25 January 2021
Return of Income of Firm was filed u/s 44AD (case) during the previous year 2018-19 and 44AD block period year upto FY 2024-25 Now this FY 2019-20 the turnover is Rs.35.00 lakhs only and net profit is less than 8% only. (i) can we switch over to Tax Audit u/s 44AB or continue to adopt and file u/s 44AD
06 July 2024
If your firm's turnover for FY 2019-20 is Rs. 35.00 lakhs and the net profit is less than 8%, here are the implications regarding whether you can switch over to tax audit under section 44AB or continue to file under section 44AD:
### Understanding Section 44AD and Section 44AB
1. **Section 44AD**: - **Applicability**: Allows presumptive taxation for certain businesses with turnover up to Rs. 2 crores (increased to Rs. 2.50 crores for AY 2023-24 onwards). - **Presumption**: Presumes net profit at least 8% of turnover for eligible businesses. - **Benefits**: Simplified tax compliance, no requirement for maintaining detailed books of accounts, and no mandatory tax audit.
2. **Section 44AB**: - **Applicability**: Mandatory tax audit for businesses where turnover exceeds specified limits (currently Rs. 1 crore for business and Rs. 50 lakhs for professionals). - **Criteria**: Required if turnover exceeds the specified threshold, irrespective of profit margin. - **Compliance**: Requires audited financial statements, compliance with accounting standards, and submission of audit report by a chartered accountant.
### Specific Scenario (FY 2019-20):
- **Turnover**: Rs. 35.00 lakhs - **Net Profit**: Less than 8% (implied from your description)
#### Considerations:
- **Section 44AD Option**: - For FY 2019-20, if your turnover is within Rs. 35.00 lakhs and you qualify for 44AD, you can continue to opt for presumptive taxation under section 44AD. - This means you can declare 8% of your turnover (Rs. 2.80 lakhs) as your income, and no tax audit would be required.
- **Section 44AB Option**: - You may voluntarily opt for tax audit under section 44AB even if turnover is below Rs. 1 crore. - This might be beneficial if you believe that the actual net profit is higher than 8% of turnover, despite the current year showing less than 8%.
### Decision Points:
- **Continuing with 44AD**: If your net profit for FY 2019-20 is less than 8%, continuing under section 44AD may be simpler and more straightforward. - **Switching to 44AB**: Consider switching to tax audit under section 44AB if: - You anticipate that the actual profit is higher than the presumed 8%. - You want more accurate financial reporting or need audited financial statements for any specific reasons (e.g., loan requirements, investor scrutiny).
### Conclusion:
Based on the turnover of Rs. 35.00 lakhs and the net profit being less than 8% for FY 2019-20, you are eligible to continue under section 44AD for presumptive taxation. However, if you prefer or find it beneficial to opt for tax audit under section 44AB, you can voluntarily choose to do so, even though it's not mandatory based on your turnover alone.
CAclubindia
