ANALYSIS OF SECTIONS 44AD & ADA
Key Points of Section 44AD
- Eligible Assessee : Resident-Individual , HUF , Partnership firm (not LLP)
- Turnover limit : Less than Rs.2 Crores (Turnover limit should becomputed on assessee’s total receipts during the year i.e,
not business or profession based receipts)
- Tax Audit applicability : 1 If Profit declared is less than 8% (or)
2.Option if opted out within 6 years (5+1) and Total
income exceeds basic exemption limit, then Tax Audit
Under Section 44AB(e) is applicable.
- Sections not applicable : Section.28 to 43C i.e., No disallowances or penalties
of those sections
- Eligible Business : Business other than the following:
- Plying, hiring, leasing of goods.
- Carrying on profession specified in S.44AA.
- Agency business
Case- 1 Explaining the applicability of Tax Audit for 44AD
Mr. A opts for 44AD for FY 2018-19 and declared profit @8%. During the FY 2019-20, he declares profit @ 5% and for the FY 2020-21 declares profit @ 9%.
| FY | OPTION TAKEN | TAX AUDIT | REMARKS |
| FY 2018-19 | 44AD | r | Profit declared >8% |
| FY 2019-20 | 44AD | a | Profit declared <8% |
| FY 2020-21 | 44AD | a | Profit not declared as per S.44AD in previous years. If profit not declared as per S.44AD, then Tax audit applicable for 5 assessment years relevant to the previous year. |
NOTE:
Tax audit is applicable only under section 44AB(e) and not under section 44AB(a) and hence the requirement of applicability of TDS provisions do not apply if the T/O does not exceed 1cr and hence TAN need not be obtained.
KEY POINTS OF SECTION 44ADA
- Applicable to –ALL types of Assessee’s resident in India
- Eligible Assessee- Professionals as per S.44AA (legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration)
- Turnover limit – Less than 50lacs
- Tax Audit applicability- If profit declared less than 50% of the gross receipts.
- Sec not applicable– 28- 43C (No disallowances or penalties of those sections)
Possible scenarios for a professional defined U/s.44AA, having income from profession & income from business.
If in case of Mr. A who is a Doctor earning consulting income from Hospitals (Professional Income), earning income form clinic (Professional Income). Mr. A also earns income from Pharmacy.
| Scenario | Income From Hospitals | Income from Clinic | Income From Pharmacy | Total Turnover | Remarks |
| 1 | 20 lacs | 10 lacs | 5 lacs | 35lacs | Total TO < 50 lacs. If profits declared on 35 lacs is @50% or more then Section 44ADA is applicable. or If profits declared on 35lacs is less than 50% then Tax audit U/s.44AB (d) is applicable. |
| 2 | 40 lacs | 5 lacs | 10 lacs | 55 lacs | Total TO > 50 lacs. Section 44ADA is not applicable even though gross receipts from profession is less than 50lacs. Section 44AB (b) is applicable. TAN registration is not required in such scenario. |
| 3 | 40 lacs | 15 lacs | 2 lacs | 57 lacs | Total TO > 50 lacs. Section 44ADA is not applicable. Section 44AB (b) is applicable since his gross receipts in profession exceeds 50lacs. TAN registration is mandatory in such scenario. |
Special provision for computing profits and gains of profession on presumptive basis.
44ADA. (1) Notwithstanding……….., who is engaged in a profession referred to in……….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, …………… 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”.
Article by
Thipshika CA (Final)
