Section 44AB vs 44ADA

CA. Atul Khurana , Last updated: 17 June 2019  
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As Section 44AD is applicable on business (click here to read in detail), Section 44ADA applies on professionals.

It says that if an eligible assessee (professional) who declares 50% or more than that of his gross receipts as profit, then he is not required to get his accounts audited under the Income Tax Act, 1961.

But, this section has specified a limit on the gross receipts too. As per this section, the gross receipts should not be more than Rs. 50 lacs in order to avail the benefit of this section.

Meaning of eligible assessee:

  • Engineering
  • Legal
  • Architectural profession
  • Accountant
  • Medical
  • Technical consultant
  • Interior business
  • Other notified professionals such as authorized representatives, film artists, certain sports-related persons, company secretaries and information technology

Note: This is applicable only to a resident who is an Individual, HUF or Partnership but not a Limited Liability Partnership Firm.

Section 44AB: It says that every person carrying on profession shall, if his gross receipts in profession exceed fifty lakh rupees in any previous year is required to get his accounts audited under the Income Tax Act, 1961. In other words, audit is not required if gross receipts are less than Rs 50 lacs.

Illustration:

Y carries on profession and his gross receipts from the profession is Rs. 52 lacs? Do he require to get his books audited under Income Tax Act?

- Yes, as his gross receipts has exceeded the limit of Rs. 50 Lacs as specified under Section 44AB, he is require to get his accounts audited.

You might be thinking that when 44AB and 44ADA both are saying that audit is not required when gross receipts are less than Rs. 50 lacs, then what was the need to introduce Section 44ADA?

- Don’t worry, keep on reading the article, your doubt will be resolved by the time you completely read it.

This was normal provision of 44AB for other professions. But,

44AB in context of 44ADA: For the professions as specified in 44ADA, audit is required in the following scenarios:

- Assessee has not declared 50% of his receipts as profit, and
- The profit so declared is more than the basic exemption limit. (Irrespective of the fact that gross receipts are less than Rs. 50 lacs)

Illustrations:

Z carries on profession(as specified under Section 44ADA) and his gross receipts from the profession isRs. 48lacs? He has declared a profit of Rs. 25 lacs. Does he require to get his books audited under Income Tax Act?

- Now, understand the concept. Check for the conditions of Section 44ADA:

1) Gross Receipts are less than (or equals to) Rs. 50 Lacs = Condition Fulfilled
2) Profit declared is more than (or equals to) 50% of gross receipts = Condition Fulfilled

As, both the conditions are fulfilled, Z is not required to get his accounts audited.

A carries on profession(as specified under Section 44ADA) and his gross receipts from the profession is Rs. 48 lacs? He has declared a profit of Rs. 22lacs . Does he require to get his books audited under Income Tax Act?

- Again, Check for the conditions of Section 44ADA:

1) Gross Receipts are less than (or equals to) Rs. 50 Lacs = Condition Fulfilled
2) Profit declared is more than (or equals to) 50% of gross receipts = Condition Not Fulfilled

As both the conditions are not fulfilled, then it is an indicator that assesee is required to get his accounts audited

Now,

Here section 44AB will come in action.

Section 44AB in context of 44ADA clearly says that audit is acquired if Assessee has not declared 50% of his receipts as profit, and

The profit so declared is more than the basic exemption limit.

(Irrespective of the fact that gross receipts are less than Rs. 50 lacs)

In the above case, gross receipts of A are less than Rs. 50 lacs but he has not declared at least 50% of his receipts as profit + his income so declared is more than basic exemption limit, Therefore, A is required to get his accounts audited.

K carries on profession(as specified under Section 44ADA) and his gross receipts from the profession isRs. 60lacs? He has declared a profit of Rs. 32lacs . Does he require to get his books audited under Income Tax Act?

- Again, Check for the conditions of Section 44ADA:

1) Gross Receipts are less than (or equals to) Rs. 50 Lacs = Condition Not Fulfilled
2) Profit declared is more than (or equals to) 50% of gross receipts = Condition Fulfilled

As both the conditions are not fulfilled, then it in this case K is required to get his accounts audited

Major Doubt:

Section 44AB says audit is required only when gross receipts are more than Rs. 50 lacs but 44ADA says no audit required when gross receipts are not more than Rs. 50 lacs but assesee should declare 50% or more of his gross receipts as profit. Ultimately, both the sections are saying that No Tax Audit is required if the gross receipts are less than Rs. 50 lacs. So, When 44AB is already giving exemption from audit when receipts are below Rs. 5o lacs then why should assessee declare more than 50% of his receipts as profit under Section 44ADA?

- Now here you need to understand the motive behind the introduction of presumptive taxation scheme. This scheme was basically introduced to give relaxation to eligible assesses from maintaining detailed books of accounts. So, if an assesse is having gross receipts below Rs. 50 lacs and declaring profit of more than 50% of his gross receipts then along with the exemption of audit (which has been already given by Section 44AB), assessee gets additional exemption from maintaining books of accounts as per Section 44ADA.

- Further, here you need to be alert while reading 44AB as it says,

Audit is applicable when the receipts from profession (profession other than as specified in 44ADA) exceeds 50 lacs but

For the professions as specified in 44ADA, audit is applicable if the receipts are either less than or more than 50 lacs but assessee has not declared at least 50% of his receipts as profit and his declared profit is more than basic exemption limit.

Illustration:

S carries on profession(as specified under Section 44ADA) and his gross receipts from the profession isRs. 48 lacs? He do not want to maintain detail books of accounts. As a tax professional, Kindly advise S.

- Being a tax professional, I will aware Mr. S about the provisions of Section 44ADA of the Income Tax Act, 1961 which says, that a professional whose gross receipts are less than Rs. 50 lacs is not required to maintain detailed books of accounts if he declares more than (or equals to) 50% of his gross receipts as profit. So, S should take the benefit of Section 44ADA by declaring minimum of Rs. 24 lacs as profit.

I hope your concepts are now more clear than before.

Stay tuned for futher parts.

The author is a CA Final student and A Published Author of the Book “AN INSIGHT INTO TAX AUDIT”, publication of Young Global Publications, New Delhi and can also be reached at atulkhurana9@gmail.com


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Published by

CA. Atul Khurana
(Chartered Accountant)
Category Income Tax   Report

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Comments

26 June 2019 CA Revanth Bharathwaj M

why haven't you touched the basic exemption limit condition in the examples?


26 June 2019  CA. Atul Khurana
Check it again. (Example of A)
  

20 June 2019 CS and ACMA Raju lakhani

very nice article


18 June 2019 hariprasad

K carries on profession(as specified under Section 44ADA) and his gross receipts from the profession isRs. 60lacs? He has declared a profit of Rs. 32lacs . Does he require to get his books audited under Income Tax Act? Here, He has shown 50% more as profit i.e 32lack then why he should audited his books? Is his gross receipts is above 50lack then he should get audit?


16 June 2019 CA. Atul Khurana

Dear readers, one of the point of 44AB was left untouched due to which confusion may arise. I have informed about the same to the CAclubindia team and submitted an updated article. soon you will see updated post with updated illustrations. I have more clearly explained the difference between 2 different clauses of 44AB of which one says about the profession (limit of 50 lac) while other says about professions as specified under 44ADA. sorry for the inconvenience occured. :)


16 June 2019 sushma j Gowda

nice article if a person carrying on cateters and earinng income then under which they have to file the return


16 June 2019 keshav mangal

good explanation


16 June 2019 Pradyumna Y

Thanks for Detailed Explanations with Examples...The How about Technical Consultant Who is NRI


15 June 2019 Om Goyal

dear Atul yr Article is very good. I want to know that an Architect kept As Consultant on Pm remuneration of 45000 pm ' 10% TDS Dedtd. Total Recd Rs 5,40,00/- 50% Profit shown Rs 2,70,00/- Hence covered u/s 44 ADA. my following Q pl. 1. whether ITR - 3 or 4. to be filled 1A. income 2.70 Lakh if no savings Whether 87-A Tax Rebate Allowed. 2. u/s 44 ADA - u/which colmn.- Consultancy Receipts 5.40 Lakh to be shown. 3. u/which Col. 50% Profit - 2.70 Lakh to be shown. 4. what will be Trade HEAD to be filled in itr - 3 or 4 5. whether Dedn of Conv. expenses allowed. 6. whether Dedn of s/a/c Int 80 -TTA & Savings 80 - C allowed. pl. Guide & Reply. thanks in advance


17 June 2019  CA Vipul Aggarwal
@Om Goyal for assistance in filing your income tax return, feel free to contact cavipulaggarwall@gmail.com
  

Guest
15 June 2019 Anonymous

this article is totally wrong. please refer section 44AB. please refer sub section d of 44AB. Audit of accounts of certain persons carrying on business or profession. 44AB. Every person,— [a] carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year; or [b] carrying on profession shall, if his gross receipts in profession exceed fifty lakh rupees in any previous year; or [c] carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he 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, in any previous year; or [d] carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year; or.


16 June 2019  CA. Atul Khurana
First of all, this article is Not Totally Wrong . Secondly, one point was left untouched (which says audit is required if income exceeds the basic exemption) due to which only one example is wrong and i had already posted a comment for that immediately after I discovered the error. Pls don't misguide people with your word "Totally Wrong"..as there is a difference between"Totally Wrong" and "A mistake"
  

16 June 2019  CA. Atul Khurana
i have informed the CAclubindia team about the error and submitted an updated article. i have now more clearly bifurcated the difference between 2 different clauses of 44AB in which one talks about normal profession (50 lacs limit) while the other talks about professions specified in 44ADA. so, you will soon see an updated article on the website with updated illustrations :)
  

15 June 2019 dilleswararao jami

i have a qn... in the last illustration even if he not declare more than 50% or equal to 50% of his gross receipts ...as per 44ab he is not liable to get his books audited...as 44ab comes in and the gross receipts are less than 50l....


15 June 2019 Palem Ravindra Naidu

nice infor by atul .. tq .. keep advising me


15 June 2019 Jitendra kumar

Good article and easy language...


15 June 2019 Chaudhary Mohit Kumar

sir, plz provide how to calculate intrest u/s 234B in reassment proceedings u/s 148 Assembly u/s 143(3) done earlier and case is reopend u/s 147 with example sir plz


15 June 2019 Chaudhary Mohit Kumar

good explanation sir


15 June 2019 Rahul Falodiya

Atul, good one. You have mentioned, 44ada is restrictive to resident individual, huf and firm. Whether section restricts this, pls check?


14 June 2019 CA. Atul Khurana

Hello Readers... there is a slight correction in the above article. In the example named as 'A'... there is a mistake. Section 44AB says that audit is applicable if assesse has not declared at least 50% of his receipts as profit and his profit is more than the basic exemption limit...so as per that provision, A is liable for Tax Audit. Sorry for the inconvenience 😊


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