Invocation of Section 68 if Assessee Is Opting For Presumptive Taxation

CA.R.S.KALRA | Last updated: 13 September 2021

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Quick Summary

If you're operating under the presumptive taxation scheme (Section 44AD), you generally don't need to maintain detailed books of account. Section 68 of the Income Tax Act allows tax officers to add unexplained cash credits to an assessee's income, but this requires the credit to appear in the assessee's 'books of account'. Since presumptive taxation doesn't mandate keeping these books, Section 68 typically cannot be applied to unexplained bank deposits if no formal books were maintained.

The basic edifice of presumptive scheme u/s 44AD is assessee would not be called to maintain books under the Act and get them audited if profit shown by the assessee is otherwise in accordance with the prescription of section 44AD of the Act. However,maintaining books of account is sine qua non for

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FAQ :

The primary benefit is that assessees are not required to maintain books of account under the Act and get them audited, provided their declared profit aligns with Section 44AD's prescriptions.

Section 68 can be invoked if a sum is found credited in the assessee's books, the assessee offers no satisfactory explanation for its nature and source, or the explanation provided is deemed unsatisfactory by the assessing officer.

Yes, maintaining books of account is a fundamental prerequisite for invoking Section 68. If no books are maintained, Section 68 cannot be applied.

Generally, no. If you've filed your return under presumptive taxation without maintaining formal books of account, deposits in your bank account cannot usually be transformed into unexplained cash credits under Section 68, as a bank passbook or statement is not considered 'books of account' for this purpose.

The Act defines 'books or books of account' to include ledgers, day-books, cash books, account books, and similar records, whether in written or electronic form. Importantly, bank passbooks or bank statements are not included in this definition.