Tax Audit (44AB) and Section 44AD and Section 44ADA Comparison

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