1. For the purpose of this proviso, the receipts or payments should include all the receipt or payments whether on revenue account or capital account. 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. If the assessee is an eligible assessee and is engaged in more than one business one of which is an eligible business and other is a business specified in sub-section 6; or is engaged in eligible business and any profession referred in sec 44A (1) he shall be ineligible for presumptive taxation not only for those business as specified in sub section 6 but also for other businesses which was otherwise eligible. [Refer point 5 below for further discussion on Section 44AD (4) & (5)] 5. For this purpose, a proviso is added to clause (a) of section 44AB. The legislative intent behind this amendment may be to act as deterrent for the assessee from misusing the provisions of presumptive taxation by frequently shifting from presumptive taxation to non-presumptive taxation and vice-versa. For example, it shall cover transactions in cheque, net-banking, Debit Card, Credit Card, UPI, wallets, etc which are not in cash. 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. (i) Clause 44AB(d) (ii) Clause 44AB(e) (iii) Third Proviso to Sec 44AB 2 Form3cdProfGain sPresum SectionNo Modified Section 44ADA added in dropdown. The proviso to section 44AB (a) has used the term ‘cash’. (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). Further, there is also a presumptive income section under income tax act 1961 (mentioned below) where the assets require filing their tax audit where he claims his income below such percentage. Similarly, income tax law also mandates an audit called ‘Tax Audit’. (In both the cases cash receipts/payments do not exceed 5%). Therefore any receipts or payments made other than cash shall be recognised under this proviso. Particulars of payments made to persons specified under section 40A(2)(b). The 10 th proviso to Section 10(23C) provides for the audit of the fund, trusts etc. 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 The scope of section 44AB was enlarged to provide that audit under the section would be required in case of a person carrying on the business of the nature referred to in section 44AD or 44AE or 44AF (by the Finance Act 1997 w.e.f. Section 44AB (e) provides that the tax audit shall be applicable to the assessee to whom provisions of sec 44AD (4) apply. In the view of the above legal position it can be inferred that the assessee shall be eligible to opt for presumptive taxation/ declare profits lower than 8%/6% without taking into consideration whether he had opted for presumptive taxation for any of the Assessment Year prior to A.Y 2017-18 or not. In the given case the assessee has declared profits as per presumptive taxation scheme in any of the five preceding years and has not declared profits as per presumptive taxation for current year, hence the provisions of sec 44AD(4) shall apply and he shall be liable for tax audit u/s 44AB(e) r.w.s 44AD(4). 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. Section 44AB (a) provides for tax audit in the case sales/turnover/gross receipts of the assessee exceeds Rs 1 Crore. Applicability of tax audit u/s 44AB(c). Sec 44AB (b) provides for tax audit where the gross receipts of the professional exceeds Rs 50 Lakhs. CA Rajat Power has pointed out that section 44AB of the income-tax Act, 1961, which provides for tax audit of certain taxpayers, has been amended in the recent past in order to relax the compliance burden on small taxpayers. 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. Sec 44AB(d) also provides that tax audit shall be applicable in case of professional to whom sec 44ADA apply, and who has claimed his profit to be lower than the presumptive tax rate of 50%. Thus, it creates apparent anomaly whereby greater compliance burden is placed on small taxpayers rather than large tax payers which is against the purpose and object of the sec 44AD of easing the compliance burden of small taxpayers. accountant. The examination is conducted to ensure that the taxpayer has properly maintained the books of accounts and other records. 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. 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%. 4. Let us consider few examples so as to better understand the provisions, Turnover of the assessee is Rs 85 Lakhs, Profit from business is Rs 5.5 Lakhs and Assessee has not opted for presumptive taxation in any of the five preceding previous years, i) Applicability of provisions of sec 44AB(a), In the given case the turnover of the assessee is less than Rs 1 Cr hence the assessee shall not be liable for tax audit u/s 44AB(a), ii)Applicability of provisions of sec 44AB(e), In the given case the assessee has not declared profits as per presumptive taxation scheme in any of the five preceding years, hence he shall not be liable for tax audit u/s 44AB(e) r.w.s 44AD(4), Turnover of the assessee is 1.5 Crs, Cash receipts/payments are Rs 15 Lakhs, Profit from business is Rs 7 Lakhs and Assessee has not opted for presumptive taxation in any of the five preceding previous years, i)Applicability of provisions of sec 44AB(a), In the given case the cash payment/receipts are greater than 5% of total payment/receipts hence the assessee shall be liable for tax audit u/s 44AB(a) as the turnover exceeds the limit of Rs 1 crore and the assessee has not declared profit in accordance with the provisions of sec 44AD. Hence, the provision does not vitiate Article 14, The chart summarizes the applicability of tax audit u/s 44AB(a) and sec 44AB(e), Partnership Firm Clause by Clause Analysis with reporting requirements in Tax Audit Report (Part A of Form 3CD) Clause No. 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: Save my name, email, and website in this browser for the next time I comment. Tax audit based on turnover limit for business [Sec 44AB (a)]. 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. proviso to Sec 44AB,if  in a case where such person is required BY OR UNDER ANY OTHER LAW to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date, Audit & Assurance and Accounting Standards, Corporate Matters/LLP, Income Tax, Insolvency and Bankruptcy Code, RBI / FEMA, International Taxation , Transfer Pricing, Benami Property Law, Bank / Insurance / Stock / Debtors Audit, Internal Audit, Code of Ethics, ICAI, Miscellaneous, Audit & Assurance and Accounting Standards, Corporate Matters/LLP, Goods and Services Tax (GST), Income Tax, Bank / Insurance / Stock / Debtors Audit, Code of Ethics, Corporate Matters/LLP, Insolvency and Bankruptcy Code, Income Tax, Insolvency and Bankruptcy Code, RBI / FEMA, International Taxation , Transfer Pricing, Benami Property Law, Bank / Insurance / Stock / Debtors Audit, Audit & Assurance and Accounting Standards, Customs & Excise, Corporate Matters/LLP, Goods and Services Tax (GST), Income Tax, Ind AS, Insolvency and Bankruptcy Code, RBI / FEMA, SEBI, International Taxation , Transfer Pricing, Benami Property Law, Bank / Insurance / Stock / Debtors Audit, Internal Audit, Code of Ethics, Audit & Assurance and Accounting Standards. Even in TAX AUDIT cases no books of accounts are maintained in most of the cases, since no scrutiny at all by the Department. 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. The author tries to analyze the various provisions relating to applicability of tax audit so as to provide clarity on the subject. AY 2020-21 Turnover is more then 1Cr but less then 2cr. 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. 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. The author has made very keen observations and has explained it in a very lucid way. 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. Receipts or payments made to persons specified under section 44AB: - Audited under any law. 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