There is general opinion that if an eligible assessee is opting for section 44AD and section 44ADA, he is not required to maintain books of accounts.

The requirement to maintain books of accounts is governed by section 44AA of the Income Tax Act.

As per section 44AD(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” :

As per section 44ADA(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”

Section 44AD as well as Section 44ADA is not superseding section 44AA.  As per section 44AA, maintenance of books of accounts is compulsory for following persons:

(1) Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act.

(2) Every person carrying on business or profession [not being a profession referred to in sub-section (1)] shall,—

(i) if his income from business or profession exceeds one lakh twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds ten lakh rupees in any one of the three years immediately preceding the previous year; or

(ii) where the business or profession is newly set up in any previous year, if his income from business or profession is likely to exceed one lakh twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession are or is likely to exceed ten lakh rupees, during such previous year; or

 (iii) where the profits and gains from the business are deemed to be the profits and gains of the assessee under section 44AE or section 44BB or section 44BBB, as the case may be, and the assessee has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, during such previous year; or

(iv) where the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,

Provided that in the case of a person being an individual or a Hindu undivided family, the provisions of clause (i) and clause (ii) shall have effect, as if for the words “one lakh twenty thousand rupees”, the words “two lakh fifty thousand rupees” had been substituted :

Provided further that in the case of a person being an individual or a Hindu undivided family, the provisions of clause (i) and clause (ii) shall have effect, as if for the words “ten lakh rupees”, the words “twenty-five lakh rupees” had been substituted.

Condition to applicability of section 44AA is specifically mentioned for persons covering under section 44AE, 44BB, 44BBB and 44AD. But is case of assessee covering under section 44ADA, subsection 1 of this section will be applicable. Means every professional has to maintain books of accounts even if he is covering under section 44ADA. In case of assessee covering under section 44AD, this section will be applicable only if provisions of sub- section (4) of section 44AD are applicable in his case and his income exceed the maximum amount which is not chargeable to tax.

Conclusion is that, in case of persons opting for section 44AD, maintenance of books of accounts is not compulsory but in case of professionals opting for section 44ADA, maintenance of books of accounts is compulsory as per sub- section 1 of section 44AA.

Some of the readers are bringing our attention  to  FAQ of Income Tax Department but in our view FAQs can’t substitute law. If something is clear from the reading of law, there is no need to refer FAQs. If the intention of the Department would have been to discontinue making of books of accounts, it should have been change the language written in sub section (1) of 44ADA and the language should have been like this:

Notwithstanding anything contained in sections 28 to 43C and section 44AA

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7 Comments

  1. Shiv says:

    44AD and 44ADA Come in special provisions which is presumptive basis and 44AA talks about general basis.in presumptive basis we are not able to maintain records (books of accounts).since objective of the section to insert for releif to small business from maintain books of account therefore under Section 44AD and 44ADA no need to maintain books of accounts.

  2. CA. Nagaraja Hegde says:

    Please check the FAQs published by Income tax department on the same. Its like this

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

    ​​​In case of a person engaged in a specified profession as referred in sections 44AA(1​) and opts for presumptive taxation scheme of sections 44ADA, the provision of sections 44AA relating to maintenance of books of account will not apply. In other words, if a person opt for the provisions of sections 44ADA and declares income @50% of the gross receipts, then he is not required to maintain the books of account in respect of specified profession.

    1. cavishwajeet.s@gmail.com says:

      As per my view, FAQs can’t substitute law. If something is clear from the reading of law, there is no need to refer FAQs. If the intention of the Department would have been to discontinue making of books of accounts, it should have been change the language written in sub section (1) of 44ADA and the language should have been like this:

      Notwithstanding anything contained in sections 28 to 43C and section 44AA

      1. K KARTHIK says:

        CIRCULAR NO.- 3/2017 Dated, the 20th of January, 2017
        38.4 It has also been provided that the assessee will not be required to maintain books of account under sub-section (1) of section 44AA AND
        get the accounts audited under section 44AB in respect of such income UNLESS
        the assessee claims that the profits and gains from the aforesaid profession are LOWER than the profits and gains deemed to be his income under sub-section (1) of section 44ADA and his income exceeds the maximum amount which is not chargeable to income-tax.

  3. cavishwajeet.s@gmail.com says:

    They can file ITR-4 with only required details as it is permitted by department. But income tax department can ask for books of accounts of the assessee at later stage at the time of scrutiny.

  4. CA RAHUL JAJU says:

    Does it mean that professionals ( to whom sec 44AA) is applicable, they can’t file ITR Form 4 for AY 2019-20. And even for ITR 3, he can’t disclose only 4 figures under head that REGULAR BOOKS ARE NOT MAINTAINED ?? Pls reply…

    1. cavishwajeet.s@gmail.com says:

      They can file ITR-4 with only required details as it is permitted by department. But income tax department can ask for books of accounts of the assessee at later stage at the time of scrutiny.

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