Sec 44AD is a special provision which provides presumptive taxation scheme for small taxpayers with a view of reducing their compliance burden. Tax Audit. The legislative intent behind this amendment may be to act as deterrent for the assessee from misusing the provisions of presumptive taxation by frequently shifting from presumptive taxation to non-presumptive taxation and vice-versa. Moreover as per sec 44AD (5) r.w.s. Vide Finance Act 2020; a proviso was inserted to the said sub-section to provide that where the total cash receipts or payments do not exceed 5% of aggregate receipts or payments respectively the limit shall be increased to Rs 5 Crores. 2. whose gross turnover/receipts of the business/profession in the immediately preceding financial year exceeded business/profession in the immediately preceding financial year exceed Rs. Sec 44AD(4) as amended by Fin Act 2016 provides that when the assessee declares profit as per the presumptive taxation scheme in a previous year and in any of the five years immediately succeeding the previous year declares profit not in accordance with the scheme, he shall not be eligible for the scheme for the next five years . Tax audit applicability vis-à-vis presumptive taxation u/s 44AD for business [Sec 44AB(e)]. However, vide clause (vii) of the first proviso of the Notification No. Further, there is also a presumptive income section under income tax act 1961 (mentioned below) where the assets require filing their tax audit where he claims his income below such percentage. consider A.Y. The turnover for the purpose of Sec 44AB/Sec 44AD is not defined in the act. The proviso to section 44AB (a) has used the term ‘cash’. Hence, 2 nd Proviso to Section 44AB has become redundant on date. A.Y 2017-18 and AY 2018-19. New Delhi, the 3rd July, 2017. Other than heavy vehicles- Rs 7,500 per month or part of the month for which vehicle is owned by the assessee. Every person,— (a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year; or (b) carrying on profession shall, if his gross receipts in profession exceed 50 lakh rupees in any previous year; or (c) carrying on the business shall, if the profits and gains from the business are deemed to be the profits … 2015-16, and declared profit as per normal scheme in next year A.Y.2016-17 and again declared profit as per presumptive taxation for A.Y 2017-18 . From the example 3 and example 4 it is observed that where the assessee has turnover less than Rs 2 Crores and declares profit less than 8%/6% tax audit is applicable, where as in case the assessee has turnover between 2 Crs to 5 Crs, no tax audit is applicable even if he has declared profits less than 6%/8%. Baring the above assesses, all other assesses are eligible for presumptive taxation scheme. However, vide clause (vii) of the first proviso of the Notification No. 2. assessment year 1998-99) or 44BB or 44BBB (by the Finance Act 2003 w.e.f. An exception to this rule is carved out by the proviso to sec 44AB which provides that, if the turnover of the assessee is up to Rs 2 Cr and he is eligible and has declared profits as per presumptive taxation scheme u/s 44AD, he shall not be liable for tax audit. NOTE : Rule 6G(1)(a) prescribes Form No.3CA applicable to the cases covered under 2 nd Proviso to Section 44AB of Income-Tax Act. 44AB (e) he shall also be liable to maintain books of accounts and get his accounts audited in such case if his income exceeds maximum amount not chargeable to tax. 2017-18. Sub-section 4 of the said section provides that where the assessee declares profit lower than 50%, he shall be liable to maintain books of accounts and get his accounts audited. The objective of reporting/ certification is to discourage tax avoidance and tax evasion. Section 44AB of the Income-tax Act, 1961 contains the provisions for the tax audit of an entity. 19.5 The proviso to Section 44AB only carves out an exception to those persons whose accounts are compulsorily audited under other laws in the country, like the Companies Act or the Co-operative Societies Act. Now does this rule of Block of 5 year break in AY 2019-20? Particulars to be furnished by the Contractor under the third proviso to clause (i) of sub-section (3) of section 194C Form 12B: Form for furnishing details of income under section 192(2) for the year ending 31st March, of previous employment Form 12BB: Statement showing particulars of claims by an employee for deduction of tax under section 192 Third Proviso – Clarification Every company or a firm shall furnish on or before the due date the return in respect of its income or loss in every previous year If the company or firm has incurred loss in any previous year then also the filing return of income is mandatory for them. A … The payer under Section 194C is any person being an individual or HUF who is liable to audit od accounts under Section 44AB during the financial year in which obligation to deduct tax arises. 821(E).—In exercise of the powers conferred by section 44AB read with section 295 of the Income-tax Act, 1961 (43 of 1961) (hereinafter referred to as the Income-tax Act), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:— 1. The first proviso to section 44AB stipulates that the provisions of that section will not be applicable to a person who derives income of the nature referred to … Section 44AB of the Income Tax Act deals with the audit of accounts of certain individuals. Particulars of payments made to persons specified under section 40A(2)(b). In the view of the above it can be inferred that the turnover should include the amount of GST even if the assessee follows exclusive method of accounting. The Ld. The payer under Section 194C is any person being an individual or HUF who is liable to audit od accounts under Section 44AB during the financial year in which obligation to deduct tax arises. (In both the cases cash receipts/payments do not exceed 5%). If the assessee is an eligible assessee and is engaged in more than one business one of which is an eligible business and other is a business specified in sub-section 6; or is engaged in eligible business and any profession referred in sec 44A (1) he shall be ineligible for presumptive taxation not only for those business as specified in sub section 6 but also for other businesses which was otherwise eligible. Sec 145A (ii) as amended by Fin 2018 provides that the valuation of sales, purchases and inventory shall be adjusted to include the amount of taxes, duties or cess. The new proviso to section 44AB providing the enhanced turnover limit of Rs. Clause 44AB(a) _ Proviso where aggregate cash receipts and payment of business exceeding specified limit However, there were certain amendments made to Sec 44AB (e) and Sec 44AD (4) by the Fin Act 2016 which changed this position. Sec 44AD (1) starts with non-obstante clause and overrules sec 28 to sec 43C. However, individuals and HUF who were covered under section 44AB(a) and (b) in the preceding previous year i.e. vehicles having gross weight more than 12,000 kg- Rs 1,000 per ton of gross vehicle weight or unladen weight for every month or part of the month for which vehicle is owned by the assessee. Needless to say, he would be liable for tax audit if he has declared profit as per presumptive taxation in A.Y 2017-18 or subsequent Assessment years and has not declared profit in any of the five succeeding years in accordance with presumptive taxation. A.Y. Opted Presumption Taxation in last 5 years : NO. Even, the ICDS provides for inclusive method of accounting. 1. Subsequently, in order to encourage banking transaction the Fin Act 2017 provided that in case of receipts through banking channels the amount of deemed profits shall be 6% instead of 8%. Sir, please confirm the following. Pramod Jain, FAQs on Income Tax - Series 14 - Experts Panel Compilation, PPT on Recent TDS and TCS issues & Faceless Appeal by CA. Didn't understand the meaning. In the given case the assessee has declared profits as per presumptive taxation scheme in any of the five preceding years and has not declared profits as per presumptive taxation for current year, hence the provisions of sec 44AD(4) shall apply and he shall be liable for tax audit u/s 44AB(e) r.w.s 44AD(4). Similarly, income tax law also mandates an audit called ‘Tax Audit’. The ‘Guidance Note on Tax Audit’ issued by the ICAI provides that where the assessee has included the amount of excise and sales tax in the amount of sale price, the turnover will include the amount of excise and sales tax. In Form No.3CA, it is clearly mentioned under Note No.2(iii) any person who is, by virtue of any other law, entitled to audit the accounts of the assessee for the relevant previous year has to … Sec 145A is applicable for the purpose of determining the income chargeable under the head PGBP. The provisions of sec 44AD apply only to the eligible assessee engaged in eligible business. assessment year 1998-99) or 44BB or 44BBB (by the Finance Act 2003 w.e.f. Pramod Jain, A short video on Due date on Filing of LLP Form 8 for FY 2019-20, PPT on Conversion into LLP and its Taxation by CA. Provisos to Section 139(1) As first and second proviso are not applicable so there is no sense to discuss it so let’s start from third proviso Even in this illustration the circular ignores the Assessment Years prior to A.Y. 4. If yes then it would mean sec 44ada is a compulsory section? Section 44AB of the Income Tax Act is applicable for individuals who meet certain requirements and have to get their accounts audited by a Chartered Accountant. Tax Audit has been an important tool to increase the efficiency of tax administration and curb the menace of tax evasion. Pramod Jain, FAQs on GST - Series 11 - Experts Panel Compilation, PPT on Overview of Tax Audit & Clauses 1 to 14 & 32 to 34 of Form 3CD by CA. The section 44AB of the income tax act 1961 requires the assessed to file their tax audit report if their turnover exceeds 1 crore. The section provides that in case of eligible assessee engaged in eligible business, a profit of 8% of total turnover or such a higher amount as claimed to have been earned by the assessee shall be deemed to be profits and gains of business. The third proviso to section 10(23C) provides for the application of funds by the fund, trust etc., and also provides that the fund, trust etc., do not invest its fund other than corpus fund etc. The provisions of Section 44AB have been amended by the Finance Act, 2020 giving rise to major confusion in the minds of businessmen and professionals alike. 23. Hence, it is possible that before A.Y. 35/2020 dated 24.6.2020, for the purposes of furnishing of the report of audit under any provision of the Income Tax Act, 1961 (including section 44AB) for the assessment year 2020-21 the specified date (the end date) was extended to … (i) amount inadmissible under the proviso to section 36(1)(iii). Third proviso to section 44AB:- Audited under any other law. (i) amount inadmissible under the proviso to section 36(1)(iii). Due date of furnishing audit report u/s 44AB is 31 st October 2020.Government has also extended the due date of filing Original or Revised return for the FY 2018-19 i.e AY 2019-20 to 31 st July 2020. THE INCOME TAX ACT,1961 THE SERVICE TAX ACT,1994 THE MVAT ACT,2002 THE CUSTOMS ACT, 1962. To find a solution as to whether such books of accounts are maintained or not? Tax audit based on turnover limit for business [Sec 44AB (a)]. Sec 44AD was amended by Fin Act 2016. 2017-18, there was applicability of tax audit in every case where the profit declared was less than 6%/8%, however there was no five years restriction for opting out of the scheme. Pramod Jain, Presentation on Commonly Found Errors in Tax Audit by CA. Pramod Jain, PPT on Recent TDS and TCS issues by CA. Similarly, income tax law also mandates an audit called ‘Tax Audit’. FAQs on Income Tax - Series 16 - Experts Panel Compilation, PPT on Overview & Practical Aspects of Accounting Standards and Assurance Standards by CA. Clause 44AB( e )- Profit and gains lower than deemed profit u/s 44AD. profit linked deduction. Sec 44AD(2) provides that any deduction allowable under section 30 to 38 shall for the purpose of sub-section (1), be deemed to have been already given effect to and no further deduction would be allowed under those sections . However, the above condition will apply only for five years subsequent to the year in which assessee has opted out of the scheme and after the lapse of such five years he shall not be liable to tax audit u/s 44AD(4) even if he declares profit lower than 8%/6%. proviso to Sec 44AB,if  in a case where such person is required BY OR UNDER ANY OTHER LAW to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified dateDidn't understand the meaning. Dividend received by investors is exempt from tax – section 10(34) of IT Act However, Company distributing dividends is liable to dividend distribution tax @ 16.995%*( Sec 115 O of IT Act, 1961) So, when firms opt out of this scheme, they have to mandatorily maintain books of accounts under section 44AA (2) (iv) and get them audited under clause (e) of section 44AB of the Income tax Act for next 5 assessment years irrespective of their income or turnover. Tax Implications- Investment in Shares. 1.Third Proviso to section 44AB: Audit under any other law or 2. clause 44AB(a) _Total sale/turnover exceeding specified limit or 3. Return of Income (Section 139 to 140A) As Per Sec 44AB of Income Tax Act,1956,Tax Audit is required to be conducted if the ceiling limit of Rs.100 lakhs or Rs.25 lakhs,as the case may be, is exceeded.But proviso to Sec 44AB,if in a case where such person is required BY OR UNDER ANY OTHER LAW to get his accounts audited, it shall be sufficient compliance with the provisions of this section … Eligible Business means any business other than business of plying, hiring or leasing goods carriage as referred in sec 44AE and having turnover less than 2 Crores. (i) Clause 44AB(d) (ii) Clause 44AB(e) (iii) Third Proviso to Sec 44AB 2 Form3cdProfGain sPresum SectionNo Modified Section 44ADA added in dropdown. Before the amendment tax audit was applicable in every case where the assessee declared profit lower than the deemed profits as per presumptive tax scheme. 3. 1-6-2016] Sub-clause (iii) of section 2(37A) has been amended so as to provide that for the purposes of deduction of tax under section 194LBB, or section 194LBC the "rates in force" in … 6. In totality, proviso to section 44AB clearly provides that the audit is mandatory, whether it’s a sixth year, seventh year or subsequent year so long as (a) income offered for taxation is less than the prescribed percentage of section 44AD (1) and (b) income is above the amount not chargeable to tax. The scope of section 44AB was enlarged to provide that audit under the section would be required in case of a person carrying on the business of the nature referred to in section 44AD or 44AE or 44AF (by the Finance Act 1997 w.e.f. Classification to be reasonable should fulfill the following two tests as laid down by the judiciary: (1) It should not be arbitrary, artificial or evasive. Drawing the Conclusions: 194LBC shall be same as given under section 2(37A) [Section 2(37A)(iii) amended] [W.e.f. Thus, it creates apparent anomaly whereby greater compliance burden is placed on small taxpayers rather than large tax payers which is against the purpose and object of the sec 44AD of easing the compliance burden of small taxpayers. 22. The third proviso to section 3(1) of the Bill reads as under- Provided also that where the specified Act is the Income-tax Act, 1961 and the compliance relates to— (i) furnishing of return under section 139 thereof, for the assessment year commencing on the— Hence, there is no need to consider the applicability of sec 44AD(4). Cash Receipt / Payment : Less then 5% Is it mandatory to subject the accounts audited by a CA over and above the statutory audit conducted by the Director of Co-operative Audit? What constitute the “turn over” or “gross receipt” mentioned in the Section 44AB in the case of an Employees credit co-operative society engaged in the business of accepting deposits from members and provide loans to members? Required fields are marked *. Moreover, even circular No 3/2017, provided that the assessee can declare profit less than 6%/8% after maintaining books of account as per sec 44A if his turnover is less than 1 Crore. A … The same circular also provides an illustration for explaining the provisions of Sec 44AD (4). Section 44AB of the Income-tax Act, 1961 contains the provisions for the tax audit of an entity. Sec 44AB(c) provides that where the assessee is engaged in a business to which the provisions of section 44AE, 44BB or 44BBB apply and he claims his profit to be lower than the deemed profits as per the respective section, he shall be liable for tax audit if his total income exceeds maximum amount not chargeable to tax. For Example [Refer point 5 below for further discussion on Section 44AD (4) & (5)] 5. Only the latest & most important updates on taxation, Demystifying Applicability Of Tax Audit u/s 44AB Of The Income-tax Act, 1961. The author tries to analyze the various provisions relating to applicability of tax audit so as to provide clarity on the subject. Sec 44ADA provides that in respect of any assessee being a resident carrying on a profession as mentioned in sec 44AA(1) and whose gross turnover does not exceed Rs 50 lakhs , an amount equal to 50% or such a higher amount as claimed to be earned by the assessee shall be deemed to be profits of the profession. Sec 44ADA inserted by Finance Act 2016 provides a scheme of presumptive taxation in case of professionals. proviso to Sec 44AB,if in a case where such person is required BY OR UNDER ANY OTHER LAW to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date. Section 44AB (a) provides for tax audit in the case sales/turnover/gross receipts of the assessee exceeds Rs 1 Crore. 23. Now is there any clarification from ICAI or CBDT on it. In other words, if certain individuals meet the requisites as prescribed under Section 44AB, then these individuals will have to ensure that their accounts are audited by a certified Chartered Accountant. The Taxation Committee of the Institute has published (i) Guide for Audit of Public Trusts under section 12A(b) and (ii) Guide to Special Audit under section 142(2A). 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