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Net profit % is less than 8 % is tax audit compulsory

Rajesh Poddar (Chartered Accountant) (321 Points)

25 April 2016

Dear All,

Client is having turnover of Rs. 20 Lakhs for FY 13-14, Net Profit is 5 % i.e Rs. 100000/- and Salary income Rs.5 Lakhs, Housing loan Interest Loss is Rs. (150000), Interst income of Rs. 5000/- Gross Total Income is Rs. 400000/- Is audit compulsory ? Does it invite compulsory scrutiny ?

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CA Rajesh Poddar

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12 Replies

Harendra Kumar (Tax Advisor ) (1326 Points)
Replied 25 April 2016

But Sir, specified profession or Business?

Kaushik Joshi (Practising Chartered Accountant) (1527 Points)
Replied 25 April 2016

Section 44AD States that two conditions must be met:
1. The net profit of the specified business is lower than 8% of the specified person.
2. The total income must exceed the total income not chargeable to tax.

In your case the second criteria is met. kindly confirm whether the person and business is within the meaning of specified business and person as per act. if yes then yes it's applicable.

1 Like

Ruchi (CA) (1410 Points)
Replied 25 April 2016

If the business is such that it falls u/s 44ad then declaring profit less than 8% invites tax audit.

Rajesh Poddar (Chartered Accountant) (321 Points)
Replied 26 April 2016

Business of tours and travel

1 Like

Kaushik Joshi (Practising Chartered Accountant) (1527 Points)
Replied 26 April 2016

Dear Sir,
The business you've informed is part of specified business. so 44ad is applicable

Ajay (na) (55 Points)
Replied 28 April 2016

My startup having 20lakh turnover and my profit comes around 4% as income , then as per you NO AUDIT u/s44AD, but my CA saying below 8% i must have to get my accounts audited??

Kaushik Joshi (Practising Chartered Accountant) (1527 Points)
Replied 29 April 2016

Dear Mr. Ajay,
please read my above comments. less than 8% then tax audit applicable

Ajay (na) (55 Points)
Replied 29 April 2016

So far by reading of bate act wide sec.44AD , I found that the expression AND is used in both conditions of tax audit, that's why a question in my mind if it was either or case why AND used rather 8% OR total income greater than non taxable limit must have been used.

I hope you getting my point.pls refer bare act.

1 Like

CA. Roopali Kadam (Jobs on assignment basis.) (1453 Points)
Replied 29 April 2016

an eligible assessee who claims that his profits and gains from the eligible business

are lower than 8% and

whose total income exceeds the maximum amount which is not chargeable to income-tax,

shall be required

to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA

and

get them audited and furnish a report of such audit as required under section 44AB.

Above is extract from bare act,

& it's clear if profit <8%, audit is required, unless total income is below exemption slab

Ajay Singh (Accountant) (22 Points)
Replied 30 October 2017

is audit required when we maintain books of account but firm profit less then 8% and our turnover less then 1cr.(firm is Tour and travel)

S.R.D. (PROP.) (62 Points)
Replied 23 July 2018

Hello Everyone,

A proprietor Business (labour Contractor) , having actually loss as per books, can he declare 6-8% profit u/s 44AD (all transactions are in Bank for Receipts & Payments ) and file the returns without getting book audited.

Waiting for Your Valuable Suggestions

Thanking you