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.

Author

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)

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One response to “Section 44AD – Is it really a palpable transformation?”

  1. franklings says:

    I have some queries regarding income tax.

    1.If a proprietor running GTA by road and his gross turnover is 30 lakhs per year , which

    includes 30 % exempted items and 70 % abatement.can he show his turnover after deducting

    abated and exempted amount from 30 lakhs. I am not mixing service tax and income tax.That

    is 630000/- . if his profit below 8 % of the total receipts :i e below 240000/- is it is

    necessary to audit his firm and maintain the account books?I am not mixing service tax

    and income tax.

    if he has other personal incomes like pension, house rent etc of 250000/- then account

    keeping is mandatory ? Audit is mandatory or not?.

    if there is total 30 lakhs total credited in my bank account and I am declaring 9 lakhs

    only as business turnover , the rest of the amount is not actual income since i am

    running GTA (hiring only), not owner of vehicles.

    please clarify

  2. Stalin says:

    I feel that 44AD/44AE is not mandatory. If an eligible assessee with eligible business opts for section 44AD benefits and still declares an income less than 8%, then only tax audit would be mandatory.

    The assessee is free to show an income lesser than 8%, keep books of accounts, pay necessary advance tax, without coming under section 44AD/44AE. Only problem is that, IT Dept could take up the case for scrutiny (on the belief that your income should be 8% or more)

  3. Hiteshi says:

    Hello, My client has retail business income of Rs. 130000 & turnover is 3922000 for A.Y. 2011-12. is he cover in sect. 44AD & require audit.

  4. Sandeep says:

    Sir, if follow the provisions of Section 28 to 43c of PGBP. Maintain my books of accounts properly. as per my books Net Profit is below 8% of Gross turnover. and mygross turnover is under 60 Laks should i required to audit u/s 44AB

  5. Gaurav says:

    Dear Sir,
    If i donot have 8% profit and i go for audit u/s44AB what will be my due date for filling of return.
    Will it be 31st july or 30 sept

  6. Durgesh says:

    Res. Sir,

    I read your article on website. Thanks for giving information such like this. I need your help on this point more. I filed return of some client under 44AD. I need to know that if their 8% profit cross limit of I.T. then are they claim 80C? E.G. Gross receipt 35,00,000.00 T.D.S DEDUCTED 70,000.00 UNDER 44AD @8% 2,80,000.00 THIS INCOME IS MORE THEN I.T. RULES & HIS TAX LIABILITY 28,840.00 ON 8% PROFIT. NOW WHAT HAPPEN HE GET THE LESS REFUND OR CLAIM 80C? REFUND -70,000.00 AS PER 26AS BUT IF HE CAN NOT CLAIM 80C THEN HIS REFUND IS LESS BY 28840.00

    I hope may you like to help me on this point.

    Thanks & Regards
    Durgesh-9825611338

  7. ASHOK AGGARWAL says:

    Here the point is applicability of section 44AD to all types of business including manufacturing and services which is welcome step for streamling the complicated provision for allowance or disallowance of deductions claimed and avoid litigation.

  8. veerendra singh says:

    sec. 44ad is purely an absured section no need to increase in limit of sec 44ab audit limit

  9. Ishrat Ali says:

    Whether we can return file till March -2012 if turnover less than 60Las & Profit Less Than 8% of turnover after audit u/S 44AD

  10. mohit says:

    Hi,
    I am a software engineer and work on my own. No company registered. I earned 15 lac this year. All of this came into my bank account through my paypal. However, my expenses is around 11 lac.(as I have to get my work done by other software engineers). However, i will get only 4 lac.

    so as per section 44AD, there is no tax.

    My question is:

    is it mandatory to register a company to file for 44AD

    I do not have any company name registered.

    thank you.

  11. navnit kumar says:

    Sir,
    I file the income tax returns on September 2011 for the a.y. 2011-2012 u/s 44AB.That time my tds is missing but i got my tds certificate , I want claim the tds and Increasing the turnover. May i Increasing the Expenses or not? What is rule?
    Thanking you

  12. Pratik Ardeshana says:

    I had one question regarding to Audit and account maintain:

    My firm is partnership firm and my turnover is below 60lakh and profit is more than 8%, so is it required for me to do audit and maintain account??

  13. Ragavan says:

    Healthy discussion:

    My view

    The intention of the department was not to cover all biz which show below 8% to be tax audit.

    Reasons:

    1) If they intended they wud have directly amended the section 44AB a)limit is 60 lacs b) below 60 lacs and show profit less than 8% then 44AB applicable.

    2) The widening of 44AD to all business is to promote small enterprises do take this a sopportunity to get taxes paid.

    We mistake this and think it is amended like 44AD ll control all provisions and all r covered by 44AD if go below 8%

  14. Nagesh Garg says:

    Dear Sir

    My friend is a professional who had received Rs. 75,000/- as gross receipt in previous year, he has filed his income tax return with profit of Rs. 4100/- and no tax audit was made. would it be scrutined compulsory or not and what should i do?

    Thanks & regards
    Nagesh Garg

  15. Nagesh Garg says:

    Dear Sir

    my business is readymade garments of wholesale. A.y. 2011-12,my sales is 42 lacs and profit is shown 5.5% and no audit was made. Now i found, it should be 8% u/s 44AD or tax audit is compulsory which i have filed my return.
    can u please advice what should i do, can it will be scrutinised or any other action.

  16. Venu Madhav says:

    sir,
    I am a wholesale dealer in general goods. The Net Sales for the Fin.Year 2010-11 is Rs.48 Lakhs. My Net profit margin is below 8%.I want to know, whether I am liable for tax audit u/s 44AB, and if so, how can i escape from such audit. kindly help me in these matter.

  17. Murli Krishnamurthy says:

    Dear all,

    The provision of the new Sec.44 AD is very skewed.

    Imagine a commission agent who gets 59 lakhs as receipt during the year on sale of property, mutual funds etc.

    He hardly would have any expense and thus the entire 59 lakhs minus overhead ( for purposes of discussions, let us put it at 10%) of Rs.5.9 lakhs would be his income, amounting to 5310000.

    If he were to opt for the presumptive taxation u/s.44AD, his income declared would be Rs.472000/-.

    This would leave an undisclosed income of Rs.48,38,000/-.

    The section clearly says that only if your income is less than 8% of the recipts or turnover do you need to maintain books of accounts. You start the year under the presumption that your income would be less than Rs.60 Lakhs and lo behold! by a quirk of fate, the income crosses Rs.60 lakhs in March.2011. Will he have to fabricate the books and present them for audit in March.2011?

    Thus, if your income is more than 8% of your receipt, you could expose yourself to “undisclosed income”. If your income is below 8% you are subject to tax audit.
    If your income is exactly 8%, then you are O.K.

    This amendment to include all business u/s.44AD was made in the finance Act.2009.Finance ACt 2010 enhanced the amount of the threshhold limit to Rs.60 Lakhs.

    Thus the mandarins in the finance ministry had ample time to gauge the impact of this section on a case like the one above mentioned.

    Since no amendment was made in the subsequent finance bill, the finance minister must have allowed the big fish as in the above case to get away with murder under presumptive taxation, in the hope that the loss of revenue in cases as above would be more than offset by bringing in a lot more of assessees under the tax net. This would result in broadening the tax base.

    Though the provision is meant to broaden the tax base by bringing in a lot more of assessees. But in effect, it lets the big fish go scot free, while getting the smaller fish to pay up more.

    Now imagine in the above case, the assessee has been paying taxes of over Rs.10 lakh every year for the past 10 years. This year, he pays no tax or marginal tax under presumptive taxation. will this anomally not throw up on the computer? Will he be brought under scrutiny?

    Can search proceedings be initiated to gather information on “undisclosed” income?

    Will somebody throw some light on the above issues

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