44AA and 44AB were introduced for simplifying the tax compliances of people in
business & small professionals. These sections prescribe minimum agreements
such as maintenance of books & tax audits required by the entity that falls
under the provisions of this section. Maintenance of books & accounts is
not mandatory for every business. Instead, this section prescribes the criteria
that decide who needs to comply with these provisions.
44AD was introduced as the presumptive taxation scheme for the benefits of
businessmen. The primary aim for the insertion of this section is to minimize the
compliance requirement for small taxpayers of maintaining a bunch of records.
What is the Presumptive Taxation Scheme?
presumptive taxation scheme can be availed by the businesses as well as
professionals. The presumptive scheme under section 44AD can be availed by
businessmen with turnover up to INR 2 Crore that allows assesses to calculate
the tax payable on estimated income at the prescribed rates. And also, they are
relieved from complying with the provisions of section 44AA & 44AB.
Section 44AA: An Overview
Section 44AA prescribes the mandatory requirement for the maintenance of books of account for the purpose of Income Tax. This section prescribes the minimum income, types of records to be maintained & penalty for non-compliance of the provisions of this section that are discussed in quick glance hereinbelow.
- Maintenance of books of
accounts under section 44AA
- By Professionals: Assessee indulge in the following profession has to necessary
maintain the above-stated books of account:
- Technical Consultancy
- Interior Decorator
- Film artist
- Practicing CA, CS or CWA
NOTE:These professionals have to maintain these books of account compulsorily in case their Gross Receipts or Turnover exceed INR 150000 in the preceding three financial years.
- Other businesses or professions: Assessees indulge in any
other business or profession other than the stated above has to maintain the
books of accounts.
These professionals or businesses
are required to maintain these books of account compulsorily if there turnover
or profit in case:
- Gross Receipts or Turnover exceeds INR 1000000 (INR 2500000 w.e.f 2017 For Individual & HUF)
- Profit exceeds INR 120000 (INR 250000 w.e.f 2017 For Individual & HUF)
- If the assessee opts the benefits of the presumptive scheme under section 44AA, 44AE, 44BB, and 44BBB and he declare the income less than the minimum percent prescribed u/s 44AA. He has to maintain the books of accounts on a compulsory basis.
- These books are required to be maintained in every financial year for a period of 6 years.
- Defining Books of Account as per section 44AA
of accounts are the documents or records that contain all the details of the
business. It is the detail of every transaction carried on by the business
during the financial year. Books of accounts are governed by Section 44AA of
the Income Tax Act, 1961. Following are the books that are required to be
- Xerox copy of bills
& receipt of transactions exceeding INR 25,000
- Original bills &
receipt of every transaction exceeding INR 50,000.
- Penalty for
non-compliance u/s 271A
assessee failed to maintain the books of account required under section 44AA
will be penalized as per the following:
- Without international
transactions: INR 25000
- With international
transactions: 2% of the value of the international transaction.
Section 44AB- An Overview
individual who is carrying on business & profession with prescribed gain
& receipt from the business or profession is compulsorily required to get
audited all his books of account maintained under section 44AA.
- Audit of the books of accounts
An audit is compulsory for the following assessee:
- An individual who runs
the business & his turnover exceed INR 1 Crore in the previous year
- An individual who a
professional & his gross receipt exceeds INR 50 Lakhs in the previous year.
- In case an individual
has more than one business or profession, the turnover from all the units is
pooled for the requirement of this section.
- Assessing officer if
doubtful about the authenticity of the books can order special audit under section
142(2A) if he requires that there is a need for such audit due to the
complexity of accounts & volume of transactions.
- Penalty for
non-compliance u/s 271B
assessee who is required to get his books of accounts audited but doesn’t
comply the same, is subjected to the penalty at the rate of 0.5% of turnover
subject to the maximum of INR 150000.
Section 44AD- An Overview
tax department under section 44AD has framed the Presumptive Taxation Scheme
relieving small taxpayers from tedious compliance of maintaining of books &
records and the audit of the same.
Eligible assessee for the scheme under section 44ADA
of this section can be enjoyed by:
- Resident taxpayers being
- Resident HUF
- Resident Partnership
- Business whose total
turnover does not exceed INR 2 Crore in the previous year.
of the section do not apply on the following:
- Agency business
- Business with commission
income or brokerage income
- The business of hiring
or leasing of carriage.
Benefits of the scheme
are the benefits of the presumptive scheme under section 44AD that can be
availed by an eligible assessee:
- Net income for the
assessee who opts for this scheme is computed at the rate of 8% of its Total
- In case all the receipts
are from account payee cheque, through the draft or by the use of electronic
methods of a bank account or through any digital receipt.
- An assesses who opts for
the benefits under section 44AD is not required to maintain books of account
that are required to be maintained under section 44AA.
- The assessee who opts
for the benefits under section 44AD is also not required to get his accounts
audited as required under section 44AB.
Features of the presumptive taxation scheme under section 44AD
- An individual has to pay
100% of the advance tax on the 15th of every march.
- In case the income
declared is less than the 8% or 6% of turnover, then the assessee has to comply
with the provisions of section 44AA & 44AB.
- No further deductions
can be claimed by an assessee including depreciation & unabsorbed
- An individual who opts
for the presumptive scheme has to follow the scheme for continuous five years.
In case he fails to file the scheme for continuous five years, then he won’t be
able to opt for the scheme for further next five years.