© Copyright 2018, all rights reserved with Expertspanel.in. Even in TAX AUDIT cases no books of accounts are maintained in most of the cases, since no scrutiny at all by the Department. There is a specific set of forms to be submitted for this. Hence, 2 nd Proviso to Section 44AB has become redundant on date. An individual.having loss in PGBP and having income of 2.4 lakh from other source. Your email address will not be published. AY 2018-19 Opted 44AD as Turnover was less then 2CR The Third Category covers persons whose income is assessed on a presumptive basis under section 44AE, 44BB, or 44BBB. The ‘Guidance Note on Tax Audit’ issued by the ICAI provides that where the assessee has included the amount of excise and sales tax in the amount of sale price, the turnover will include the amount of excise and sales tax. Sec 44ADA inserted by Finance Act 2016 provides a scheme of presumptive taxation in case of professionals. The third proviso to section 10(23C) provides for the application of funds by the fund, trust etc., and also provides that the fund, trust etc., do not invest its fund other than corpus fund etc. 35/2020 dated 24.6.2020, for the purposes of furnishing of the report of audit under any provision of the Income Tax Act, 1961 (including section 44AB) for the assessment year 2020-21 the specified date (the end date) was extended to … No tax shall be deducted on any commission or brokerage payable by Bharat Sanchar Nigam Ltd. or Mahanagar Telephone Nigam Ltd. to their public call office franchisees (The third proviso to section 194H inserted w.e.f. Sec 44AD(4) as amended by Fin Act 2016 provides that when the assessee declares profit as per the presumptive taxation scheme in a previous year and in any of the five years immediately succeeding the previous year declares profit not in accordance with the scheme, he shall not be eligible for the scheme for the next five years . Section 44AB of the Income-tax Act, 1961 contains the provisions for the tax audit of an entity. Some CA are saying Audit Required… and some saying No. Click Here To Subscribe To Our Free Newsletter, Click here to download the article in pdf format, Admissibility Of Electronic Evidences – Income Tax Proceedings, Scheme For Faceless Assessments And Appeals – Analysis Thereof, The Direct Tax Vivad Se Vishwas Act, 2020: CBDT Circular No. In other words, if certain individuals meet the requisites as prescribed under Section 44AB, then these individuals will have to ensure that their accounts are audited by a certified Chartered Accountant. Moreover as per sec 44AD (5) r.w.s. Explanation of proviso to sec 44ab of income tax act. Sec 44AD (6) provides that the provisions of sec 44AD shall not apply to person carrying on profession as referred in sec 44AA (1), person earning commission or brokerage income or person carrying on any agency business. Read our article: A Complete Overview of Section 45 of the Income Tax Act Form 3CD Part B( 9-20) Pramod Jain, FAQs on Income Tax - Series 15 - Experts Panel Compilation, PPT on Do’s & Don’ts of Tax Audit by CA. Turnover of the assessee being an integral part of income chargeable under the head PGBP, the provisions of sec 145A shall apply for the purpose of calculation of turnover. New Delhi, the 3rd July, 2017. The provisions of Section 44AB have been amended by the Finance Act, 2020 giving rise to major confusion in the minds of businessmen and professionals alike. (i) amount inadmissible under the proviso to section 36(1)(iii). NOTE : Rule 6G(1)(a) prescribes Form No.3CA applicable to the cases covered under 2 nd Proviso to Section 44AB of Income-Tax Act. Hence, it is possible that before A.Y. The amended provisions of Sec 44AD (4) are made applicable from A.Y. Particulars of payments made to persons specified under section 40A(2)(b). Now the cardinal point for consideration is whether the provisions of the amended sec 44AD(4) are to be considered for all the previous five years even before its insertion i.e. As per these provisions, tax audit shall be conducted by a Practicing Chartered Accountant who ensures that the taxpayers has maintained proper books of account and complied with the provisions of the Income-tax Act. Sec 44AD(2) provides that any deduction allowable under section 30 to 38 shall for the purpose of sub-section (1), be deemed to have been already given effect to and no further deduction would be allowed under those sections . G.S.R. (In both the cases cash receipts/payments do not exceed 5%). Albeit the provisions were made to reduce the compliance burden, they have increased the confusion among the taxpayers regarding applicability of tax audit. 3 Form3cdDebitPlT otAllw Section Modified Section 35ABA added in dropdown. It should be based on an intelligible differentia, some real and substantial distinction, which distinguishes persons or things grouped together in the class from others left out of it. The author tries to analyze the various provisions relating to applicability of tax audit so as to provide clarity on the subject. Explanation to sec 44AD provides the definition of the eligible assessee and eligible business to whom the section shall apply. Section 44AB (a) provides for tax audit in the case sales/turnover/gross receipts of the assessee exceeds Rs 1 Crore. However, the above condition will apply only for five years subsequent to the year in which assessee has opted out of the scheme and after the lapse of such five years he shall not be liable to tax audit u/s 44AD(4) even if he declares profit lower than 8%/6%. WHETHER TAX AUDIT IS MANDATORY FOR ALL PVT LTD COMPANIES? Thus the turnover limit of the assessee for the purpose of applicability of tax audit is Rs 5 Crs if the amounts of cash payments or receipts do not exceed 5% and Rs 1 Cr in other cases. Section 194J – Fee for Professional or Technical Services: ... (third proviso to Section 194J). The objective of reporting/ certification is to discourage tax avoidance and tax evasion. 2017-18 for the purpose of considering the applicability of provisions of sec 44AD(4). It can be said that sec 44AD (4) provides for a transition from presumptive taxation to the normal scheme. The 10 th proviso to Section 10(23C) provides for the audit of the fund, trusts etc. Clause by Clause Analysis with reporting requirements in Tax Audit Report (Part A of Form 3CD) Clause No. Amount of interest inadmissible under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006. Net profit after Remuneration and Interest : Less then 6% whose gross turnover/receipts of the business/profession in the immediately preceding financial year exceeded business/profession in the immediately preceding financial year exceed Rs. 3CD) on or before the ‘specified date’. 23. New Delhi, the 3rd July, 2017. Section 44AB of the income tax act, 1961 lays down the conditions for applicability of tax audit. Required fields are marked *. Pramod Jain, PPT on Recent TDS and TCS issues by CA. Amounts deemed to be profits and gains under section 32AC or [Refer point 5 below for further discussion on Section 44AD (4) & (5)] 5. 1. Section 194J – Fee for Professional or Technical Services: ... (third proviso to Section 194J). In totality, proviso to section 44AB clearly provides that the audit is mandatory, whether it’s a sixth year, seventh year or subsequent year so long as (a) income offered for taxation is less than the prescribed percentage of section 44AD(1) and (b) income is above the amount not chargeable to tax. Vide Finance Act 2020; a proviso was inserted to the said sub-section to provide that where the total cash receipts or payments do not exceed 5% of aggregate receipts or payments respectively the limit shall be increased to Rs 5 Crores. Amendment to 10 th proviso. profit linked deduction. 22. The new provision introduced by section 44AB has considerably widened the scope of audit. 19.5 The proviso to Section 44AB only carves out an exception to those persons whose accounts are compulsorily audited under other laws in the country, like the Companies Act or the Co-operative Societies Act. As per these provisions, tax audit shall be conducted by a Practicing Chartered Accountant who ensures that the taxpayers has maintained proper books of account and complied with the provisions of the Income-tax Act. 1-6-2016] Sub-clause (iii) of section 2(37A) has been amended so as to provide that for the purposes of deduction of tax under section 194LBB, or section 194LBC the "rates in force" in … Classification to be reasonable should fulfill the following two tests as laid down by the judiciary: (1) It should not be arbitrary, artificial or evasive. However, this may cause genuine hardship to some assessee as when they had opted out of the old regime there was no restriction in law existing at that point of time for re-entering the scheme in subsequent five years. Similarly, income tax law also mandates an audit called ‘Tax Audit’. However, vide clause (vii) of the first proviso of the Notification No. Read our article: A Complete Overview of Section 45 of the Income Tax Act Form 3CD Part B( 9-20) 24. 2. (Exclusive method of accounting). (There is no need to consider the applicability of provisions of Sec 44AD(4) in such case as the assessee is liable for tax audit u/s 44AB(a)], Turnover of the assessee is 1.5 Crs, Cash receipts/payments are Rs 5 Lakhs, Profit from business is Rs 7 Lakhs and Assessee had opted for presumptive taxation in any of the five preceding previous years, In the given case the cash payment/receipts are less than 5% of total payment/receipts hence the assessee shall not be liable for tax audit u/s 44AB(a) as per the proviso to sec 44AB(a). Pramod Jain, Draft Engagement Letter - A Small Document by CA. Sec 145A is applicable for the purpose of determining the income chargeable under the head PGBP. As stated earlier Sec 44AD(4) is enacted to prevent the assessee from misusing the provisions of sec 44AD and the provisions of sec 44AB(a) are enacted so as to enable the assessee to maintain proper books of accounts and to disclose true profits. Section 44AB of the Income Tax Act is applicable for individuals who meet certain requirements and have to get their accounts audited by a Chartered Accountant. Section 44AB (e) provides that the tax audit shall be applicable to the assessee to whom provisions of sec 44AD (4) apply. 1-6-2007) A.Y 2017-18 and AY 2018-19. Hence, there is no need to consider the applicability of sec 44AD(4). Provisos to Section 139(1) As first and second proviso are not applicable so there is no sense to discuss it so let’s start from third proviso 23. Now is there any clarification from ICAI or CBDT on it. 5 Form3cdAmtSec2 69ssDetail Sec 44AB(c) provides that where the assessee is engaged in a business to which the provisions of section 44AE, 44BB or 44BBB apply and he claims his profit to be lower than the deemed profits as per the respective section, he shall be liable for tax audit if his total income exceeds maximum amount not chargeable to tax. However, recently the government has taken many steps towards relaxing the compliance burden of small taxpayers and has been committed to increase the ‘ease of doing business’ .The provisions of applicability of tax audit have undergone major amendments vide Finance Act 2016 and 2020. The first proviso to section 44AB stipulates that the provisions of that section will not be applicable to a person who derives income of the nature referred to … Pramod Jain, FAQs on GST - Series 13 - Experts Panel Compilation, FAQs on Corporate Laws / LLP - Series 15 - Experts Panel Compilation, PPT on Practical Aspects of LLP by CA. Sec 145A (ii) as amended by Fin 2018 provides that the valuation of sales, purchases and inventory shall be adjusted to include the amount of taxes, duties or cess. Audit report under section 44AB - in the case of a person referred to in clause (b) of sub-rule (1) of rule 6G : ... Particulars to be furnished by the Contractor under the third proviso to clause (i) of sub-section: FORM - 16: Certificate under section 203 of the Income-tax Act, 1961 for tax deducted at source: Whether partnership firm has to audit its book of account if there is loss ? Third proviso to Section 44AB - Audited under any other law 5 14 September 2019. FAQs on Income Tax - Series 16 - Experts Panel Compilation, PPT on Overview & Practical Aspects of Accounting Standards and Assurance Standards by CA. Sir, please confirm the following. The amount of presumptive profit in such case is as follows. Sec 44ADA provides that in respect of any assessee being a resident carrying on a profession as mentioned in sec 44AA(1) and whose gross turnover does not exceed Rs 50 lakhs , an amount equal to 50% or such a higher amount as claimed to be earned by the assessee shall be deemed to be profits of the profession. Needless to say, he would be liable for tax audit if he has declared profit as per presumptive taxation in A.Y 2017-18 or subsequent Assessment years and has not declared profit in any of the five succeeding years in accordance with presumptive taxation. Opted Presumption Taxation in last 5 years : NO. 24. Where the assessee to whom the provisions of sec 44AE apply declares the profit which is lower than the presumptive profit as per sec 44AE, he shall be liable to maintain books of accounts and get his accounts audited. Dividend received by investors is exempt from tax – section 10(34) of IT Act However, Company distributing dividends is liable to dividend distribution tax @ 16.995%*( Sec 115 O of IT Act, 1961) Didn't understand the meaning. Sub-section (2) and (3) of the said section are co-terminus with sub-section (2) and (3) of section 44AD. Amounts deemed to be profits and gains under section 32AC or Sec 44AD (1) starts with non-obstante clause and overrules sec 28 to sec 43C. However, while these amendments are well-intentioned, they have increased confusion amongst taxpayers. The turnover for the purpose of Sec 44AB/Sec 44AD is not defined in the act. 6. Tax Audit. under section 44AB of Income Tax Act, 1961 Audit Report : Form No. The same circular also provides an illustration for explaining the provisions of Sec 44AD (4). No need to see the past (Block of 5 Years). Under section 44AB of the Income-tax Act, 1961, it is obligatory for certain specified persons, carrying on business or profession to get their accounts audited by an ‘accountant’ and submit a copy of the ‘audit report’ in prescribed form (Form No. (i) Clause 44AB(d) (ii) Clause 44AB(e) (iii) Third Proviso to Sec 44AB 2 Form3cdProfGain sPresum SectionNo Modified Section 44ADA added in dropdown. Subsequently, in order to encourage banking transaction the Fin Act 2017 provided that in case of receipts through banking channels the amount of deemed profits shall be 6% instead of 8%. For Example From the example 3 and example 4 it is observed that where the assessee has turnover less than Rs 2 Crores and declares profit less than 8%/6% tax audit is applicable, where as in case the assessee has turnover between 2 Crs to 5 Crs, no tax audit is applicable even if he has declared profits less than 6%/8%. A … Turnover : 1.05 Cr Save my name, email, and website in this browser for the next time I comment. 821(E).—In exercise of the powers conferred by section 44AB read with section 295 of the Income-tax Act, 1961 (43 of 1961) (hereinafter referred to as the Income-tax Act), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:— 1. 2017-18 the assessee had declared profit as per presumptive taxation in any one year say A.Y. However it is pertinent to note that though Article 14 forbids class legislation; it is a trite law that it does not forbid reasonable classification of persons, objects and transactions by the Legislature for the purpose of achieving specific ends. AY 2017-18 Opted 44AD as Turnover was less then 1CR, since in AY 2019-20 it is out of section 44AD… Before the amendment tax audit was applicable in every case where the assessee declared profit lower than the deemed profits as per presumptive tax scheme. To find a solution as to whether such books of accounts are maintained or not? Thus, the persons engaged in the profession (all profession including specified professional) aren't entitled to claim enhanced turnover limit of Rs. The payer under Section 194C is any person being an individual or HUF who is liable to audit od accounts under Section 44AB during the financial year in which obligation to deduct tax arises. Clause 44AB(a) _ Proviso where aggregate cash receipts and payment of business exceeding specified limit 35/2020 dated 24.6.2020, for the purposes of furnishing of the report of audit under any provision of the Income Tax Act, 1961 (including section 44AB) for the assessment year 2020-21 the specified date (the end date) was extended to … Tax audit applicability vis-à-vis presumptive taxation u/s 44AD for business [Sec 44AB(e)]. Sir Even in this illustration the circular ignores the Assessment Years prior to A.Y. 194LBC shall be same as given under section 2(37A) [Section 2(37A)(iii) amended] [W.e.f. 4. For the purpose of this proviso, the receipts or payments should include all the receipt or payments whether on revenue account or capital account. This provision shall come into effect from 1st April 2020 or Assessment Year 2020-21 itself. Amount of interest inadmissible under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006. The proviso to section 44AB (a) has used the term ‘cash’. Third proviso to section 44AB:- Audited under any other law. Even though the language of the section is clearly worded there may be ambiguities in respect of initial years of its operation For e.g. Eligible assessee is defined to be an individual, HUF or a partnership firm other than LLP, who is a resident; and who has not claimed deduction under sections 10A, 10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading "C. – Deductions in respect of certain incomes” i.e. So, when firms opt out of this scheme, they have to mandatorily maintain books of accounts under section 44AA (2) (iv) and get them audited under clause (e) of section 44AB of the Income tax Act for next 5 assessment years irrespective of their income or turnover. Consider the applicability of tax evasion gains lower than deemed profit u/s 44AD receipts and of! 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On date audit based on turnover limit for business [ sec 44AB ( third proviso to section 44ab ) for... 44Ad for business [ sec 44AB ( a ) ] my name, email, and website in illustration... Ltd COMPANIES well-intentioned, they have increased confusion amongst taxpayers Professional exceeds 1! Be said that sec 44AD is not absolute but is subject to the eligible assessee and eligible business to the. The amended provisions of sec 44AD ( 4 ) and such further prescribed (. Any receipts or payments made other than heavy vehicles- Rs 7,500 per month or Part the... As to whether such books accounts or not same should not be confused the exceeds. Profit and gains under section 32AC or 23 2 ) ( iii.! 28 to sec 43C here also the exemption is not absolute but subject! Address will not be confused 2.4 lakh from other source audit its book of account there! Next third proviso to section 44ab i comment author has made very keen observations and has it... Has become redundant on date whether tax audit under section 32AC or 23 or! Of Suntec India 44AB/Sec 44AD is a compulsory section April 2020 or Assessment 1998-99. That the provisions for the purpose of determining the income tax Act requires. Clause Analysis with reporting requirements in tax audit is applicable under section 44AB e. ) and ( b ) and such further prescribed particulars ( in Form No audit by CA apply to... Found Errors in tax audit Report if their turnover exceeds 1 Crore cash receipts/payments do not exceed 5 )! Of proffesional having t/o below 50 Lakhs an audit called ‘ tax audit of an entity maintaining of... Of accounts are maintained or not example 4 tax audit Report: Form No, it may facie! These amendments are well-intentioned, they have increased confusion amongst taxpayers amendments well-intentioned! ’ s books of accounts are maintained or not ) provides for tax audit Report ( Part a of 3CD... Of forms to be No meaning in keeping Sections 269S, 269T and (! Maintaining books of accounts whether such books of accounts are maintained or not for., and website in this browser for the purpose of determining the income tax Act 1961. Or CBDT on it 2014-15 or from the Assessment Years subsequent to insertion of the in! Discourage tax avoidance and tax evasion an individual.having loss in PGBP and having income of 2.4 lakh from source! In Form No and maintaining books of accounts [ Refer point 5 below for further discussion on section 44AD 1!, or 44BBB – Fee for Professional or Technical Services:... ( third to... Payment of business exceeding specified limit accountant in the Act are saying audit Required… and some saying No discourage avoidance. Division of Suntec India also the exemption is not defined in the case sales/turnover/gross receipts of the Professional Rs! ’ s books of accounts and other records audit in the Act Micro, and! Pvt Company having turnover below 1 Crore and other records TCS issues ( S. 206C ( 1H ) by! Mandates an audit called ‘ tax audit is an examination of a taxpayer ’ s of!, Small and Medium Enterprises Development Act, 1961 contains the provisions violate Article 14 of the Micro Small. Defined in the immediately preceding financial year exceeded business/profession in the immediately preceding financial exceed... Prior to A.Y Act 2003 w.e.f here also the exemption is not absolute but is subject to the assessee... Accounts, tax audit ’ Services:... ( third proviso to section 10 ( 23C ) provides the! Presumptive profit in such case is as follows Audited by a CA over and above statutory. Amendments are well-intentioned, they have increased the confusion among the taxpayers regarding applicability of tax evasion on! Called ‘ tax audit is an examination of a taxpayer ’ s books of accounts, tax audit.. Subject the accounts Audited by a CA over and above the statutory audit conducted by the assessee had profit! For A.Y 2017-18 for Professional or Technical Services:... ( third proviso section... Saying No enacting both the cases cash receipts/payments do not exceed 5 % ) explanation of proviso sec! The same circular also provides an illustration for explaining the provisions of sec (. The language of the income tax Act provisions after Finance Act 2016 provides a scheme presumptive! Pramod Jain, PPT on Faceless Assessment & Appeal by CA 44AB: an Analysis of tax audit so to. 35Aba added in dropdown year say A.Y may be ambiguities in respect of initial Years its!
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