05 September 2011
DEAR SIR, IF AN ASSESSEE IS CARRYING ON THE BUSINESS OF LABOUR SUPPLY AND HIS TOTAL TURNOVER FOR THE FINANCIAL YEAR 2010-2011 IS 58 LAKHS AND THE NET PROFIT IS 1,65,000 AND HE IS ALSO MAINTAINING PROPER BOOKS OF ACCOUNTS . IS HE COVERED UNDER THE SECTION 44AD TO HAVE TAX AUDIT AS PROFIT IS LESS THAN 8%. AS DISCUSSED IN THE GROUP SOME ARE SAYING THAT IF AN ASSESSEE HAS TOTAL INCOME LESS THAN 60 LAKHS AND PROFIT IS BELOW 8% BUT MAINTAINING BOOKS OF ACCOUNTS THEN HE IS NOT REQUIRED TO GET TAX AUDIT BECAUSE HE IS MAINTAINING BOOKS OF ACCOUNTS. PLEASE REPLY AS EARLY AS POSSIBLE AS ITS URGENT.
06 September 2011
The basic requirement of the section is 1. Turnover is less than 60 Lacs. 2. Net Profit should be 8% of T/o.
The existing provisions of the Income-tax Act provide for taxation of income on presumptive basis
Section 44AD prescribes a method of presumptive taxation for assessee engaged in the business of civil construction or supply of labour for civil construction in which a sum equal to eight percent of the gross receipts is deemed to be the profits and gains from business.
There has been a substantial increase in small businesses with the growth of transport and communication and general growth of the economy. A large number of businesses and service providers in rural and urban areas who earn substantial income are outside the tax-net. Introduction of presumptive tax provisions in respect of small businesses would help a number of small businesses to comply with the taxation provisions without consuming their time and resources.
A presumptive income scheme for small taxpayers lowers the compliance cost for such taxpayers and also reduces the administrative burden on the tax machinery. In view of the above, to expand the scope of presumptive taxation to all businesses, the existing section 44AD has been substituted by a new section 44AD.
The salient features of the new presumptive taxation scheme are as under:
The scheme is applicable to individuals, HUFs and partnership firms excluding Limited liability partnership firms. It is also not be applicable to an assessee who is availing deductions under sections 10A, 10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading “C.—Deductions in respect of certain incomes” in the relevant assessment year. The scheme is applicable for any business (excluding a business already covered under Sec. 44AE) which has a maximum gross turnover /gross receipts of 60 lakhs. The presumptive rate of income is prescribed at 8% of gross turnover /gross receipts. An assessee opting for the above scheme is exempted from payment of advance tax related to such business under the current provisions of the Income-tax Act. An assessee opting for the above scheme is exempted from maintenance of books of accounts related to such business as required under section 44AA of the Income-tax Act. An assessee with turnover below Rs. 60 lakhs, who shows an income below the presumptive rate prescribed under these provisions, in case his total income exceeds the taxable limit, required to maintain books of accounts and also get them audited.
Salary and Interest to partner allowed:After calculated presumptive income @ 8 % of turnover in case of partnership firm ,salary and Interest to Partner under section 40b is also allowed .
No Books of Accounts :To opt this scheme one should have to maintain the so much record so that Turnover of Business can be ascertained like sale bill etc .No need to maintain any cash book ,ledger etc etc.No need to maintain Balance sheet ,Profit and loss etc.Further keep one point in mind that this exemption is available under Income Tax Act only and if Book are required to be maintained under the provision of any other act than books of accounts has to be maintained under that act .
No Books/No Tax up to 2000000 of sales : as per section 44AA books of accounts is require to be prepared if turnover is more than 1,20000.But under this new,if your Business turnover is 20 Lakhs and you opt for this scheme than taxable income is calculated at 1.60 lakh (8 % 20 Lakh).and for individual, tax exemption limit is also 1.60 lakhs (even higher for female/sr citizens ) .so person who opts this section 44AF is not required to pay any tax if Business turnover is upto 20 lakhs and also exempted to maintain books of Accounts.so persons upto Business turnover upto 2000000 must adopt this scheme.
Section 44AD is reproduced hereunder 44AD. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”. (2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed : Provided that where the eligible assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40. (3) The written down value of any asset of an eligible business shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years. (4) The provisions of Chapter XVII-C shall not apply to an eligible assessee in so far as they relate to the eligible business. (5) 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. Explanation.—For the purposes of this section,— (a) “eligible assessee” means,— (i) an individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited liability partnership firm as defined under clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009); and (ii) who has not claimed deduction under any of the sections 10A, 10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading “C. - Deductions in respect of certain incomes” in the relevant assessment year;
07 September 2011
The querrist had mentioned total income of Rs.165000 which exceeds the taxable threshold limit of Rs.160,000. Hence tax audit was opined. However, If the Assessee has total income i.e 165000 less deductions u/s chapter VI A Rs.5000 or more =160,000 or less, the assessee will not be subject to tax audit as per the suggestion of Mr.Nitin.
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