Analysis of Section 44AA, 44AB, 44AD of Income Tax Act | May 2014 Result Date CA IPCC, CA Final
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Analysis of Section 44AA, 44AB, 44AD of Income Tax Act

By- CA Tarannun Khatri


44AA: MAINTENANCE OF BOOKS OF ACCOUNTS


WHO SHOULD MAINTAIN:

a. If a person  carrying on business / profession and income from such business/ profession has exceeded 1,20,000 in any of the three p.y. or current p.y. (for  newly set up business)

b. If turnover / gross receipts has exceeded Rs 10 lacks in any of the three p.y. or current p.y. (for  newly set up business)

For business set up in p.y.12-13 and  during that year turnover has exceeded 10 lacks or income has exceeded  1,20,000, a person should maintain books of accounts.

Other cases: If turnover or income has exceeded those limits  in p.y. 09-10 or  10-11 or 11-12, a person should maintain books of accounts.

Note: limits of 1,20,000 should be increased to 1,50,000 for professions notified in rule 6f.

Where assessee is showing profit under presumptive taxation u/s 44AA, 44BB, 44BBB, he is showing lower profit than prescribed in those sections .

Where assessee is showing profit under presumptive taxation u/s 44AD , he is showing lower profit than prescribed in that section and DURING THAT PREVIOUS YEAR HIS INCOME EXCEEDED THE BASIC EXEMPTION LIMIT.

So if assessee has income lower than basic exemption limit or loss , he can show profit less than 8% without maintaining books of accounts.

BOOKS TO BE MAINTAINED:

Cash book
Ledger
Journal
Bills of income for amounts exceeding Rs. 25
Bills of exp for amounts exceeding Rs. 50
Medical practitioner should maintain daily cash register and inventory record .

THE BOOKS SHOULD BE MAINTAIN FOR A PERIOD OF SIX YEARS FROM THE END OF THE ASSESSMENT YEAR OR IF THERE IS REASSESSMENT, UNTIL COMPLETION OF RE ASSESSMENT.

Sec 44 AB : AUDIT OF ACCOUNTS

WHO HAVE TO MAKE HIS ACCOUNT AUDITED?

Person carrying on business and total sales, turnover or receipts has exceeded 1 crore rs. In p.y.

Person carrying on profession and gross receipts has exceeded 25 lacks rupees in previous year

Where assessee is showing profit under presumptive taxation u/s 44AA, 44BB, 44BBB, he is showing lower profit than prescribed in those sections .

Where assessee is showing profit under presumptive taxation u/s 44AD, he is showing lower profit than prescribed in that section and DURING THAT PREVIOUS YEAR HIS INCOME EXCEEDED THE BASIC EXEMPTION LIMIT.

So if assessee has income lower than basic exemption limit or loss , he can show profit less than 8% without making his account audited.

HOW TO CALCULATE TURNOVER:

When 2 business: clubbed the income of both business

When 1 business and 1 profession: get the account audited if turnover of the business exceeds 1 crore or receipt of the profession exceed 25 lacks.

Note: Receipt should be from business or profession and not from the sale of fixed assets. While calculating turnover for agents, consider only commission charges.

In calculating turnover u/s 44AA and 44AB, turnover u/s 44AE shall be excluded.

LAST DATE FOR AUDIT IS 30 SEPTEMBER.

PENALTY: Non compliance will attract penalty of half percent of turnover or 1,50,000 whichever is lower.

SEC 44AD: PRESUMPTIVE TAXATION

It is only for individual, HUF and firm (not LLP) Carrying on business except business u/s 44AE.

ASSESSEE ‘s gross receipt should not exceed 1 crore.

Assessee can declare 8% or higher sum of his gross receipt as his income under  this section and he has no need to maintain accounts or get the accounts audited.

So it assessee is declaring lower income than 8% and his total income exceeded basic exemption limit , he should get his accounts audited by CA u/s 44AB.

Advance tax provision is not applicable to the assessee following sec 44AD.

ASSESSEE cannot get deduction u/s 10AA AND business related deduction of chapter 6A. He can get deduction u/s 80c to 80G.

All deduction u/s 30 to 38 and depreciation shall be deemed to have been allowed.

Written down value of assets shall be calculated as if the depreciation has been actually allowed.

SALARY AND INTEREST of the partners are to be allowed after calculating profit under this section.

If any material supplied by buyer, it will not be form part of gross receipt.

Assessee cannot carry forward unabsorbed depreciation or business loss.

This section is not applicable to business man earning commission income or agency income.

I have tried to cover main points. I hope it will be helpful for beginners.

Thanks for reading

CA Tarannum Khatri

2 comments:

  1. Hello ,

    I have gross receipts of Rs.30 Lacs. All Cheque + Cash payments into bank account
    I have only 10 Lacs business expenses (including purchases).
    So is it ok if I pay tax on only .08 * 30 = 2.4 Lac rupees - net profit.
    Or do I have to pay tax on 20 lac.

    The balance 20 lac will remain in my bank account.

    Also can you help differentiate between profession and service business.

    ReplyDelete