• Apr
  • 17
  • 2012

Section 44AD – Is it really a palpable transformation?

Article ID 41142 | Posted In Income Tax | , | 47 Comments » Print Friendly and PDF

CA Gautam Joshi

Vide Finance Bill 2011, the Section 44AD has been revised and it is applicable to all businesses instead of only to civil construction business. On the other outset, limit of tax audit u/s 44AB is increased to Rs. 60 lakh from earlier limit of Rs. 40 lakh for financial year 2011-12 and been further increased to 100 Lakh for Financial year 2012-13 and years coming thereafter.

Being an entrepreneur first, I had lot of disappointments on increase of limit as now there will be lesser business men falling under the tax audit bracket. While secondly, I was really happy all business men who want to show profit lesser than 8% fall under the bracket of tax audit though not directly but indirectly.

It won’t be wrong to say that it’s even more difficult now to run a business, that too if you are within income tax limits. See below:

Particulars Action
Turnover less than 100 lakh & profit is less than 8% Through Section 44 AD to Section 44 AA
Turnover less than 100 lakh & profit is more than 8% Section 44 AD
Turnover more than 100 lakh Section 44 AA

It is actually shocking why central government is unnecessarily introduce these conflicting provisions where once audit limit starts from Rs. 100 lakh and on the other side profit percentage if less then @ 8% again attracts maintenance of accounts and conduct of audit. In scheming black transactions, is it that government indirectly curbs the very business itself? Practically, only option remains with all business men is to fix their profit margin @ 8%. How much difficult is for a business to digest its profit margin being decided by drafting authorities? Only a business man knows.

On top of all, question arises why business men should maintain books of accounts if income tax authorities are not going to ask for the same? Actually, books of account throws a clear picture of any business and is the only reliable source for outside parties like insurance companies, visa authorities, financial institutions etc.  One may save few bucks of income tax through these presumptive provisions but then it may be cumbersome for them to get visa, insurance, finance or to sponsor. Think of the situation where you saved few bucks of income tax but you could not show enough wealth for your son’s foreign education just because you followed the presumptive taxation. Section 44 AD could be a escaping window only and can never be an inspiration for tax or wealth planning.

What is suggested here is to always prepare books of account because there is something called self-assessment too.


CA Gautam Joshi, M: 98798 67470., Email:- gautam_bj@yahoo.co.in

(Article was First Published on 13.05.2011 and Republished on 17.04.2012 with amendments)