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)

LIMITS ARE AS UNDER:-

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.

GDP grows 1.6% in Q4, but contracts 7.3% in FY21

GDP grows 1.6% in Q4, but contracts 7.3% in FY21

India’s gross domestic product (GDP) increased by 1.6% in the January-March quarter of fiscal year 2020-21, but contracted by 7.3% for the entire fiscal year, according to government figures released on Monday.

Since 1979-80, when the Indian economy shrank by 5.2%, this is the first full-year contraction in the last four decades. This is also India’s second consecutive quarter of growth since emerging from a rare recession.

India’s GDP increased by 3% in the fourth quarter of FY20, bringing the overall growth rate to 4%, an 11-year low.

The manufacturing sector’s gross value added (GVA) growth surged to 6.9% in the fourth quarter of 2020-21, compared to a decrease of 4.2% a year ago, according to statistics from the National Statistical Office.

GVA growth in the agricultural industry was 3.1% in 2019-20, compared to 6.8% in the previous year.

GVA in the construction sector increased by 14.5 %, up from 0.7 % previously. The mining industry shrank by 5.7%, compared to 0.9% a year ago.

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In the fourth quarter, the electricity, gas, water supply, and other utility services segment expanded by 9.1%, compared to 2.6% growth a year ago.

Similarly, after growing by 5.7% in the previous quarter, trade, hotel, transportation, communication, and broadcasting services shrank by 2.3% in the fourth quarter.

Financial, real estate, and professional services expanded by 5.4 percent in the fourth quarter of FY21, up from 4.9 percent in the previous quarter.

Growth in public administration, defence, and other services fell to 2.3 percent in the current quarter, down from 9.6 percent a year ago.

“Real GDP, or Gross Domestic Product (GDP) at Constant (2011-12) Prices, is now expected to reach 135.13 trillion in 2020-21, compared to 145.69 trillion in the First Revised Estimate of GDP for 2019-20, announced on January 29, 2021. GDP growth in 2020-21 is expected to be -7.3 percent, down from 4.0 percent in 2019-20 “In a statement, the Ministry of Statistics and Programme Implementation said.

gdp

“GDP at constant (2011-12) prices is anticipated to be Rs 38.96 trillion in Q4 2020-21, up from Rs 38.33 trillion in Q4 2019-20, indicating a 1.6 percent increase.”

The government’s efforts to stem the pandemic’s spread, according to the statement, have had an impact on economic activity as well as data collection procedures.
The economy will need to grow by 10-11 percent in the current fiscal year 2021-22 to regain its Rs 145 trillion size, but the outbreak of the second wave of COVID infections last month has disrupted economic activity, and many analysts believe the GDP will not reach double digits despite the low base.

GDP is calculated as the sum of gross value added (GVA) at basic prices plus all product taxes minus all product subsidies. Non-GST and GST revenue are included in the overall tax revenue used to calculate GDP.

The GST compensation amount for FY22 at the Centre should be greater than the anticipated Rs 1.58 lakh crore: Opp-ruled states

As of Monday, India had registered 28 million COVID-19 infections, second only to the United States, and 329,100 deaths, albeit the rate of increase, has slowed.

Manufacturing, construction and finance, real estate, and other sectors showed signs of improvement in Q4FY21, indicating that the economy is on the mend for FY22. However, growth may be stifled if the second wave results in the closure of the services sector in particular.