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Dear All,

Section 44AD talks about presumptive taxation scheme under which an eligible assessee engaged in an eligible business can declare his profits & gains @ minimum of 8% of turnover or gross receipts. If he opts for the same, then he need not to maintain books of accounts & not liable for advance tax payments.

Simply, if your turnover / gross receipts are less than Rs 1 Cr, declare income @ minimum of 8% and you get relief from accounting & advance tax payments.

They have also given one proviso to this. Which says -

'Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) 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.'

In simple words, turnover of the assessee is less than 1Cr and he claims his Profits or gains less than 8% then he has to maintain his books of accounts and get it audited.

Now real twist is here: - what if an assessee is maintaining books of accounts as per section 44AA(2) and his actual business margins are less than 8% are also liable for tax audits. Moreover also to the start ups whose business shows losses or margins less than 8% are also liable for Tax audit ?

Let's have a look one by one

Proviso puts of two conditions & if both the conditions are satisfied then only proviso is applicable. These conditions are:

1. Profit & Gains claimed is less than 8% of gross receipts / Turnover and Turnover is less than 1 Cr.
2. His income exceeds the maximum amount which is not chargeable to income tax ie. More than basic exemption limit.

Proviso does not make any differentiation in

1. Start ups
2. Assessee maintaining books of accounts or not.

Hence in the light of Section 44AA & Section 44AB, following conclusion can be drawn:

1.  Irrespective of the maintenance of books of accounts proviso is applicable.
2. If the both conditions are satisfied, assessee is liable for tax audit.

It means if you are showing net profit less than 8% and turnover is less than 1 Cr, tax audit is mandatory.

Now, what if there is losses?. Second condition is not satisfied and hence not liable for tax audit and shall file regular return in form ITR 4.

Hence summary could be:

Condition

Income is more than basic exemption limit

Income is less than basic exemption limit

Turnover is more than 1 Cr

Tax Audit is applicable

Tax Audit is applicable

Turnover less than 1 Cr and margins are more than 8%

Tax Audit is NOT applicable

Tax Audit is NOT applicable

Turnover less than 1 Cr and margins are less than 8%

Tax Audit is applicable

Tax Audit is NOT applicable

Vipin has more than 4 years of experience in Direct Taxation, Indirect Taxation, Accounting and Start up Consultancy and can also be reached at cavipingarg@outlook.com.


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Category Income Tax, Other Articles by - Vipin Garg 



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