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Confusing in section 44ad

Nisha Yadav (Accounts exe) (455 Points)

28 September 2015

Dear All,

Good morning

I am preparing tax computation of individual who has salary income along with proprietorship business also.

Salary income - 7,00,000/-

Proprietorship -

Sale - 6,00,000

Exp - 5,60,000.

Profit - 40,000/-

is there any need to tax audit as profit is below 8%

Please help me

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29 Replies

prem rajpurohit (student) (31 Points)
Replied 28 September 2015

No required tax audit because turnover no exceed 1crore.

Nisha Yadav (Accounts exe) (455 Points)
Replied 28 September 2015

I know that 1Cr limit for tax audit ..

I am asking here that is this situation attract section 44AD .

CA Mehul chauhan (Practice) (50 Points)
Replied 28 September 2015

Hi

Section 44AD only applies in case of Individuals, Partnership and HUF provided they are resident in india. Assessee can option to file income tax return at any percentage above 8% of gross turnover. However if assessee declared the income lower than 8% of gorss turnover, in such case assessee have to maintain books of accounts and get his accounts audited by Chartered Accounants.

Regards

CA Mehul Chauhan

Email : ca.mehulrchauhan @ gmail.com

Nisha Yadav (Accounts exe) (455 Points)
Replied 28 September 2015

THANKS FOR REPLY .

can you please expalin what will happen in my above mention case ??

Miss Rinkal (Student) (1304 Points)
Replied 28 September 2015

The assessee can opt for Sec 44AD. Since the actual profit is below 8%, the profits can be taken at 8% and assessee will thereby not require to maintain books of accounts and get them audited. However if the assessee wants to consider the actual profits then the assessee will not only be liable to maintain books of accounts but also get the audited. I.e profits are to be shown at 48000/-.

In the present case it is advisable to opt for sec 44AD rather than maintaining books of a/cs and get them audited as the cost of them will definitely exceed than the tax to be paid under sec 44AD

Nisha Yadav (Accounts exe) (455 Points)
Replied 28 September 2015

thanks for your reply ,,,

I do not want to take option 44ad .. if I show the profit 48500 .. thn should i need to get audit my accounts.

Miss Rinkal (Student) (1304 Points)
Replied 28 September 2015

You can opt for profits higher than 8% also. However it should not exceed 120000 else it will become mandatory to maintain books of accounts as per Sec 44AA

Nisha Yadav (Accounts exe) (455 Points)
Replied 28 September 2015

Thanks :

so if i show profit 48500 (i e higher thn 8%)

1) 44 AA is not aplicable as toal sale is 6,00,000 (i e below 10,00,000)

2 ) 44 AB is not aplicable as profit is more thn 8%

But i read somewehere :

44 AB will not aplicable even profit is higher thn 8% if total income is less than Tax applicable amount (i e 2, 50,000 )

I just confuse here in term total income ..

Total income from business or total income from all sources

Please reply

RAHULSMITTAL (Partner, V Mittal & Co) (252 Points)
Replied 28 September 2015

Hi Total receipts from business is rs 600000 and 8% of that is RS48000, if you desire to show income below rs 48000, then you have to get your accounts audited. Sec 44AB is applicable on total Recipts from Business and not on total income or income ir recipts under other heads.

Miss Rinkal (Student) (1304 Points)
Replied 28 September 2015

@ CA RAHUL MITTAL:

Sec 44AD rw Sec 44AB - Tax audit is applicable when income is shown below the presumptive rate of 8% of receipts / turnover AND his total income exceeds the basic exemption limit. Here total income means total income from all sources and not just business income.

However in the present case, since there is income from salary as well and the same exceeds the basic exemption limit. Hence if profits are shown below 8% then it is subjected to tax audit

Anubhav (Student) (589 Points)
Replied 28 September 2015

44AB Every person

(d)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 44AD and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his business and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year

This line breaks the spirit of the provision but it is what it is. I have seen people interpreting it in different ways but practically I have had no occassion to experience such a problem. In reality I would rather show profit of Rs.48000 in the books as prescribed u/s.44AD and pay the taxes accordingly

However in some scenarios it can be a very complicated issue.

As per the section and taking into consideration the figures you provided, one can concur that audit is required since income exceeds the maximum amount which is not chargeable to income-tax in any previous year

TEKRAJ BHATT (Student Others) (30 Points)
Replied 28 September 2015

If you are working as civil contractor and the your JCB used for excavation, laveling of land i.e. site development purpose the section 44AD (Prisumptive Income @ 8% on Gross Receipts) will be atract or not?

Miss Rinkal (Student) (1304 Points)
Replied 28 September 2015

@ Nisha Yadav:

Total income means total income from all sources and not business income only.

Wrt 44AB:

If the turnover exceeds Rs 1 crore.

If turnover is less than 1 crore and have opted to show income below the presumptive rate of 8% of the turnover AND the total income exceeds basic exemption limit (Sec 44AD)

If turnover is less than 1 crore and have opted to show income below the deemed profits specified under Sec 44AE

The AND condition is very important in Sec 44AD I.e. even if the income is shown below 8% but if the total income does not exceed the basic exemption limit then too the tax audit u/s 44AB is not liable.

Maybe you must have got confused between showing income exceeding 8% and income below 8%.

You can always opt for income exceeding 8% (As read u/s 44AD).

Sec 44AB rw Sec 44AD : Tax audit is applicable only and only if income is shown below the presumptive rate of tax I.e 8% AND the total income exceeds basic exemption limit

Miss Rinkal (Student) (1304 Points)
Replied 28 September 2015

@ Anubhav:

It is at the option of the assessee whether to show income below the presumptive rate or above or equal to.

Hence in whatever case the assessee is benefited will be considered

Please read the subsection below

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.

Hence it can be concluded that the assessee has an option and not an obligation to claim the profits lower or >=