A question is, can a person engaged in a profession as prescribed under Section 44AA(1) adopt the presumptive taxation scheme of Section 44AD?
Answer is, A person who is engaged in any profession as prescribed under Section 44AA(1) cannot adopt the presumptive taxation scheme of Section 44AD.
However, he can opt for the presumptive taxation scheme under Section 44ADA and declare 50% of the gross receipts of his profession as his presumptive income. Presumptive scheme under Section 44ADA is applicable only for a resident assessee whose total gross receipts of profession do not exceed fifty lakh rupees.
Further, if the amount of cash received during the previous year does not exceed 5% of the total gross receipt of such year then the threshold limit for total gross receipt shall be taken as RS 75 lakhs instead of Rs 50 lakhs. The receipts through the mode of cheque of a bank draft which is not an account payee, shall be considered a receipt in cash for this purpose. [ applicable .w.e.f. Assessment Year 2024-25].
Another question arise, if a person adopts the presumptive taxation scheme of section 44AD, then is he required to maintain books of accounts as per Section 44AA?
Section 44AA deals with provisions relating to the maintenance of books of accounts by a person engaged in business/profession. Thus, a person engaged in business/profession has to maintain books of account of his business/profession according to the provision of Section 44AA.
In case of a person engaged in a business and opting for the presumptive taxation scheme under section 44AD, the provisions of section 44AA relating to the maintenance of books of account and other documents will not apply. In other words, if a person adopts the provisions of Section 44AD and declares income @ 8%/6% of the turnover, then he is not required to maintain the books of account as provided under Section 44AA in respect of business covered under the presumptive taxation scheme of Section 44AD.
[Section 271A] Penalty for failure to maintain books of accounts- If a person fails to keep and maintain such books of accounts and other documents as specified under section 44AA in respect of any previous year or to retain such books of accounts and other documents for the specified period, the Assessing officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) may direct a penalty of Rs 25,000 would be leviable under Section 271A.
[Section 44AA(1)] - Maintain the books of accounts and other documents by a notified Profession
The sub-section (1) of Section 44AA states that every person who is carrying on below professions shall keep and maintain such books of accounts and other documents as may enable the Assessing officer to compute their total income in accordance with the provisions of this Act.
Professions are: Legal, Medical, Engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the official Gazette. (In layman language, Black coat wale, White coat wale, Ghar or Office banane or Architects, accountancy karne wale, technical (Software or hardware or machinery wale or interior decoration wale or others as notified by the Board).
Sub-section (2) of Section 44AA, Every person who is carrying on business or profession [ not being a profession referred to in sub-section (1)] shall-
(i) If person is having income more than one lakh twenty thousand from the business or profession or his total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds ten lakh rupees in any one of the three previous years immediately preceding the previous year; or
(ii) Where the business or profession is newly set up in any previous year, if his income from business or profession is likely to exceed one lakh twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession are or is likely to exceed ten lakh rupees, during such previous yearl or
(iii) Where the profits and gains from the business are deemed to be profits and gains of the assessee under section 44AE or section 44BB or section 44BBB, as the case may ne, and the assessee has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, during such previous year ; or
(iv) Where the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,
Keep and maintain such books of accounts and other documents as may enable the Assessing officer to compute his total income in accordance with the provisions of this Act:
Provided that in the case of a person being an individual or a Hindu Undivided family, the provisions of clause (i) and clause (ii) shall have effect, as if the words "one lakh twenty thousand rupees", the words "two lakh fifty thousand rupees" had been substituted.
Provided further that in the case of a person being an individual or a Hindu Undivided Family, the provisions of clause (i) and clause (ii), shall have effect, shall have effect, as if for the words "ten lakh rupees", the words "twenty-five lakh rupees" has been substituted.
Sub-section (3) of section 44AA, in this, The board may, having regards to the nature of the business or profession carried on by any class of persons, has been empowered by the law to prescribe through rules, the books of accounts and other documents (including inventory, wherever necessary),to be kept and maintained under sub-section (1) and (2) , the particulars to be contained therein and the form and the manner in which and the place at which they shall be kept and maintained.
Sub-section (4) of section 44A, Board is also empowered to state through rules , the period for which the books of accounts and documents to be kept and maintained under sub-section (1) or sub-section (2) shall be retained without prejudice to the provisions of sub-section (3).
Rule 6F is related to Section 44AA
Sub-rule (1) of Rule 6F,
Every person carrying legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or authorized representative or film artist shall keep and maintain books of account and other documents specified in sub-rule (2):
There is a proviso for sub-rule (1) which states that,
Provided that nothing in this sub-rule shall apply in relation to any previous year in the case of any person if his total gross receipts in the profession does not exceed one lakh fifty thousand rupees in any one of the three years immediately preceding the previous year (in other words if his gross receipts exceeds Rs 1,50,000 in all the 3 years immediately preceding the previous year only then he shall keep and maintain the books of accounts and other documents), or, where the profession has been newly set up in the previous year , his total gross receipts in the profession for that year are not likely to exceed the said amount.
Sub-rule (2) of rule 6F, the books of account and other documents referred to in sub-rule (1) shall be the following, namely:
(i) A cash book,
(ii) A journal, if the accounts are maintained according to the mercantile system of accounting,
(iii) A ledger,
(iv) Carbon copies of bills, whether machine numbered or otherwise serially numbered, wherever such bills are issued by the person, and carbon copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by him :
Provided that nothing in this clause shall apply in relation to sums not exceeding twenty five rupees;
(v) Original bills, wherever issued to the person and receipts in respect of expenditure incurred by the person or, where such bills and receipts are not issued and the expenditure incurred does not exceed twenty-five rupees, payment vouchers prepared and signed by the person:
Provided that the requirements as to the preparation and signing of payment vouchers shall not apply in a case where the cash book maintained by the person contains adequate particulars in respect of the expenditure incurred by him.
Rule 6F states the explanation about "authorized representative", "cash book", "film Artist"
Sub-rule (3) of rule 6F,A person who is carrying on medical profession shall, in addition to the books of accounts and other documents as specified in the sub-rule (2) , keep and maintain the following, namely:-
(i) a daily case register in Form No. 3C;
(ii) an inventory under broad heads, as on the first and the last day of the previous year, of the stock of drugs, medicines and other consumables accessories used for the purpose of his profession.
Sub-rule (4) of Rule 6F, the books of accounts and other documents specified in the sub-rule (2) and sub-rule (3) other than those relating to a previous year which has come to an end shall be kept and maintained by the person at the place where he is carrying on the profession or, where the profession is carried on in more places than one, at the principal place of his business:
Provided that where the person keeps and maintains separate books of account in respect of each place where the profession is carried on, such books of account and other documents may be kept and maintained at the respective place at which the profession is carried on.
Sub-rule (5), the books of accounts and other documents shall be kept and maintained for a period of six years from the end of the relevant assessment year:
Provided that where the assessment in relation to any assessment year has been reopened under section 147 of the Act within the period specified in section 149 of the Act, all the books of account and other documents which were kept and maintained at the time of reopening of the assessment shall continue to be so kept and maintained till the assessment so reopened has been completed.
Sub-rule (6), Notwithstanding anything contained in sub-rules (1) to (3), it shall not be necessary for any person carrying on any of the professions specified in sub-rule (1) to keep and maintain the books of accounts and other documents specified in sub-rule (2) or sub-rule (3) in relation to any previous year commencing before the first day of march, 1983.
Click here to download: Section 44AA-Maintain Books of Accounts & Other Documents
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