63. This clause outlines the conditions under which tax audits are mandatory, aiming to streamline compliance and enhance transparency in financial reporting. This article provides a comprehensive analysis of Clause 63, comparing it with the existing Section 44AB of the Income Tax Act, 1961, to highlight the evolution of tax audit thresholds and requirements.

Objective and Purpose

Clause 63 of the Income Tax Bill, 2025, is designed to modernize the tax audit framework by setting updated thresholds for mandatory audits. The primary objective is to ensure that businesses and professionals maintain accurate financial records, thereby facilitating effective tax administration. This provision reflects the government's intent to adapt to changing economic conditions and technological advancements in financial transactions.

Detailed Analysis

Clause 63 of Income Tax Bill, 2025

Clause 63 mandates tax audits for individuals and entities engaged in business or profession based on specific financial thresholds. The clause is structured as follows:

• Sub-clause (1): Requires individuals with business turnover exceeding Rs. 10 crore, provided 95% of transactions are through specified banking or online modes, to undergo a tax audit. For those not meeting this condition, the threshold is Rs. 1 crore. Professionals with gross receipts exceeding Rs. 50 lakh are also subject to audit.
• Sub-clause (2): Exempts individuals whose declared profits align with deemed profits u/ss (clauses) 58(2) or 61(2), unless specified otherwise.
• Sub-clause (3): Stipulates the submission of the audit report by the specified date, duly signed and verified by an accountant.
• Sub-clause (4): Allows compliance with this section through audits conducted under other applicable laws, provided the report is submitted by the specified date.
• Sub-clause (5): Defines "specified date" as one month prior to the due date for filing the income return u/s 263(1).

Section 44AB of Income Tax Act, 1961

Section 44AB outlines the tax audit requirements for businesses and professionals under the Income Tax Act, 1961. Key provisions include:

• Clause (a): Mandates audits for businesses with turnover exceeding Rs. 1 crore, with a provision for Rs. 10 crore if cash transactions are below 5%.
• Clause (b): Requires audits for professionals with gross receipts over Rs. 50 lakh.
• Clause (c): Covers businesses with profits deemed u/ss 44AE, 44BB, or 44BBB, if declared income is lower than deemed profits.
• Clause (d): Applies to professionals u/s 44ADA with income exceeding the non-taxable threshold.
• Clause (e): Pertains to businesses u/s 44AD with income exceeding the non-taxable threshold.
• Explanation: Defines "accountant" and "specified date" for compliance purposes.

Practical Implications

Clause 63 significantly impacts businesses and professionals by adjusting audit thresholds and emphasizing digital transactions. It encourages transparency and accountability, aligning with global best practices. The provision also reduces the compliance burden for small businesses and professionals by raising the audit threshold, thus fostering a more business-friendly environment.

Comparative Analysis

Comparing Clause 63 with Section 44AB reveals several key differences:

• Threshold Adjustments: Clause 63 retains the audit threshold for businesses using digital transactions.
• Digital Transactions: Emphasis on digital transactions in Clause 63 aligns with contemporary financial practices, unlike Section 44AB, which primarily focuses on turnover.
• Exemptions and Compliance: Both provisions offer exemptions and alternative compliance options, but Clause 63 provides more clarity on specified dates and reporting requirements.

Conclusion

Clause 63 of the Income Tax Bill, 2025, represents a significant evolution in tax audit regulations, emphasizing digital transactions and raising audit thresholds. This aligns with global trends towards digitalization and streamlined compliance. While Section 44AB laid the foundation for tax audits, Clause 63 modernizes the framework to better suit current economic conditions. Future reforms may further refine these provisions, enhancing clarity and compliance efficiency.

Full Text:

Clause 63 Tax audit.

Dated: 11-3-2025