INCOME TAX AUDIT REGARDING
This query is : Resolved
25 September 2021
MY TURNOVER DURING F Y 2020-21 RS. 1.62 CR. MY ALL TRANSACTION IS DIGITAL MODE. MY PROFIT IS BELOW 6% OF 1.62 CR. I AM LIABLE AUDIT OR NOT. PLS EXPLAIN DETAILED.
25 September 2021
Had you opted for presumptive taxation u/s. 44AD in any preceding year/s?
25 September 2021
NO
I Had not opted for presumptive taxation u/s. 44AD in any preceding year.
I Had not opted for presumptive taxation u/s. 44AD in any preceding year.
25 September 2021
If all receipts and payment were carried through digital mode, tax audit not applicable.
You are required to maintain books as per sec. 44aa of IT act.
You are required to maintain books as per sec. 44aa of IT act.
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25 September 2021
SIR, PLS EXPLAINS IN DETAIL WITH THE APPLICABLE SECTION. THANKS. MY TURNOVER IS BELOW 2 CR. AS PER MY KNOWLEDGE BELOW 5% CASH TRANSACTION IS APPLICABLE TURNOVER OF RS. 2 TO 10 CR. PLS EXPLAIN IN DETAIL.
25 September 2021
As sub-sec 44AD(4) w.r.t. Sub-sec 44AD(5), is not attracted in your case; & when all the transactions are in digital mode (more than 95%), then tax audit u/s. 44AB is liable only when turnover is above Rs.10 Crs.
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25 September 2021
THANKS. MY TURNOVER IS BETWEEN 1 CR TO 2 CR. MY INCOME BELOW 6%. I AM NOT LIABLE TO TAX AUDIT. WHICH ITR CAN WE FILE? ITR 3.
25 September 2021
Yes ITR 3 with normal assessment; i.e with P&L acc & BS.
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25 September 2021
ANY OTHER EXPERTS VIEW IN THIS CASE.
26 September 2021
Since profit is below presumptive profit under 44AD, you are liable for audit provided gross income exceeds basic exemption limit.
18 October 2021
For applicability of tax audit under income tax, the section 44AB needs to be followed.
1. As per sec 44AB Subsection (a) is not applicable to the assessee as the turnover limit for digital mode transactions is 10 Cr, while that for the assessee is Rs. 1.62Cr.
2. Subsection (b), (c) & (d) are not applicable, as the assessee is not carrying any such business/profession.
1. As per sec 44AB Subsection (a) is not applicable to the assessee as the turnover limit for digital mode transactions is 10 Cr, while that for the assessee is Rs. 1.62Cr.
2. Subsection (b), (c) & (d) are not applicable, as the assessee is not carrying any such business/profession.
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18 October 2021
Only Subsection left is 44(e) which states...
...... (e) carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year.
Subsec. 44AD(4)& (5) states ... (4) Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance.
with the provisions of sub-section (1).
..... (5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee to whom the provisions of sub-section (4) are applicable 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.
...... (e) carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year.
Subsec. 44AD(4)& (5) states ... (4) Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance.
with the provisions of sub-section (1).
..... (5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee to whom the provisions of sub-section (4) are applicable 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.
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18 October 2021
As the assessee herein confirms that he had never opted for sec 44AD, in any of preceding years, then the question of its opting out from the section doesn't arise.; which in turn implies that sec 44 AD (4) along with 44AD(5) are not attracted in this case.
Which also nullifies the applicability of subsec 44AB(e) in the referred situation.
So, question arises, under which section or subsection the tax audit is applicable for.... "Since profit is below presumptive profit under 44AD, you are liable for audit provided gross income exceeds basic exemption limit?"
I would request the experts here, to enlighten me, if I am missing anything here.
Which also nullifies the applicability of subsec 44AB(e) in the referred situation.
So, question arises, under which section or subsection the tax audit is applicable for.... "Since profit is below presumptive profit under 44AD, you are liable for audit provided gross income exceeds basic exemption limit?"
I would request the experts here, to enlighten me, if I am missing anything here.
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25 October 2021
Following is the extract given from FAQ of "Requirement of Tax Audit" available on Income tax e-filing website; for better understanding the query.
As per section 44AB, following persons are compulsorily required to get their accounts audited :
a) A person carrying on business, if his total sales, turnover or gross receipts (as the case may be) in business for the year exceed or exceeds Rs. 1 crore. This provision is not applicable to the person, who opts for presumptive taxation scheme under section 44AD and his total sales or turnover doesn't exceeds Rs. 2 crores.
Note: The threshold limit, for a person carrying on business, is increased from Rs. 1 Crore to Rs. 10 crore in case when cash receipt and payment made during the year does not exceed 5% of total receipt or payment, as the case may be. In other words, more than 95% of the business transactions should be done through banking channels.
b) A person carrying on profession, if his gross receipts in profession for the year exceed Rs. 50 lakhs.
c) An assessee who declare profit for any previous year in accordance with section 44AD and he decreases profit for any of one 5 assessment year relevant to the previous year succeeding such previous year lower than the profit computed as per section 44AD and his income exceeds the amount which is not chargeable to tax.
d) A person who is eligible to opt for the presumptive taxation scheme of section 44ADA but he claims the profits or gains for such profession to be lower than the profit and gains computed as per the presumptive taxation scheme and his income exceeds the amount which is not chargeable to tax.
e) A person who is eligible to opt for the presumptive taxation scheme of sections 44AE but he claims the profits or gains for such business to be lower than the profits and gains computed as per the presumptive taxation scheme of sections 44AE.
f) A person who is eligible to opt for the taxation scheme prescribed under section 44BB or section 44BBB but he claims the profits or gains for such business to be lower than the profits and gains computed as per the taxation scheme of these sections.
As per section 44AB, following persons are compulsorily required to get their accounts audited :
a) A person carrying on business, if his total sales, turnover or gross receipts (as the case may be) in business for the year exceed or exceeds Rs. 1 crore. This provision is not applicable to the person, who opts for presumptive taxation scheme under section 44AD and his total sales or turnover doesn't exceeds Rs. 2 crores.
Note: The threshold limit, for a person carrying on business, is increased from Rs. 1 Crore to Rs. 10 crore in case when cash receipt and payment made during the year does not exceed 5% of total receipt or payment, as the case may be. In other words, more than 95% of the business transactions should be done through banking channels.
b) A person carrying on profession, if his gross receipts in profession for the year exceed Rs. 50 lakhs.
c) An assessee who declare profit for any previous year in accordance with section 44AD and he decreases profit for any of one 5 assessment year relevant to the previous year succeeding such previous year lower than the profit computed as per section 44AD and his income exceeds the amount which is not chargeable to tax.
d) A person who is eligible to opt for the presumptive taxation scheme of section 44ADA but he claims the profits or gains for such profession to be lower than the profit and gains computed as per the presumptive taxation scheme and his income exceeds the amount which is not chargeable to tax.
e) A person who is eligible to opt for the presumptive taxation scheme of sections 44AE but he claims the profits or gains for such business to be lower than the profits and gains computed as per the presumptive taxation scheme of sections 44AE.
f) A person who is eligible to opt for the taxation scheme prescribed under section 44BB or section 44BBB but he claims the profits or gains for such business to be lower than the profits and gains computed as per the taxation scheme of these sections.
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30 October 2021
Now I would like to put forward the amendment in the section 44AD w.r.t. Finance bill 2016; effective from AY 2017-18 [from when the minimum of 8% profit margin got affected wide replacement of subsection 44AD(4) & 44AD(5)] which is as below....
Sec. 44AD of IT act as on 31.03.2016.....
Sec. 44AD of IT act as on 31.03.2016.....
30 October 2021
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 subsection (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 assesse 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.
Following sub-sections (4) and (5) shall be substituted for the existing sub-sections (4) and (5) of section 44AD by the Finance Act, 2016, w.e.f. 1-4-2017 :
(4) Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1).
(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assesse to whom the provisions of sub-section (4) are applicable 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.
(6) The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply to—
(i) a person carrying on profession as referred to in sub-section (1) of section 44AA;
(ii) a person earning income in the nature of commission or brokerage; or
(iii) a person carrying on any agency business.
(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of subsection (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 assesse 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.
Following sub-sections (4) and (5) shall be substituted for the existing sub-sections (4) and (5) of section 44AD by the Finance Act, 2016, w.e.f. 1-4-2017 :
(4) Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1).
(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assesse to whom the provisions of sub-section (4) are applicable 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.
(6) The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply to—
(i) a person carrying on profession as referred to in sub-section (1) of section 44AA;
(ii) a person earning income in the nature of commission or brokerage; or
(iii) a person carrying on any agency business.
15 August 2022
Refer: an article ... https://taxguru.in/income-tax/section-44ad-income-tax-act-1961-post-amendment-finance-act-2016.html
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