Simplifying Section 44AA, 44AB, 44AD

Sec 44AA:- Maintenance Of Accounts By Certain Persons Carrying On Business Or Profession

• Prescribed Books: - In case of Specified Profession if Gross Receipts exceed Rs.150000/- in all 3 years immediately preceding previous year.
• Any Books of Accounts: -
  • In case of Specified Profession if Gross Receipts are less than 150000/- in any of 3 years immediately preceding previous year then assessee has to maintain books of accounts.
  • In case of Non Specified Profession if Total income exceed Rs.120000/- or Gross Receipts exceed Rs .1000000/- in any of 3 years immediately preceding previous year.
  • Assessees covered u/s 44AD/44AE/44BB/44BBB are also required to maintain books if they claim that their income will be less than limit specified in respective section. e.g. u/s 44 AD limit is 8 % of Gross Receipt.
  • U/s Sec 44 AD maintenance of books is required when two conditions are satisfied:-
    1. Claim lower profit than limit specified u/s 44AD
    2. Total Income exceed basic exemption limit.
• No Books: - In all other cases.

Prescribed Books means:- Cash Book, Journal, Ledger etc. In case of Medical Profession, Daily Case registers in Form No. 3C and Stock Register are also to be maintained.

Specified Profession means: - Medical/Legal/Engineering/Architect/Accountancy/Technical Consultancy/Interior Decoration/Authorized Representation/Film Artist/C.S/Information Technology.

Any Books of Accounts means:-Books which enables A.O. to compute Assessee's Total Income.

• Books of accounts are required to be maintained for 6 Years from the end of relevant Assessment Year.

Sec 44AB:- Audit Of Accounts Of Certain Persons Carrying On Business Or Profession

Recommended Reading:- Decoding Form 3CD

• Audit of accounts is compulsory;
  • In case of Business: - If Total Sales/ Gross Turnover exceeds Rs 1 Crore in any previous Year.
  • In case of Profession: - If Gross Receipts exceeds Rs 25 Lakh in any previous Year.
  • Assessees covered u/s 44AD/44AE/44BB/44BBB are also required to audit of accounts if they claim that their profit will be less than limit specified in respective section. e.g. u/s 44 AD Audit of accounts is required when two conditions are satisfied:-
    1. Claim lower profit than limit specified u/s 44AD (Limit of 8%)
    2. Total Income exceed basic exemption limit.
• For calculation of turnover u/s 44AB, the turnover u/s 44AD/44AE shall be excluded.
• Above limit is assessee wise and not business /profession wise e.g. If assessee has two business than turnover will be summed up.
• Audit Date:-
  • Normally 30th September.
  • In case, if assessee has International transactions, 30th November.
• Audit Report Form:- 3CA if audit required under any other law. 3CB if not covered above means covered under Income Tax.
  
  

Sec 44AD:- Income Of Any Business Presumed To Be 8 %

• Applicability:-
  Eligible Assessee means Resident:- Individual/HUF/Partnership Firm
  1. Eligible Business:- All types of business except business covered u/s 44AE/Agency/Commission/Brokerage.
  2. Turnover does not exceed Rs 1 Crore in Previous Year.If all above conditions are satisfied then assessee can declare estimated income from business:- 8% of total turnover or more.
• Non Applicability:-
  1. Non Resident:-Individual/HUF/Partnership firm.
  2. Company/LLP/BOI /AOP.
  3. Turnover exceeds Rs 1 Crore in Previous Year.
  4. Professional
  5. Assessee has not claimed deductions u/s 10A/10AA/10B/10BA/80HH/80RRB in relevant previous year.
• If Assessee opts for Sec 44AD and declares his income as 8 % of total turnover or more he should consider following points:-
  1. Not allowed to claim any expenses or depreciation i.e. expenses covered u/s 30 to 38.
  2. Remuneration or Interest paid to partner u/s 40(b) shall be allowed as deduction.
  3. Maintenance of books of accounts u/s 44AA and Audit u/s 44AB not required.
  4. Advance Tax rule does not apply.
  5. If there is disallowance of any expenses it will be assumed that it has been already made in calculation of estimated profit.
• Applicability of Sec 44AA & 44AB:-
  1. Claim lower profit than limit specified u/s 44AD
  2. Total Income exceeds basic exemption limit.
  If assessee claim lower profit but his total income is lower than exemption limit then Sec 44AA & 44AB does not apply.

Example:

1.Assessee has two Business

	Retail	+	Wholesale
	80 Lakh	+	30 Lakh

Sec 44AA : Applicable ( Retail and Wholesale both )

Sec 44AB : Applicable ( since total turnover exceeds 1 Cr.)

Sec 44AD : No relevance

2.Assessee has Business & Profession

a)	Business	+	Profession
	80 Lakh	+	30 Lakh

Sec 44AA : Applicable ( Business and Profession both )

Sec 44AB : Applicable on Profession (Assessee may opt for Sec 44AD for Business

turnover and 44AB may not be applicable)

Sec 44AD : Assessee may opt for Sec 44AD for Business ( Profession not covered u/s 44AD)

b)	Business	+	Profession
	70 Lakh	+	15 Lakh

Sec 44AA : Applicable ( Business and Profession both )

Sec 44AB : Not applicable (Turnover is less than Rs 1 crore in business and less than Rs.25 turnover and 44AB may not be applicable)

Sec 44AD : Assessee may opt for Sec 44AD for Business ( Profession not covered u/s 44AD)

​3.Assessee has three Business

a)	Retail	+	44AE	+	44AD
	80 Lakh	+	30 Lakh	+	35 Lakh

Sec 44AA : Applicable only on retail business.

Sec 44AB : Applicable on Retail ( Rs. 80 Lakhs) since 44AD is not applicable on retail.

Sec 44AD : Applicable on 35 Lakhs

Note: In 3(a), it has been assumed that the assessee has profitability below 8% on turnover of Rs. 80 Lacs.

Source-http://klaggarwal.com/

TDS: Purchase of Immovable property- Provisions of Section 194-IA, Part-1

As per a newly introduced section in the Income-Tax Act, 1961, (IT Act), a tax at the rate of 1% will be deducted on transfer of immovable property of R50 lakh and above. These changes are effective from June 1, 2013, and immovable property will include land (other than agricultural land). It will also include any building or part of a building.

Section 194IA of the IT Act provides that any person, responsible for paying to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to 1% of such sum. Further it also mentions that no deduction is required if the consideration is less than R50 lakh.

A buyer will be required to deduct tax from the payment and deposit it. The buyer would be required to obtain the PAN of the seller, deposit TDS with the government and file a challan-cum-statement in Form No 26QB. A seller on the other hand will get a reduced amount from the actual sale consideration, which he had never anticipated.

Buyers will be required to issue a TDS certificate in Form 16B within 15 days to the seller. Form 16B can be downloaded from the website of the tax authorities. TDS credit would also be reflected in Form 26AS of the seller for claiming credit while filing the income tax return. It is important to note that in the absence of PAN, TDS up to 20% may be required to be deducted instead of 1%, subject to certain conditions.

The earlier provisions of the income tax Act didn't require buyers of immovable property to deduct tax before making any payment to a resident. A significant number of real estate transactions either remained under reported or unreported. Even if they were reported, PAN was not mentioned or incorrect PAN was mentioned. The latest change has been introduced to track such property transactions and promote proper reporting.
http://www.incometaxindia.gov.in/Charts%20%20Tables/TDS%20Purchase%20of%20Immovable%20property.htm

FAQs on Tax audit [As amended upto Finance (No. 2) Act, 2014]

• 
  ​What is tax audit?
  The dictionary meaning of the term "audit" is check, review, inspection, etc. There are various types of audits prescribed under different laws like company law requires a company audit, cost accounting law requires a cost audit, etc. The Income-tax Law requires the taxpayer to get the audit of the accounts of his business/profession from the view point of Income-tax Law.

  Section 44AB gives the provisions relating to the class of taxpayers who are required to get their accounts audited from a chartered accountant. The audit under section 44AB aims to ascertain the compliance of various provisions of the Income-tax Law and the fulfillment of other requirements of the Income-tax Law. The audit conducted by the chartered accountant of the accounts of the taxpayer in pursuance of the requirement of section 44AB​ is called tax audit.

  The chartered accountant conducting the tax audit is required to give his findings, observation, etc., in the form of audit report. The report of tax audit is to be given by the chartered accountant in Form Nos. 3CA/3CB and 3CD. ​
• ​What is the objective of tax audit?
  One of the objectives of tax audit is to ascertain/derive/report the requirements of Form Nos. 3CA/3CB and 3CD. Apart from reporting requirements of Form Nos. 3CA/3CB and 3CD, a proper audit for tax purposes would ensure that the books of account and other records are properly maintained, that they faithfully reflect the income of the taxpayer and claims for deduction are correctly made by him. Such audit would also help in checking fraudulent practices. It can also facilitate the administration of tax laws by a proper presentation of accounts before the tax authorities and considerably save the time of Assessing Officers in carrying out routine verifications, like checking correctness of totals and verifying whether purchases and sales are properly vouched for or not. The time of the Assessing Officers saved could be utilised for attending to more important and investigational aspects of a case.​
• As per section 44AB, who is compulsorily required to get his accounts audited, i.e., who is covered by tax audit?
  As per section 44AB, following persons are compulsorily required to get their accounts audited :

  • A person carrying on business, if his total sales, turnover or gross receipts (as the case may be) in business for the year exceed or exceeds Rs. 1 crore. 

  • A person carrying on profession, if his gross receipts in profession for the year exceed Rs. 25 lakhs. 

  • A person who is eligible to opt for the presumptive taxation scheme of section 44AD (*) but he does not opt for the same and claims the profits or gains for such business to be lower than the profits and gains computed as per the presumptive taxation scheme of section 44AD and his income exceeds the amount which is not chargeable to tax.

  (*) For provisions of section 44AD​ refer tutorial on “Tax on presumptive basis in case of certain eligible business”.

  • A person who is eligible to opt for the presumptive taxation scheme of sections 44AE (*) but he does not opt for the same and claims the profits or gains for such business to be lower than the profits and gains computed as per the presumptive taxation scheme of sections 44AEE.

  (*) For provisions of sections 44AE refer tutorial on “Tax on presumptive basis in case of certain eligible business”.

  • A person who is eligible to opt for the taxation scheme prescribed under section 44BB (*) or section 44BBB (*) but he does not opt for the same and claims the profits or gains for such business to be lower than the profits and gains computed as per the taxation scheme of these sections.

  (*) section 44BB is applicable to non-resident taxpayers engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire basis to be used in exploration of mineral oils. section 44BBB​ is applicable to foreign companies engaged in the business of civil construction or erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project. 

  
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• ​If a person is required by or under any other law to get his accounts audited, then is it compulsory for him to once again get his accounts audited to comply with the requirement of section 44AB?
  Persons like company or co-operative society are required to get their accounts audited under their respective law. S​ection 44AB provides that, if a person is required by or under any other law to get his accounts audited, then he need not again get his accounts audited to comply with the requirement of section 44AB. Is such a case, it shall be sufficient if such person gets the accounts of such business or profession audited under such law and obtains the report of the audit as required under such other law and also a report by the chartered accountant in the form prescribed under section 44AB, i.e., Form No. 3CA and Form 3CD (refer to next FAQ for relevance of these forms). ​
• ​What are Form Nos. 3CA/3CB and 3CD?
  The report of the tax audit conducted by the chartered accountant is to be furnished in the prescribed form. The form prescribed for audit report in respect of audit conducted under section 44AB​ is Form No. 3CB and the prescribed particulars are to be reported in Form No. 3CD.

  In case of persons covered under previous FAQ, i.e., who are required to get their accounts audited by or under any other law, the form prescribed for audit report is Form No. 3CA and the prescribed particulars are to be reported in Form No. 3CD.​
• ​What is the due date by which a taxpayer should get his accounts audited?
  A person covered by section 44AB should get his accounts audited and should obtain the audit report on or before the due date of filing of the return of income, i.e., on or before 30th September (*) of the relevant assessment year, e.g., Tax audit report for the financial year 2013-14 corresponding to the assessment year 2014-15 should be obtained on or before 30th September, 2014. 

  (*) In case of a taxpayer who is required to furnish a report in Form No. 3CEB under section 92​ in respect of any international transaction or specified domestic transaction, the due date of filing the return of income is 30th November of the relevant assessment year. 

  However, due date for filing of Income tax return and tax audit report for assessment year 2014-15 in case of an assessee (not having any international or specified domestic transaction) who is required to get his account audited under section 44AB or a working partner of a firm whose accounts are required to be audited has been extended to 30th Nov 2014 vide ORDER [F.No. 153/53/2014-TPL], Dated 26-09-2014 and ORDER [F.No. 133/24/2014-TPL], Dated 20-08-2014 respectively.

  The tax audit report is to be electronically filed by the chartered accountant to the Income-tax Department. After filing of report by the chartered accountant, the taxpayer has to approve the report from his e-fling account with Income-tax Department (i.e., at www.incometaxindiaefiling.gov.in). 

  
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• ​What is the penalty for not getting the accounts audited as required by section 44AB?
  According to section 271B, if any person who is required to comply with section 44AB fails to get his accounts audited in respect of any year or years as required under section 44AB, the Assessing Officer may impose a penalty. The penalty shall be lower of the following amounts:

  (a) 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such year or years. 

  (b) Rs. 1,50,000.

  However, according to section 273B​, no penalty shall be imposed if reasonable cause for such failure is proved.
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• Source- www.incometaxindia.gov.in

INCREASE IN SERVICE TAX RATE FROM 12% TO 14% WITH EFFECT FROM 1ST JUNE, 2015

In the Union Budget, 2015, an increase in the rate of Service Tax from 12% to 14% had been proposed from a date to be notified. The Finance Bill, 2015 has since been enacted and the Central Government has notified 1st June, 2015 as the date from which the rate of 14% would become applicable. The provisions levying Education Cess and Secondary and Higher Education Cess would also cease to have effect from same date i.e. 1st June, 2015, as the same would be subsumed in the service tax rate of 14%. Certain other changes have also been notified with effect from 1st June, 2015. However, the date of giving effect to the provisions relating to imposition of a Swachh Bharat cess on all or any taxable service will be done in due course.
http://finmin.nic.in/press_room/2015/servicetax_increse20052015.pdf