Partnership Firm Audit Limit: Income Tax, LLP Act & GST Explained

Running a partnership firm in India brings numerous legal and regulatory obligations. One crucial area where businesses often face confusion is audit applicability. Depending on your turnover, structure, and tax compliance, an audit may become mandatory under various laws. This article explains the audit limits for partnership firms as per the LLP Act, the Income Tax Act, and GST laws, helping you stay compliant and avoid penalties.

1. Audit Limit for Partnership Firms under the LLP Act

The Limited Liability Partnership (LLP) Act, 2008 applies to partnership firms registered as LLPs.

As per Rule 24 of the LLP Rules, 2009, an audit is mandatory if:

• The annual turnover of the LLP exceeds ₹40 lakh, or

• The contribution (capital) of the LLP exceeds ₹25 lakh

However, even if your turnover or contribution is below these thresholds, partners may voluntarily opt for an audit if required for statutory or internal purposes, such as bank loans or investor due diligence.

Tip: For LLPs, this audit is more like a financial statement audit and must be conducted by a practicing Chartered Accountant (CA).

2. Audit Limit for Partnership Firms under the Income Tax Act

Under the Income Tax Act, 1961, audit applicability is defined under Section 44AB. The limits are as follows:

For Firms Involved in Business (Non-professional):

• Audit is required if gross turnover or receipts exceed ₹1 crore in a financial year.

• The limit increases to ₹10 crore if:

  • Cash receipts are less than 5% of total receipts, and

  • Cash payments are less than 5% of total payments.

This incentivizes digital transactions and reduces compliance burdens for businesses using formal banking channels.

For Firms Engaged in Profession (like legal, CA, consultancy):

• Audit is mandatory if gross receipts exceed ₹50 lakh in a financial year.

Also, if a partnership firm opts for presumptive taxation under Section 44AD or 44ADA but declares lower profits than the deemed percentage and total income exceeds the taxable threshold, then an audit becomes mandatory.

Note: Tax audit under Income Tax is independent of audit under LLP Act. Even traditional (non-LLP) partnership firms must comply with this if they cross the thresholds.

3. Audit Requirement for Partnership Firms under GST

The Goods and Services Tax (GST) regime previously mandated a GST audit under Section 35(5) for taxpayers with an aggregate turnover exceeding ₹2 crore. However, this provision was scrapped in Budget 2021 and replaced with a self-certification requirement.

Now, partnership firms registered under GST must:

• File GSTR-9 (Annual Return) if turnover exceeds ₹2 crore

• File GSTR-9C (Reconciliation Statement) if turnover exceeds ₹5 crore, self-certified by the taxpayer

So, under current GST laws:

• There is no mandatory third-party audit like earlier.

• Accuracy in filing GSTR-9 and GSTR-9C is critical and may be scrutinized by the department later.

Many firms still prefer getting their GST records reviewed by a CA to avoid discrepancies and notices.

Summary of Audit Limits for Partnership Firms

Conclusion

Audit compliance is not just a legal necessity; it builds trust and transparency in the operations of a partnership firm. Whether you’re an LLP, a professional firm, or a GST-registered entity, understanding these audit thresholds ensures you’re not caught off guard during assessments or scrutiny.

Need Help with Partnership Firm Audits?

Whether you’re unsure about Income Tax audits, LLP financial statement audits, or GST reconciliation, our experts at Tradeviser are here to guide you. We ensure timely compliance, minimize risk, and help you stay focused on your business.

Contact Tradeviser today for a free consultation on your audit requirements.