Section 44ad

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Querist : Anonymous

Querist : Anonymous (Querist)

26 February 2014 If a Partnership firm is Audited because of turnover is in excess of 1 crore in FY 11-12 and in FY 12-13 it goes for section 44AD, then whether it has to deduct TDS on payment made to contractors and professionals etc...

and when the firm is filing return u/s 44AD then it does not have to maintain books of accounts under income tax act.

please reply asap

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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26 February 2014 It is bound to deduct income tax in FY 2011-12 and 2012-13.

The reason is TDS based on 44AB audit is applicable to individuals and not to partnership firms.

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Querist : Anonymous

Querist : Anonymous (Querist)

27 February 2014 Dear Sir,

Thanks for early reply,

However if books are not prepared then how can one came to know that on whose payment TDS was required to be deducted ?

How can the Income Tax officer came to know that the particular payment is made to whom?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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23 July 2025 This is a very important and practical question involving TDS obligations of a partnership firm opting for Section 44AD, especially when books of account are not maintained. Let's address it in full clarity.

🔷 Question Summary:
A partnership firm was audited in FY 2011–12 (due to turnover > ₹1 crore).

In FY 2012–13, it opts for Section 44AD (presumptive income scheme).

Now you're asking:

Is TDS deduction still mandatory in FY 2012–13?

If books are not maintained under 44AD, how can the firm or the Assessing Officer know whether TDS was applicable?

🔶 1. Is TDS Still Applicable for a Partnership Firm under 44AD?
✅ YES, TDS is still applicable, regardless of whether the firm is under 44AD or not.

TDS obligation is NOT linked to Section 44AB audit status for partnership firms or companies.
The exemption from TDS based on audit status is available only to individuals and HUFs, and even then only in some sections.

📌 Reference — Section 194C, 194J, etc. (TDS on contractor, professional payments):
These require "any person other than an individual or HUF" to deduct TDS.

So, partnership firms are always required to deduct TDS if the payment thresholds are met, irrespective of audit or 44AD applicability.

🔶 2. What If No Books Are Maintained under 44AD?
Yes, this creates a practical challenge.

Under Section 44AD:

The firm need not maintain books under Section 44AA.

However, TDS law (Chapter XVII-B) still applies.

That means the onus is on the assessee to track and deduct TDS based on actual payments, not based on book entries.

✅ What You Should Do:
Maintain at least basic payment registers or vouchers for compliance.

Even if you don't prepare full books, you must have enough records to monitor TDS thresholds, like:

Payments to contractors (₹30,000 per payment or ₹1,00,000 aggregate per year)

Payments to professionals (₹30,000 per year)

🔷 3. What If TDS Is Not Deducted?
The Assessing Officer can require production of payment records during scrutiny or TDS surveys.

If TDS is not deducted when it should have been, the payment may be disallowed under Section 40(a)(ia) (30% of the expense).

Also, interest and penalty may apply for failure to deduct and deposit TDS.

✅ Final Answer:
Question Answer
Is TDS applicable to a partnership firm under 44AD? ✅ Yes
Is TDS linked to tax audit status for partnership firms? ❌ No (TDS applies regardless)
Is firm required to maintain books for TDS under 44AD? ❌ Not mandatory, but 📌 basic payment records must be maintained for TDS compliance
What happens if TDS not deducted? ❌ Expense disallowed under 40(a)(ia), + interest/penalty

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