First we understand Current Provision of
– Section 44AB
– Section 44AD
– Section 44ADA
Section 44AB: COMPULSORY AUDIT OF ACCOUNTS (Also known as Tax Audit)
| Category of person | Threshold |
| Carrying on business (not opting for presumptive taxation scheme) | Total sales, turnover or gross receipts exceed Rs.1 crore in the FY If cash transactions are up to 5% of total gross receipts and payments, the threshold limit of turnover for tax audit is increased to Rs.10 crores (w.e.f. FY 2020-21) |
| Carrying on profession | Total gross receipts exceed Rs.50 lakh in the FY |
| If Eligible for presumptive taxation under Section 44AE, 44BB, 44AD, 44ADA or 44BBB | Claims profits or gains lower than the prescribed limit under presumptive taxation scheme |
| Penalty: If any taxpayer who is required to get the tax audit done but fails to do so, the least of the following may be levied as a penalty: 0.5% of the total sales, turnover or gross receipts Rs 1,50,000 Last date of audit is 31 October | |
Sec.44AD – Small Business Assessee
APPLICABILITY: From A.Y. 2011-12
Eligible Assessee:
- Resident Individuals & Resident HUFs
- Resident Partnership Firms (not LLPs)
Eligible Business does not include:
- Business of Plying, hiring or leasing of goods carriages covered u/s 44AE
- Any profession referred to u/s 44ADA
- Commission or Brokerage
- Agency Business
- Turnover more than 2 Crores.
Estimated Income:
a. 6% of the Turnover received by account payee cheque/ bank draft or ECS before the due date of filing the return of income.
b. 8% of the turnover not covered above in (a) above.
NON ADMISSIBILITY OF BUSINESS DEDUCTIONS.
All deductions u/s 30 to 38 including depreciation
DEDUCTION UNDER CHAPTER VI-A ALLOWABLE
Deductions u/s 80C to 80 U are allowed
BOOKS OF ACCOUNT NEED NOT BE MAINTAINED
No Books of Account – No Audit – Basic Records to be maintained – Cash memos/bills, Cash Book – to ascertain the turnover – to ascertain the receipts by cash or any other mode. Opening balances required for future years if the assessee returns to the normal computation provisions; w.d.v. is required for assets
| Why this section is proposed? | •This section was proposed in line with the recommendation of Justice Easwar Committee for simplification of taxation of professionals •Following objects are stated to be achieved through this proposal To bring parity between small businessen (who enjoy presumptive taxation u/s 44AD) and small professionals To reduce compliance burden of small professionals To facilitate ease of doing profession |
| How this is sought to be achieved? | This is sought to be achieved by inserting Section 44ADA in the Income Tax Act |
| Who is the eligible assessee? | Resident assessee who is •Individual (or) •Hindu undivided family (or) •Partnership firm (other than limited liability partnership) |
Certain professionals referred to in section 44AA(1) of the Income Tax Act whose total gross receipts from profession does not exceed Rs. 50 lakhs in a financial year.
Who are the eligible professionals?
Persons engaged in any of the following professions:
•Legal
•Medical
•Engineering
•Architecture
•Accountancy
•Technical consultancy
•Interior decoration
•Other notified professionals
Authorized representatives
Film Artists
Certain sports related persons
Company Secretaries and
Information technology
Sec.44ADA – Small Professionals
| How much is the presumptive income to be offered? | Higher of: •50% of the gross receipts from profession (OR) •Income from profession offered by the assessee |
| Benefits of following this proposed section | •Assessee need not maintain books required to be kept u/s 44AA •Assessee need not get the accounts audited u/s 44AB |
| When shall the assessee be required to maintain books and to get the accounts audited? | If boththe following conditions are satisfied, maintenance of accounts and audit are warranted: •Income from profession is offered at a rate lower than 50% of gross receipts AND •Total income of the assessee exceeds the basic exemption limit |
| If the assessee follows this section, following items shall be deemed to be allowed | •All deductions from sections 30 to 38 (including depreciation and un-absorbed depreciation / allowances) shall be deemed as allowed; |
Amendment ins Sec.44AD – Small Business Assessee
The threshold has been increased to 3 crores provided, amount or aggregate of the amounts received during the previous year, in cash, do not exceed 5% of the total turnover or gross receipts.
Note : The receipt by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be receipt in cash.
Example
| S. No | Total Sales | Receipts | Profit | Profit (in%) | Eligible | |||
| in Cash | Other than Cash | in Cash | Other than Cash | in Cash | Other than Cash | |||
| 1 | 50,00,000 | 50,00,000 | – | 4,10,000 | – | 8.20% | 0.00% | Eligible |
| 2 | 50,00,000 | 40,00,000 | 10,00,000 | 3,60,000 | 70,000 | 9.00% | 7.00% | Eligible |
| 3 | 1,00,00,000 | – | 1,00,00,000 | – | 601000 | 0.00% | 6.01% | Eligible |
| 4 | 1,00,00,000 | – | 1,00,00,000 | – | 599000 | 0.00% | 5.99% | Not Eligible |
| 5 | 1,00,00,000 | 1,00,00,000 | – | 6,01,000 | – | 6.01% | 0.00% | Not Eligible |
| 6 | 1,00,00,000 | 1,00,00,000 | – | 8,00,000 | – | 8.00% | 0.00% | Eligible |
| 7 | 1,50,00,000 | 1,50,00,000 | – | 9,10,000 | – | 6.07% | 0.00% | Not Eligible |
| 8 | 1,50,00,000 | 1,50,00,000 | – | 12,10,000 | – | 8.07% | 0.00% | Eligible |
| 9 | 1,50,00,000 | 75,00,000 | 75,00,000 | 4,55,000 | 4,55,000 | 6.07% | 6.07% | Not Eligible |
| 10 | 1,50,00,000 | 75,00,000 | 75,00,000 | 6,05,000 | 4,55,000 | 8.07% | 6.07% | Eligible |
| 11 | 2,00,00,000 | 2,00,00,000 | – | 16,50,000 | – | 8.25% | 0.00% | Eligible |
| S. No | Total Sales | Receipts | Profit | Profit (in%) | Eligible | |||
| in Cash | Other than Cash | in Cash | Other than Cash | in Cash | Other than Cash | |||
| 12 | 2,00,00,000 | 2,00,00,000 | – | 15,00,000 | – | 7.50% | 0.00% | Not Eligible |
| 13 | 2,00,00,000 | 1,00,00,000 | 1,00,00,000 | 8,00,000 | 5,00,000 | 8.00% | 5.00% | Not Eligible |
| 14 | 2,00,00,000 | 1,00,00,000 | 1,00,00,000 | 8,10,000 | 6,50,000 | 8.10% | 6.50% | Eligible |
| 15 | 2,50,00,000 | 2,50,00,000 | – | 16,50,000 | – | 6.60% | 0.00% | Not Eligible |
| 16 | 2,50,00,000 | 2,50,00,000 | – | 20,00,000 | – | 8.00% | 0.00% | Not Eligible |
| 17 | 2,50,00,000 | 5,00,000 | 2,45,00,000 | 50,000 | 15,00,000 | 10.00% | 6.12% | Eligible |
| 18 | 2,50,00,000 | – | 2,50,00,000 | – | 15,50,000 | 0.00% | 6.20% | Eligible |
| 19 | 3,00,00,000 | 3,00,00,000 | – | 25,50,000 | – | 8.50% | 0.00% | Not Eligible |
| 20 | 3,00,00,000 | 3,00,00,000 | – | 18,00,000 | – | 6.00% | 0.00% | Not Eligible |
| 21 | 3,00,00,000 | 6,00,000 | 2,94,00,000 | 60,000 | 18,00,000 | 10.00% | 6.12% | Eligible |
| 22 | 3,00,00,000 | – | 3,00,00,000 | – | 18,50,000 | 0.00% | 6.17% | Eligible |
Amendment in Sec.44ADA – Small Professionals
The threshold has been increased to 75 Lakh provided, amount or aggregate of the amounts received during the previous year, in cash, do not exceed 5% of the total turnover or gross receipts.
Note : The receipt by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be receipt in cash.
Important Note for Section 44AD and 44ADA:
Provision of Section 44AB (Tax Audit) shall not apply to the person who declares profit & gain in accordance of Section 44AD and 44ADA.
Example:
| S. No | Total Sales | Receipts | Profit | Profit (in%) | Eligible | |||
| in Cash | Other than Cash | in Cash | Other than Cash | in Cash | Other than Cash | |||
| 1 | 50,00,000 | 50,00,000 | – | 20,00,000 | – | 40.00% | 0.00% | Not Eligible |
| 2 | 50,00,000 | 40,00,000 | 10,00,000 | 20,00,000 | 4,95,000 | 50.00% | 49.50% | Not Eligible |
| 3 | 50,00,000 | – | 50,00,000 | – | 25,50,000 | 0.00% | 51.00% | Eligible |
| 4 | 50,00,000 | 50,00,000 | – | 20,00,000 | – | 40.00% | 0.00% | Not Eligible |
| 5 | 75,00,000 | 75,00,000 | – | 32,50,000 | – | 43.33% | 0.00% | Not Eligible |
| 6 | 75,00,000 | 1,50,000 | 73,50,000 | 75,000 | 35,00,000 | 50.00% | 47.62% | Not Eligible |
| 7 | 75,00,000 | 1,50,000 | 73,50,000 | 75,000 | 37,00,000 | 50.00% | 50.03% | Eligible |
| 8 | 75,00,000 | – | 75,00,000 | – | 40,00,000 | 0.00% | 53.33% | Eligible |
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