Understand the comparison of Tax Audit (Section 44AB) with Sections 44AD and 44ADA post Finance Bill 2023. Learn the eligibility criteria, conditions, and benefits of each section.
The comparison of Section 44AB, 44AD and 44ADA will clarify the position of law after Finance Bill 2023
Section 44AB
Applicable To :
- Any Person carrying on Business if his Total Sales/Turnover exceeds 1 crore in the Previous Year
- Any Person carrying on Profession if his Gross Receipts in Profession exceeds 50 lacs in the Previous Year
However above 2 points are not applicable if Assessee declares income under Sec 44AD or 44ADA. i.e Tax audit will not be applicable if Assessee opts for Sec 44AD or 44ADA even though turnover in Business/Profession exceeds 1 cr/ 50lacs respectively
What are conditions in Section 44AD?
If the turnover of Assessee in Previous year is upto 2 crores, he can claim Profit to be 6% of Turnover and he need not maintain books of accounts
However only specified Assessees are eligible under section 44AD. i.e. an Individual , HUF or Partnership who is Resident
LLP is specifically excluded from Eligible Assessee
Following examples will clarify the position:
- An Individual has Turnover of 1.5 crore and he opts for 44AD and declares profit @ 6% of 1.5 crore, then audit under section 44AB will not be applicable even if turnover more than 1 crore (limit prescribed u/s 44AB)
- An Individual has Turnover of 1.5 crore and he declares profit @ 5% of 1.5 crore, then audit under section 44AB will be applicable and Sec 44AD will not be applicable
- An Individual has Turnover of 90 lacs and he declares profit @ 6% of 90 lacs, then he can opt for Sec 44AD and audit under section 44AB will not be applicable
- An Individual has Turnover of 90 lacs and he declares profit @ 5% of 90 lacs, then he cannot opt for Sec 44AD and audit under section 44AB will be applicable
The above examples will apply if Assessee is HUF or Partnership firms as well
A company or LLP having turnover of 1.5 crore will always get covered under audit as per section 44AB
Specific conditions for Sec 44AD to be applicable :
Assessee should be Individual/HUF/Partnership Firm
Business of Assessee should not be :
- Commission Income
- Any other Agency business
- Transport business covered under Section 44AE
- Professions as per Sec 44AA
Apart from the above all four, all businesses are covered
Turnover/ Gross Receipts should not exceed 2 crores
Profits declared should be
6% of Turnover if receipts by account payee cheque/draft or ECS
8% of Turnover if any other mode
- Turnover > 2 cr but < 3 cr but :
- Cash receipts < 5% of Turnover
Then 44AD will Apply and Profit @ 6% can be declared (Finance Bill 2023)
Section 44AD overrides Section 44AB, hence if above conditions satisfied , then Sec 44AB not applicable even if Turnover more than 1 crore
Ex 1 : Turnover 2.5 cr , and cash receipts 10 lacs
then u/s 44AD Profit can be declared @ 6% or 8%
Ex 2: Turnover 2.5 cr , and cash receipts 13 lacs, then Sec 44AD is not applicable and audit u/s 44AB becomes applicable
Section 44ADA :
The Section lays down Assessee liable to maintain books as per Section 44AA (Specified Professions) can declare Profit @ 50% of Turnover if Gross Receipts from Profession < 50 lacs p.a.
Assessee? Individual or Partnership Firm (LLP not covered)
Turnover/ Gross Receipts should not exceed 50 lacs
Profits declared should be :
- 50% of Turnover if receipts by account payee cheque/draft or ECS
Turnover > 50 lacs but < 75 lacs but :
Cash receipts < 5% of Turnover
Then 44ADA will Apply and Profit @ 50% can be declared (Finance Bill 2023)
Section 44ADA overrides Section 44AB, hence if above conditions satisfied , then Sec 44AB not applicable even if Turnover more than 50 lacs
Ex 1 :An Individual has Turnover of 70 lacs and Cash receipts less then 5%. He can opt for 44ADA and declare profit @ 50% of 70 lacs, then audit under section 44AB will not be applicable even if turnover more than 50 lacs (limit prescribed u/s 44AB)
Ex 2 : An Individual has Turnover of 70 lacs and Cash receipts more then 5%. He cannot opt for 44ADA and audit under section 44AB will be applicable as turnover more than 50 lacs (limit prescribed u/s 44AB)
For any Clarifications , Pl leave comments
Author Bio
if loss in future and options is it manditate to file itr while getting salary 2100000 anually
Pl note that ITR is mandatory to carry forward losses. Also as you have asked about FnO losses, it is considered business loss and cannot be set off Against Salary Income. As a result, it will be carried forward. Further As it is business loss and Salary is greater than 2.5 lacs, audit u/s 44AB will be applicable
Ex 1 : Turnover 2.5 cr , and cash receipts 10 lacs then u/s 44AD Profit can be declared @ 6% or 8%
– In my opinion it is wrong, as above Rs. 2 crore turnover, 44AD is not applicable and since cash receipts are below 5% you can file normal return irrespective of % of profit (i.e.6/8% or below or above that).
Hello Madam,
Actually the rule you are suggesting is true till Finance Act 2022. However , Finance Bill 2023 has specifically amended Section 44AD covering receipts upto 3 crores if Cash receipt less than 5%.
Hence, in my opinion, turnover of 2.5 crore should get covered