Direct Tax

Further Analysing Section 44AA & 44AB

 

Section 44AA:   

This section deals with requirement of maintenance of books of accounts in respect of certain professions and business. For the purpose of this section, persons may be classified as follows:

  1. Person carrying on specified Profession.
  2. Person carrying on other than Specified Profession.
  3. Person carrying on Business.
  4. Person covered under Sections 44AE, 44BB, 44BBB and 44AD (Presumptive Income Basis).
  5. Person covered under Section 44DA.

Thus, first consider in which category you fall and then, analyse yourself as given below under that category.

 

  1. Person carrying on specified Profession

Conditions for applicability of Section 44AA:

  • Specified Profession: Under Rule 6F of Income Tax Rules, 1962, Specified Profession includes:
1.    Legal 4. Medical 7. Engineering
2.    Architectural 5. Accountancy 8. Technical Consultancy
3.    Interior Decoration 6 Authorized Representative 9. Film Artist

 

  • Total Gross Receipt: Such persons are mandatorily required to maintain prescribed books of accounts IF their Total Gross Receipt is more than Rs.1,50,000 in any one of the 3 immediately preceding years. In case the profession is newly set up then you should maintain the same if it is likely that Total Gross Receipt will exceed Rs.1,50,000. This may happen, for example, if you set up a profession on a big scale.

What if one satisfies above conditions?

  • Books of accounts and other documents specified under sub-rule 2 and 3 of the Rule 6F must be maintained. This includes:
    • Cash book, Journal if accounts maintained on mercantile basis, Ledger, Carbon copies of bills issued for the amount exceeding Rs.25, Original bills received in relation to expenditure incurred for amount exceeding Rs. 50 (provided where particulars of such petty expenditures are not maintained in cash book, prepare payment vouchers and sign them)
    • Books in respect of Medical Profession includes in addition to above:  A Daily Case Register in Form 3C and a Statement of Inventory at the beginning and end of the year in respect of medicines and other consumable accessories.
  • Place & Period: Such books should be kept at principal place of business and in case there are more than one place and books are maintained for such each place separately may be kept at respective places. Once a person is required to maintain such books of accounts then he shall have to maintain the same for a period of 6 years from the end of the year in which he satisfies above conditions.

Thus it can be said that conditions for applicability of Section 44AA should be reckoned for each of previous 6 years.

  1. Person carrying on other than Specified Profession AND
  2. Person carrying on Business

Conditions for applicability of Section 44AA:

  • Persons carrying on a Profession other than those specified above are required to maintain books of accounts if, in any of the 3 immediately preceding years, their:
    •  Total Gross Receipt is more than Rs. 10 lakhs, OR
    • Income is more than Rs.1,20,000
  • Persons carrying on a Business are required to maintain books of accounts if, in any of the 3 immediately preceding years, their:
    • Total Sales/ Turnover is more than Rs. 10 lakhs, OR
    • Income is more than Rs.1,20,000
  • For newly set up profession or business: If it is likely that above limits may be exceeded.

What if one satisfies above conditions?

  • Till now, there are no prescribed books of accounts but such books of accounts include any such books or documents which may enable the Assessing Officer to compute his total income in accordance with the provisions of Income Tax act. This means books may or may not contain those specified in Rule 6F but should be appropriate regards to the circumstances.
  1. Person covered under Sections 44AE, 44BB, 44BBB, 44AD and 44ADA (Presumptive Income Basis)

(Recommended reading : Presumptive Income Basis)

Conditions for applicability of section 44AA:

  • First see, whether the person is covered under Sections 44AE, 44BB, 44BBB, 44AD or 44ADA.
  • If person is so covered but claim his/her profit to be lower than the deemed profits specified in those Sections (Section 44AE, 44BB, 44BBB or 44ADA) or does not meet the requisite condition in subsequent years (Section 44AD)
  • In case of Section 44AD or Section 44ADA, in addition to above, assesses profit/ income should be more than the minimum exemption limit.

What if one satisfies above conditions?

  • Till now, there are no prescribed books of accounts but such books of accounts include any such books or documents which may enable the Assessing Officer to compute his total income in accordance with the provisions of Income Tax act. This means books may or may not contain those specified in Rule 6F but should be appropriate regards to the circumstances.
  1. Person covered under Section 44DA

Conditions for applicability of Section 44AA:

  • Covered under section 44DA i.e. a non-resident (not being a company) or a Foreign Company and carrying on business or profession through permanent establishment in India.

What if one satisfies above conditions?

  • Till now, there are no prescribed books of accountsbut such books of accounts include any such books or documents which may enable the Assessing Officer to compute his total income in accordance with the provisions of Income Tax act. This means books may or may not contain those specified in Rule 6F but should be appropriate regards to the circumstances.

Section 44AB:

This section deals with the requirement of audit under tax law, also known as Tax Audit. For this purpose, again persons may be classified as follows:

  • Person carrying on Profession
  • Person carrying on Business
  • Person covered under section 44AE, 44BB, 44BBB, 44AD and 44ADA
  • Person covered under section 44DA
Category Conditions for Tax Audit Audit Report Form Particulars
Profession If Total Gross Receipt > Rs. 50 lakhs  

From 3CA, if audit prescribed under any other law

 

Form 3CB, under any other case

 Form 3CD
Business

If Total sales/ Turnover > Rs. 10 crores. OR

If Rs. 1 Crore < Total sales/Turnover > Rs. 10 Crore and two conditions are satisfied:

  • Aggregate consideration received in cash during previous year is more than 5% of total consideration received, and:
  • Aggregate payment made in cash during previous year are more than 5% of total payments made.
Section 44AE, 44BB, 44BBB, 44AD and 44ADA

If they claim their profit to be lower than the deemed profits specified in those Sections or does not meet the requisite conditions in subsequent years

In case of Section 44AD or 44ADA, also if assessee’s profit/ income is more than the minimum exemption limit.
Section  44DA Non-resident (not being a company) or a Foreign Company and carrying on business or profession through permanent establishment in India.

Form 3CE

 

 

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