It is general opinion regarding section 44AD that if turnover is less than 1 crore/ 50 lakhs, and claimed profit is less than 8%/6%, then one has to get its books of account audited.

Before Finance Act, 2016 following conditions was mentioned u/s 44AD(5):

“Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business 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 (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.

But From Finance Act, 2016 this condition was changed in case of section 44AD. As per sub-section 4 and sub-section 5 amended by Finance Act, 2016 following conditions were inserted:

(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).

(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.

As per the new conditions if an assessee follow section 44AD in any assessment year then he has to follow compulsorily 44AD for five consecutive assessment years, otherwise he shall not be able to claim benefit of this section for next five assessment years. And if in next five assessment year his income exceed the maximum amount which is not chargeable to income tax, he shall be required to keep and maintain books of accounts and required to get them audited.

If an eligible assessee declares profit as per section 44AD, then after 5 years it may declare lower profit u/s 44AD without getting its books of accounts audited. In this case he has to maintain books of accounts as per section 44AB if applicable.

In case of an eligible assessee, who has started its business first time, he may declare profit lower than 8%/6% without getting audited its books of accounts. In this case he has to maintain books of accounts as per section 44AB if applicable.

Means if someone has opted for 44AD once, he has to comply with the provision of 44AD for five consecutive years. Otherwise audit will be required. In any other case if turnover is less than 1 Cr. audit is not required.

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5 Comments

  1. अमित says:

    अगर आपको बैंक से लोन लेना है तो बैंक audited बैलेंस शीट ही मांगते हैं

  2. Omkar says:

    One of my client filed return under section 44ad in A.Y 17-18 ,due to turnover of 1.5 cr in 18-19 we audited him ,but now in A.Y 19-20 ,his t/o is 80 Lakh ,now do i need to audit him this year also ,and if not ,what’s the procedure?

  3. CA Pawan Nagpal says:

    In practical world it is generally observed that if the actual profit is less than 8%/6% and the income is less than maximum amount not chargeable to tax than also he is required to get his bookes audited. Even though it is written that he has to get its books audited when income is MORE than the maximum amount chargeable to tax. Further every tax calculating software do not allow to file return w/o audit report.

    So kindly explain do we actually need to do audit of such clients?

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