Applicability of Tax Audit under section 44AB or 44AD or 44ADA

Applicability of Tax Audit under section 44AB or 44AD or 44ADA

Audit of accounts of certain persons carrying on business or profession:

Section 44AB, initially introduced by Finance Minister Shri Pranav Mukharji in the Finance Act, 1984, taking effect from April 1, 1985. There was a lot of opposition to this section at the time, from business people, professionals, and especially Tax Advocates and Tax Practitioners, because auditing books of account is required of every person carrying on business if his total sales, turnover, or gross receipts, as the case may be, in business exceeds or exceeds rupees Forty Lakhs, and for professional persons whose gross receipts exceed or exceed rupees Forty Lakhs. Many representations were made, and even writ petitions were filed in various High Courts, however, section 44AB remained unchanged, and no revisions were made until March 31, 2010.

With effect from April 1, 2011, the ceiling on gross turnover for businesses has increased to rupees sixty lakhs, and the limit for professionals has increased to rupees fifteen lakhs.

With effect from April 1, 2017, the ceiling on gross turnover for businesses has been raised to Rs. One Crore, while the maximum for professionals has been raised to Rs. Twenty-five Lakhs.

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With effect from April 1, 2020, i.e. the Assessment Year 2020-21 and onwards, a proviso to section 44AB(a) stipulates that in the instance of a person whose:

  • 1. The total amount received in cash during the preceding year, including sums received for sales, turnover, or gross receipts, does not exceed 5% of the amount; and

  • 2. The total of all payments made in cash during the preceding year, including payments for costs, does not exceed 5% of the amount,

Then such a person is exempt from having their accounts audited if their total sales, turnover, or gross receipts do not exceed Rs. 5 crores, as opposed to Rs. 1 crore.

Similarly, if a person’s gross profits in a profession exceed Rs. 50,00,000 in any prior year, he or she must have his or her accounts audited [Section 44AB(b)]. From the foregoing, we can deduce that the time limit for having books of accounts audited varies depending on the type of business or profession.

Assume that in the previous year, certain individuals were involved in both business and profession at the same time. Now, in the instance of an Assessee who is both a business owner and a professional, the question may arise as to what the limit is for obtaining books of accounts audited under section 44AB.

It is preferable to first discuss the boundaries set in the case of a business, and then the limits set in the case of a profession.

u/s 44AB/44AD Business Turnover:

Less than Rs. 1,00,00,000 in turnover, sales, or gross receipts Although section 44AB does not apply, he may elect to use section 44AD and declare revenue according to his books of account. This option should be chosen for the next five years. Section 44AB applies if income exceeds the maximum taxable amount.

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If your turnover, sales, or gross receipts exceed Rs. 1,00,00,000, you have the choice of opting for section 44AB or section 44AD. These provisions do not apply if total sales, turnover, or gross receipts and payments for expenditure during the previous year do not exceed 5% of total sales, turnover, or gross receipts and payments for expenditure during the preceding year, as the case may be.

Gross receipts for professionals u/s 44AB/44ADA

In reference to the assessment year 2017-18 and on thereafter, Section 44ADA provides for the computation of profit and gain on profession on a presumptive basis. In the case of an assessee who is a resident of India and who is engaged in a profession referred to in section 44AA(1) and whose total gross receipt does not exceed Rs. 50,00,000 in a previous year, a sum equal to 50% of the assessee’s total gross receipt in the previous year on account of such profession, or, as the case may be, a sum higher than aforesaid sum claiming to have been earned by the assessee.

Please keep in mind that if an assessee’s professional receipts are Rs. 60,00,000 and his total sales, turnover, or gross receipts in business are Rs. 35,00,000, he will need to have his books of accounts audited for both his profession and his business because the gross receipts from the profession exceed the Rs. 50,00,000 limit.

If, on the other hand, the professional receipts are Rs. 27,00,000 and the total sales turnover or gross receipts from the business are Rs. 95,00,000, he will not need to have his books of accounts audited under the above section because his gross professional receipts, as well as total sales, turnover, or gross receipts from the above business, are less than the prescribed limit of Rs. 1,00,00,000.

There are various types of business professions that are related to each other.

  • A doctor who does medicine while also selling pharmaceuticals;
  • An architect who creates building designs and sells construction materials.
  • A teacher who gives lessons as well as publishes and sells books.

Tax Audit – Limits & Applicability, FnO cases

Tax Audit – Limits & Applicability, FnO cases

S-44AB of IT Act, 1961 (as amended through Finance Act, 2021)


1. Business where turnover exceeds Rs. 1 Cr in any PY
Limit is Rs. 10 Cr where aggregate receipts/ payments in cash do not exceed 5% of said receipts/ payments
(both Conditions satisfy individually)

Note- non-account payee cheque/ bank draft is treated as cash

2. Profession where Gross Receipts exceed Rs. 50 Lacs in any PY

Opting for Presumptive Tax Provisions?

Audit Required if:-

1. Business Income Claimed to be lower than Profits deemed u/s 44AE/ 44BB/ 44BBB in any PY

2. Income from Business/ Profession Claimed to be lower than Profits deemed u/s 44AD/ 44ADA in any PY & TI > Basic Exemption

Limits will be as under:-

Business – S-44AD – Rs. 2Cr
Profession – S-44ADA – Rs. 50Lac

Dealt in F&O transactions but have no Idea about the applicability of Tax Audit?

Normal business turnover is based on sales & thus reaching the limit takes time.

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But in F&O it reaches the limit easily as each lot is valued high, Limit is reached easily.

S-43(5) of the IT Act, 1961 has excluded transactions of F&O (Equity) from speculative transactions. However, the exemption is available only for equity.

F&O (commodities) are Speculative in Nature.

i.e. F&O (equity) income will be treated as Normal business Income

Any expense done in connection to this business will be allowed as an expense and can be claimed while preparing Tax computation.

Anchorage Infrastructure Investment Holding’s FDI request of Rs 15,000 crore has been approved by the CCEA.

For computing the T/O limit, the following things should be added:

  • a. Profits from the trade

  • b. Loss from the trade

  • c. Premium received from the sale of Options

  • d. In the case of Reverse Trade, the difference should also be added

(Limit as applicable in other cases discussed earlier)

NOTE: In the case of Delivery Based Transactions, Gains would be treated as Capital Gains.


The CBDT has updated Tax Audit Form 3CD and made changes to Rule 6G.

The Central Board of Direct Taxes [CBDT] has amended Rule 6G and Tax Audit Form [Form 3CD]. According to the notification, the assessee may now revise form 3CD if a recalculation of disallowance under section 40 or section 43B is needed.

(Department of Revenue)
New Delhi, the 1st April 2021

246 G.S.R. (E). –– The Central Board of Direct Taxes hereby makes the following rules to amend the Income-tax Rules, 1962, in the exercise of the powers conferred by section 44AB read with section 295 of the Income-tax Act (43 of 1961):

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1. A brief title and introduction.–

(1)The Income-tax (eighth Amendment) Rules, 2021 can be used to refer to these regulations.
(2) They will take effect on the day they are published in the Official Gazette.

The Income-tax Rules of 1962 state that:

(a) After sub-rule (2) in rule 6G, the following sub-rule shall be inserted:

“(3) The person may revise the report of audit furnished under this rule by obtaining a revised report of audit from an accountant, duly signed and checked by such accountant, and furnishing it before the end of the relevant assessment year for which the report pertains, if there is payment by such person after furnishing the report under subrules (1) and (2) that necessitates a recalculation

(b) in Appendix II, in Form 3CD,-

I in PART –A, clause 8A shall be replaced by the following clause: – “8A “Has the assessee chosen to be taxed under section 115BA/115BAA/115BAB/115BAC/115BAD?

SEBI – Approved amendments in SEBI LODR Regulations Board Meeting

(ii) in PART-B, the following clause shall be substituted for clause 17:

“17. Where any land or building, or both, has been transferred for a consideration less than the value adopted, assessed, or assessable by any authority of a State Government referred to in section 43CAor 50C during the previous year, please report it.

audit form

(iii) The following sub-clauses shall be substituted for sub-clauses (ca) and (cb) in clause 18, namely:

“(ca) Written down value adjustment made under section 115BAC/115BAD (for the assessment year 2021-2022 only)……

(cb) Adjustment to the written down value of an intangible asset due to the exclusion of the value of a company or profession’s goodwill…..

(cc) Wrongly written down value…….”;

(iv) in clause 32, the following sub-clause shall be substituted for sub-clause (a):

(a) To the extent practicable, specifics of the carried forward loss or depreciation allowance, as follows:

audit forms

*Take the assessed depreciation if the assessed depreciation is less and there is no appeal pending.

To be completed only for the evaluation year 2021-2022.”

Clause 36 is to be omitted.

Note: The principal rules were first published in the Gazette of India, Extraordinary, Part-II, Section 3, Sub-section (ii) on March 26, 1962, and were last amended on March 31, 2021, by notification number G.S.R. 242 (E).

[Notification No. 28 /2021/F. No 370142/9/2018-TPL]
ANKIT JAIN, Under Secy. (Tax Policy Legislation)