Q.Mr. Rao runs a trading business with a total turnover of ₹1.4 crore for the previous year. Nearly all his sales and purchases are made through banking channels, with cash receipts and cash payments each amounting to only about 3% of his respective totals. Is Mr. Rao required to get a tax audit done under Section 44AB? Explain with the applicable threshold.

Because Mr. Rao's cash receipts and payments are each under 5% of their respective totals, the higher ₹10 crore threshold applies to him, not the ordinary ₹1 crore one.

Step 1 — Identify the default threshold. For a business, Section 44AB ordinarily requires a tax audit where turnover exceeds ₹1 crore in the relevant previous year (grounded on Assessment Year 2026-27 figures).

Step 2 — Check whether the higher threshold applies. The ₹1 crore threshold is raised to ₹10 crore where the assessee's cash receipts AND cash payments during the year are EACH 5% or less of their respective totals — i.e. the business is overwhelmingly conducted through banking channels rather than cash. Mr. Rao's facts state his cash receipts and cash payments are each about 3% of the respective totals, which satisfies BOTH conditions of this cumulative test.

Step 3 — Apply the correct threshold to Mr. Rao's actual turnover. Since Mr. Rao qualifies for the ₹10 crore threshold, and his actual turnover is only ₹1.4 crore — well below ₹10 crore — he does NOT cross the applicable threshold. …