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Combined Study of Section 44AB with Section 44AD

CA.R.S.KALRA 
on 15 December 2020

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Currently, businesses having turnover of more than one crore rupees are required to get their books of accounts audited by an accountant. In order to reduce the compliance burden on small retailers, traders, shopkeepers who comprise the MSME sector, the Finance Act 2020 has raised the limit of audit by five times the turnover threshold for audit from the existing Rs. 1 crore to Rs. 5 crores. It is also to be noted that this amendment is applicable for F.Y. 2019-20 i.e for the A.Y. 2020-21

Further, in order to boost less cash economy, it has been provided that the increased limit for mandatory tax audit shall apply only to those businesses which carry out less than 5% of their business transactions in cash. But in this connection, following points are to be noted

1. This threshold limit for the applicability of mandatory tax audits is applicable to business entity only and limit for a professional assessee shall continue to be at Rs. 50 lacs even if he receives entire consideration in non-cashmode.

2. It is not provided that who will certify the margin of transactions in cash mode of 5 percent. It appears that the assessee is himself requiring declaring the percentage of receipt in cash mode and non-cashmode.

3. The provision to increase the turnover limit for a mandatory tax audit is amended to benefit the MSME sector.

4. The amendment is carried out only in section 44AB. No amendment is made in section 44AD and thus the turnover limit of Rs. 2 crores shall continue. Suppose an assessee is having a turnover of 180 lacs for the financial year 2020-21 and all the transactions of business are by non-cash modes. The net profit of the assessee is Rs.7 lacs which is less than 6% of turnover of the assessee. Now as per the provisions of sec 44AD, the assessee is required to maintain books of account and get them audited u/s 44AB of theAct.

5. The term aggregate of all receipts and aggregate of all payments‘ is very wide and covers not only the receipts and payments on account of turnover or sales but all other business transactions. Capital introduction, receipt and repayment of a loan, etc., partners‘ drawings, payment of freights, etc. Even payment of taxes made in cash will come within the purview of cash transactions.

Combined Study of Section 44AB with Section 44AD

It can be better understood with the help of following table.

Turnover

Cash Payments ≤5%

Cash Receipts ≤5%

Net Profit

Audit u/s 44AB

6 crores

Yes

Yes

6%

Yes

4.5 crores

Yes

Yes

7%

No

3 crores

Yes

No

5%

Yes

1.8 crores

Yes

Yes

6%

Yes

1.5 crores

Yes

Yes

5%

Yes

 

Comparative Study of Section 44AD, 44AE and 44AD

PARTICULARS

44AD

44AE

44ADA

Applicable to whom

Resident Individuals/ HUF/ Firm(NotLLP)

Any person, Resident or non Resident, who is owner of trucks or other goods carriage

Professionals covered u/s 44AA

Applicability

Turnover ≤ Rs. 2 Crores

Person not owning number of trucks >10 at any time during relevant PY

Receipts ≤ Rs. 50 Lakhs

Deemed Income

8% of Turnover;

6% in case of Non- cash Turnover (Cheque or other Electronicmode)

Rs. 7500 per month (or part of month) GVW > 12 MT (1000/MT per month or part of month)

50% of Receipts

Expense allowed

None

Section 40(b)

None

Rate of Tax

As Applicable

As Applicable

As Applicable

44AA/44AB

Not Applicable

Not Applicable

Not Apllicable

Year to Year Option

No;

Once opts out then not available for 5 years

Yes

Yes

 

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