When Does an LLP Need an Audit? The ₹40 Lakh / ₹25 Lakh Test, Explained

Your LLP needs a statutory audit if, in a financial year, its turnover exceeds ₹40 lakh or its partners' contribution exceeds ₹25 lakh. Either one. Not both. That single word — or — is where most partners go wrong, because they quietly read it as "and", decide they are safely below the line, and find out in October that they were an audit case all along. The test sits in Rule 24(8) of the LLP Rules, 2009, under section 34(4) of the Limited Liability Partnership Act, 2008. It takes about ninety seconds to apply, once you know what the two figures actually measure. This guide is those ninety seconds, plus the part everyone confuses it with.

The test, stated exactly

Cross one limb and the accounts of that year must be audited. Cross neither and the audit is not compulsory — the LLP may still choose one, and I will come to why some do. The section of the annual filing page that sends most readers here, the audit threshold, plainly stated, puts it in one line: either condition alone triggers the audit.

Notice the verb. The law says exceeds. An LLP with turnover of exactly ₹40,00,000 and contribution of exactly ₹25,00,000 has crossed neither limb. Add one rupee to either figure and that limb is crossed. Partners find this pedantic right up to the year their turnover lands at ₹40.3 lakh and nobody had planned for an audit. Plan on the pedantry. It is cheaper.

What the two figures actually measure

Turnover is the year's turnover — the sales or receipts figure your books show for that financial year. It is not profit. A young LLP can run at a loss on ₹55 lakh of turnover and still be an audit case, because the test never asks whether the year went well. It asks how big the year was.

Contribution is the partners' obligation of contribution — the total the partners have committed to the LLP under the agreement, the same figure that runs through your Form 3 and your annual filings. Two traps hide here. The first: contribution is not what each partner paid last month; it is the obligation on record, so check the agreement figure, not the bank balance. The second: if the partners raised the contribution during the year — say from ₹20 lakh to ₹30 lakh in February, to fund a new office — that year is an audit year. The increase does not wait for the next financial year to start counting. I have seen exactly this surprise land on a firm that had done everything else right. They had raised capital for a good reason and told nobody in accounts.

Run the test fresh every April, on the closed year's figures, for that year alone. Last year's answer tells you nothing about this year's. An LLP can drift across the line on turnover growth it is busy celebrating, and the audit obligation arrives quietly, attached to the celebration.

Who audits, and what changes in Form 8

Only a chartered accountant in practice can audit an LLP — Rule 24(9) is blunt about it, and Rule 24(10) has the auditor appointed for each financial year. Your internal accountant, however good, cannot sign this audit. Neither can a chartered accountant who is a partner in your own LLP. (How the appointment itself is made, and when, is a separate question with its own guide coming; here it is enough to know the qualification line.)

Once the audit applies, it flows into Form 8, the statement of account and solvency due by 30 October. Form 8 is filed on the audited accounts for that year, and where the limits are crossed the form carries the auditor's certification. Treat the audit and the Form 8 deadline as one job with two steps: books closed, audit signed, then the filing. Firms that start the audit in October discover that auditors have other clients in October too. Our Form 8 filing guide walks through what that filing carries.

Below both limbs, the picture flips but does not go blank. If the partners choose not to be audited, Form 8 must carry a statement from the partners acknowledging their responsibility for complying with the Act and the Rules on preparing the books of account, together with a certificate in the form Form 8 specifies. Read that before you sign it in a below-the-line year. You are personally standing behind the numbers in place of an auditor. That is a fair bargain at ₹15 lakh of turnover. It deserves a second look at ₹39 lakh.

And yes, a below-the-line LLP can simply decide to be audited — the Rules allow it, and the audit then follows the same Rules. Banks ask for audited financials. So do large customers doing vendor diligence. A voluntary audit in a year when a loan application is coming is rarely wasted money.

The other audit: why section 44AB is a different gate

Here is the confusion that costs partners the most sleep. The ₹40 lakh test is an LLP Act test. The Income-tax Act runs its own audit, the tax audit under section 44AB, on entirely different numbers:

• Business: tax audit where turnover or gross receipts exceed ₹1 crore — and that threshold rises to ₹10 crore where the aggregate cash receipts and the aggregate cash payments each stay within 5% of their totals.
• Profession: tax audit where gross receipts exceed ₹50 lakh.

Think of the two tests as two gates on the same road, run by two different authorities, checking two different things. Passing through one says nothing about the other. Work the combinations once and the fog lifts:

Look at the first row again, because it is the commonest real-world case: a modest, growing LLP that owes nobody a tax audit and still must get its accounts audited under the LLP Act. The ₹40 lakh line is low. It was set for a much smaller economy of LLPs, and a healthy two-partner practice crosses it in its second or third year without noticing. The partners who get caught are not the careless ones. They are the ones who asked their tax advisor "do we need an audit?", heard the 44AB answer, and never asked the LLP Act question. Two laws. Two answers. Ask both.

If this is your first audit year

Do three things in April, not October. Close the books and run both limbs of the test on the final figures — turnover from the profit and loss account, contribution from the agreement and the filings. If either limb is crossed, appoint the auditor early enough for the audit to finish before the Form 8 season crowds every practising CA's desk. And keep the year's Form 11 and Form 8 sequence straight — the annual return comes first in the filing year, as our Form 11 guide explains.

Skipping a required audit and filing Form 8 anyway is the one shortcut I talk every partner out of. The filing rests on accounts the law said had to be audited and were not, and the audit does not go away — it merely gets done later, in a hurry, for a year whose books have gone cold, usually in the middle of a bank's diligence or a notice. Late audits cost more than punctual ones in every currency I know: fees, time, and credibility.

If you would rather hand the whole question to someone who runs this test across LLP files every season, the ComplyKart annual filing team will check your turnover and contribution figures against both the Rule 24(8) test and the section 44AB test, tell you in writing which audits your LLP actually owes for the year, and carry the Form 8 filing through on the audited accounts. One less gate to misread.