Many of us were in the belief that those assessees having loss from business and having turnover less than Rs. 2 crore are required to get their accounts audited U/s 44AB r/w section 44AD or those assesses having loss from profession and having professional receipts less than Rs 50 lakhs are required to get their accounts audited u/s 44AB r/w section 44ADA but that is not the case.
Sub Section (1) of section 44AD reads as follows:
(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” :
Provided that this sub-section shall have effect as if for the words “eight per cent”, the words “six per cent” had been substituted, in respect of the amount of total turnover or gross receipts which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.
Sub section (4) of section 44AD reads as follows:
(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).
Sub section (5) of section 44AD reads as follows:
(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.
Sub Section (1) of section 44ADA reads as follows:
(1) Notwithstanding anything contained in sections 28 to 43C, in the case of an assessee, being a resident in India, who is engaged in a profession referred to in sub-section (1) of section 44AA and whose total gross receipts do not exceed fifty lakh rupees in a previous year, a sum equal to fifty per cent of the total gross receipts of the assessee in the previous year on account of such profession or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee, shall be deemed to be the profits and gains of such profession chargeable to tax under the head “Profits and gains of business or profession”.
Sub Section (4) of section 44ADA reads as follows:
(4) Notwithstanding anything contained in the foregoing provisions of this section, an assessee who claims that his profits and gains from the profession 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 (1) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.
Simultaneous reading of sub sections (1), (4) and (5) of Section 44AD and sub section (1) and (4) of Section 44ADA brings to light the following points:
♠ The profits of an assessee engaged in eligible business under the head ‘Profits and gains from business and profession shall be deemed to be equal to 8% or 6% or 50% of the total turnover or gross professional receipts as per the case of the asessee or such higher amount as may be claimed by the assessee.
Ques: What if the profits of an assessee engaged in eligible business are actually less than 8% or 6% or 50% of the turnover or gross receipts of the business or profession?
Ans: If an assessee claims that his profits and gains from eligible business are less than 8% or 6% or 50% of the total turnover or gross receipts and whose total income exceeds the maximum amount not chargeable to tax, the asseessee shall maintain the books of account as prescribed U/S 44AA and get them audited under section 44AB of the Act.
Here the catch lies in the words ‘and whose total income exceeds the maximum amount which is not chargeable to income-tax’
Since the words start with ‘and’ therefore both the conditions need to be fulfilled for an assessee to be required to get his accounts audited u/s 44AB.
Ques: What are the conditions to require the assessee to get the accounts audited u/s 44AB read with section 44AD or Section 44ADA in case the turnover is less than Rs. 2 crore or Gross receipts are less than 50 Lakhs from eligible business or profession?
Ans: 1) The assessee should keep the books of account as prescribed under 44AA and the profits claimed as per those books of account shall be less than 8% or 6% or 50% of the gross receipts or turnover of the business/ profession.
♠ The second condition in order to mandate tax audit u/s 44AB is that the total income of the assessee should exceed the maximum amount not chargeable to tax under the Income Tax Act’1961.
Now let us consider the case of a partnership firm which is engaged in eligible business as per section 44AD and whose turnover is say Rs. 80 lacs in the preceding Financial Year 2020-21 and which shows Net loss from business of Rs. 50,000/-.
Is this firm required to get the accounts audited under section 44AB read with section 44AD of the Income Tax Act’1961?
The answer is ‘No’ because if we read section 44AD carefully, the audit is required where profits are less than 8% or 6% of the gross receipts or turnover and the income exceeds maximum amount not chargeable to tax.
Since, the firm is taxed at an income starting from Rs. one, therefore the maximum amount not chargeable to tax is nil.
In case of loss, since there is no income, therefore it does not exceed the maximum amount not chargeable to tax and so the second condition mandating tax audit u/s 44AB r/w section 44AD is not satisfied and therefore the assessee is not required to get the accounts audited u/s 44AB.
Therefore, in case of assessees other than companies, professionals, assessees having agency business (Those on whom section 44AD/ 44ADA is not applicable) having turnover less than Rs.2 crore or business receipts less than 50 lakhs and showing loss from business shall not be required to get the accounts audited U/s 44AB if they do not have any other income other than income from eligible business and the due date for such assessees shall be 31st July of the Assessment Year and not 30th September.
Therefore such assessees should file the return of income by the 31st July of the Assessment Year without audit report as the loss will not be carried forward due to late filing of the Income Tax Return after the due date.
Hope you find the above information relevant and useful in your daily practice.
(The author is a CA in practice at Delhi and can be contacted at: E-mail: [email protected], Mobile: +91-9953199493)
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(Republished with Amendments by Team Taxguru)
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hello, I have partnership firm and i have not opted to 44AD. My Turnover is Rs 254627/- and Net Profit is Nil. Whether I am required to get tax audit? I have not opted for 8% or 6% option.
Whether the 2 conditions as prescribed above for tax Audit applicable only if opted for 44AD or is it applicable by law itself if those conditions are satisfied ?
Hi, I am a salaried person comes in 20% tax baracket. i have started intraday trading and made a loss of approx 12000 rupees including expences, whereas my turnover is 10300 rupees. is audit required if i want to file ITR for the same ?
In case of partnership Firm your advice seems to be wrong. Deemed income U/s 44AD is also income which should be considered for testing that income chargeable to tax is less than maximum amount which is chargeable to tax is more or not. In case of partnership firm your TO is 80 Lakh. Then deemed income comes at Rs. 640000/- or 480000/- which is total income and in this case Books is required to be maintained and Audit is compulsory if income as per books of account is loss. Otherwise tax will be payable U/s 44AD on 640000/- or 480000/-. Your advice is liable to be reanalised.
Sir,
I am salaried employee with salary 15 lac pa.
In FY 20-21 until Oct 2020. Unfortunately I have made speculative loss in future and option of 33.64 lacs and short term loss of 2.22 lacs in shares. I have paid 6.10 lac charges.
Kindly advise if I file under sec 44AD, I will need to pay tax on 6% of 33.64 lacs i.e. 201840 x 30% = 60550/-. Please advise what should I do since I have loss and do not want to pay tax also.
Thanks
Sir,
I am salaried employee with salary 15 lac pa.
In FY 20-21 until Oct 2020. Unfortunately I have made speculative loss in future and option of 33.64 lacs and short term loss of 2.22 lacs in shares. I have paid 6.10 lac charges.
Kindly advise if I file under sec 44AD, I will need to pay tax on 6% of 33.64 lacs i.e. 201840 x 30% = 60550/-. Please advise what should I do since I have loss and do not want to pay tax also.
Thanks
Sir,
I am salaried employee with salary 15 lac pa.
In FY 20-21 until Oct 20. Unfortunately I have made speculative loss in future and option of 33.64 lacs and short term loss of 2.22 lacs in shares. I have paid 6.10 lac charges to Zerodha.
Kindly advise since I lost my savings and have hardly money left (due to PMC Bank stuck also).
If I file under sec 44AD, I will need to pay tax on 6% of 33.64 lacs i.e. 201840 x 30% tax = 60550/-. Please advise what should I do since I have loss and do not want to pay tax also.
Thanks
audit karwa lo.loss carryforward ho jayega.for further detail contact 8847453673
Can you please analyse the provisions of 44AB and 44AD prior to Finance Act 2016 and the changes made in FInance Act 2016??
I completely disagree with your analysis .
The ‘total income chargeable to tax’ comes into question only when 44AD(4) is applicable. i.e., opting out of presumptive scheme before 5 years.
Not when the assessee has never opted for presumptive scheme u/s 44AD.
Thus Tax audit is applicable when the turnover exceeds 1Cr / 5Cr or because of 44AD(4)
( switching over to normal from presumptive before 5 years )
If the assessee has never opted for 44AD in the preceeding years, then no tax audit even if his total income is below 6%/8% or incurrs loss. But he’s liable to maintain complete set of books and file normal ITR with full details of Income Expense , Asset Liabilities.
However an assessee having Professional Income below 50 Lakhs and declaring Income below 50% is subject to tax audit because of clause 44AB(d)
Which ITR Form should I use to file Loss from Business with T/O Rs 12,10,000/- and Loss of Rs 2,96,000/- by taking into consideration of Non-Audit of accounts r/w Sec 44AD as mentioned here.
What’s your view now after amendment in Budget 2020. The budget has increased limit to 5 crore for 44AB however the limit for 44AD remains unchanged.
Now, if someone has turnover below 2 crore he has to mandatory go for tax audit if profit is less than 8% but if the turnover is higher than 2 crore but less than 5 crores AND profit is below 8% then he need not go for tax audit either u/s 44AD and 44AB.
Isn’t it strange?
I agree with you view
In case of loss, since there is no income, therefore it does not exceed the maximum amount not chargeable to tax and so the second condition mandating tax audit u/s 44AB r/w section 44AD is not satisfied and therefore the assessee is not required to get the accounts audited u/s 44AB.
In my case the assesee has loss under f&o, he declared net loss u/s 44AD without considering the 8% of positive negative value as the net result is loss. And other than that f&o loss he has declared other income of Rs.50000.
Now cpc has issued notice u/s 139(9) asking for audit of account as loss is declared. My opinion is audit not required as the total income is far below manct. Is it correct? Can you guide me?
Thanks
What if the loss return of firm is not filed before due date July 31, whether in this case audit mandatory to carry forward the loss??
Dear Sir, Thank you very much for the details. Can you please advise on the following?
I have salary income of 20L. Teaching income of 40,000 and interest income of 8000. Also, F & O turnover of 3000 (Rs. three thousand only) with loss of 1800 (eighteen hundred) through less than 10 trades. The DMAT, brokerage, account opening charges are approx. 800 (Eight hundred).
1) Which ITR can I file ? ITR 3 or ITR4 or any other?
2) Is audit mandatory for my turnover ?
3) Can the loss be adjusted against any income other than salary?
4) Is book of accounting to be kept by me? If yes, what all things are to be kept?
Request your advice. Thank you very much.
Sir, I am a salaried person in IT industry and and my total gross income is 40L p.a which have been tax paid and reported in Form 16. As a hobby I have been trading in online brokerage Zerodha and my total buy an sell value in the year is around 82 lac including all charges, I dealt only in direct equities and long positions in mostly short term and intraday. My intraday Buy Sell total amounts to around 30 Lacs and rest in very short term buy sell. My total loss is around 70,000 of which Rs. 82 was in profit of intraday and rest on complete ST loss. My question is my auditor advised me to report this under business head due to speculatve income. The confusion is atop should i get a tax audit on my trading / securities values < 1 Cr and profit < 6% which is not even profit but total loss