Quick Insight on sec 44AA, 44AB, 44AD – Presumptive Taxation

Section 44AA: Maintenance of Books of Accounts

WHO SHOULD MAINTAIN:

• Person  carrying on business / profession whose total income exceeds INR 1,20,000 in any one of the three years immediately preceding the previous year; In case of in case of individual or HUF provisions are applicable in case total income exceeds INR 2,50,000.

• Person carrying on business / profession whose gross receipts exceeds INR 10,00,000 in any one of the three years immediately preceding the previous year; In case of in case of individual or HUF provisions are applicable in case total gross receipts exceeds INR 25,00,000.

• In case of newly set up business, the person is required to maintain books of accounts if his total income or gross receipts is likely to exceed INR 1,20,000 or INR 10,00,000 respectively.

Note: limits of 1,20,000 should be increased to 1,50,000 for professions notified in rule 6F. In case of in case of individual or HUF provisions are applicable in case total income or gross receipts exceeds INR 2,50,000 or INR 25,00,00.,

• Where assessee is showing profit under presumptive taxation u/s 44AE, 44BB, 44BBB, he is showing lower profit than prescribed in those sections .
• Where assessee is showing profit under presumptive taxation u/s 44AD , he is showing lower profit than prescribed in that section and his income exceeds the maximum amount which is not chargeable to income tax in any previous year.
  

BOOKS TO BE MAINTAINED:

• Cash book;
• Ledger;
• Journal;
• Carbon copy of bills and receipts issued by the person in relation to sums exceeding INR 25000;
• Original bills and receipts issued by the person in respect of expenditure incurred in relation to sums exceeding INR 50,000.
  

Section 44AB : Audit of Accounts

WHO HAVE TO MAKE HIS ACCOUNT AUDITED??

• Person carrying on business and total sales, turnover or gross receipts has exceeds INR 1 crore in any previous year;
• Person carrying on profession and gross receipts has exceeds INR 50 Lakhs in any previous year;
• Where assessee is showing profit under presumptive taxation u/s 44AE, 44BB or 44BBB lower profit than prescribed under those sections.
• Where assessee is showing profit under section 44ADA and he claims income to be lower than profit and gains prescribed under those section and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year;
• Person carrying on business to which provisions of section 44AD (4) are applicable and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year.
  

Section 44AD : Presumptive Taxation for Business

• It is only for individual, HUF and partnership firm (not LLP) carrying on business except business u/s 44AE.
• Total turnover in the previous year should not exceed INR 40 Lakhs.
• Assessee can declare 8% or higher sum of his gross receipt as his income under this section and he has no need to maintain accounts or get the accounts audited.
• So if assessee is declaring lower income than 8% and his total income exceeds the maximum amount which is not chargeable to income-tax, he is required to get his accounts audited by CA u/s 44AB.
• Assessee cannot get deduction u/s 10A, 10AA, 10B, 10BA or deduction under any provisions of chapter VIA. He can get deduction u/s 80c to 80G.
• All deduction u/s 30 to 38 shall be deemed to have been allowed.
• Written down value of assets shall be deemed to be calculated as if assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant .
• Salary and interest of the partners are to be allowed after calculated profit under this section.

Section 44ADA – Presumptive Taxation for Professionals

• Section 44ADA is applicable to persons engaged in profession referred in section 44AA (1);
• Total receipts should not exceed INR 50,00,000 in a previous year;
• Profits and gains would be sum equal to 50% of total gross receipts or a sum higher than the aforesaid sum claimed to have been earned by the assessee;
• All deduction u/s 30 to 38 shall be deemed to have been allowed.
• Written down value of assets shall be deemed to be calculated as if assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant .
• If the assessee claims to have profits and gains from the profession to be lower than the profits and gains specified above and the total income exceeds the maximum amount which is not chargeable to income tax, in such case the assessee is required to get his accounts audited under section 44AB.

FAQs on Maintenance of accounts by certain persons carrying on profession or business under Income Tax Act, 1961

Q1. Can a person engaged in a profession as prescribed under section 44AA(1) adopt the presumptive taxation scheme of section 44AD?

Answer- ​​​​​​​A person who is engaged in any profession as prescribed under section 44AA(1)​ cannot adopt the presumptive taxation scheme of section 44AD.​

However, he can opt for presumptive taxation scheme under section 44ADA​ and declare 50% of gross receipts of profession as his presumptive income. Presumptive Scheme under section 44ADA​​ is applicable only for resident assessee whose total gross receipts of profession do not exceed fifty lakh rupees.

Q2. Do I need to maintain any records or proof of earnings? 

Answer- For every source of income you have to maintain proof of earning and the records specified under the Income-tax Act. In case no such records are prescribed, you should maintain reasonable records with which you can support the claim of income.​

Q3. If a person adopts the presumptive taxation scheme of section 44AD, then is he required to maintain books of account as per section 44AA?​​​

Answer- Section 44AA deals with provisions relating to maintenance of books of account by a person engaged in business/profession. Thus, a person engaged in business/profession has to maintain books of account of his business/profession according to the provisions of section 44AA.

In case of a person engaged in a business and opting for the presumptive taxation scheme of section 44AD, the provisions of section 44AA  relating to maintenance of books of account will not apply. In other words, if a person adopts the provisions of section 44AD and declares income @ 8%/6% of the turnover, then he is not required to maintain the books of account as provided under section 44AA in respect of business covered under the presumptive taxation scheme of section 44AD​.​

Q4. What books of account have been prescribed to be maintained by a person carrying on business/profession under the Income-tax Act? 

Answer- The Income-tax Act does not prescribe any specific books of account for a person engaged in business or in non-specified profession. However, such a person is expected to keep and maintain such book of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of the Act, if:-.

For companies the books of account are prescribed under the Companies Act. Further, the Institute of Chartered Accountants of India has prescribed various Accounting Standards and Guidelines that are required to be followed by the business entities As regards the maintenance of books of account by a professional, who is engaged in specified profession has to maintain certain prescribed books of account, if the annual receipts from the profession exceed Rs. 1,50,000 in all the three years immediately preceding the previous year (in case of newly set up profession, his annual receipts in the profession for that year are likely to exceed Rs. 1,50,000).

Specified profession covers profession of legal, medical, engineering, architectural, accountancy, company secretary, technical consultancy, interior decoration, authorised representative, film artist or information technology.

For more details on the provisions relating to maintenance of books of account you may refer provisions of section 44AA read with Rule 6F of the Income-tax Rules, 1962.​

Q5. Where should the books of account of business be kept and for how long?

Answer- All the books of account and related documents should be kept at the principal place of business, i.e., where the business or profession is generally carried on. These documents should be preserved for a minimum of six years from the end of relevant Assessment year i.e. for a total of 7 financial year from the end of relevant year. However, when the assessment has been reopened, all books of account and other documents which were kept and maintained at the time of reopening of assessment should continue to be so kept and maintained till the assessment so reopened has been completed.​

(Republished With Amendments)