Tax Audit under section 44AD with effect from the AY 2017-18

[Paari KumaraRaj]

Section 44AD

As per newly inserted sub section 5 of section 44AD, for the Assessment year 2017-18, even if a person (whose turnover is below ₹ 2 crore) is offering lower presumptive tax rate than 8%, wont he be subject to Tax Audit? Because now the criteria for Tax audit under section 44AD is given under sub section 5 i,e an assesee should have availed 44AD in the AY 2017-18 and subsequent five years.

Presuming that an assessee for the AY 2017-18, has an annual turnover of ₹ 1 crore and his net profit is ₹ 1 lakh only (lower than 8%) . And he does not want to avail 44AD. According to the newly inserted subsections 4 and 5, he will not be subject to Tax Audit. Because tax audit will arise only if you avail 44AD in any year and thereafter if you don’t avail that benefit in any of the next five years whereas until the AY 2016-17 this is subject to Tax audit simply because the profit is lower than 8%.

My opinion is that the criteria for Tax Audit under section 44AD shifted from percentage basis to availing of benefits under section 44AD in any year. Hence so long as if an assessee whose turnover is less than ₹ 2 crore, does not avail the benefit of 44AD even if his profits are lower than 8%, he need not have tax audit under this section.

Please throw your valuable opinions on this subject.

AI Summary

Section 44AD Update: No Tax Audit for Turnover Below 2 Crore Without Presumptive Scheme, Profit Below 8% Discussed Under the revised Section 44AD effective from the Assessment Year 2017-18, individuals with a turnover below 2 crore who do not opt for the presumptive tax scheme under Section 44AD are not required to undergo a tax audit, even if their profit is below 8%. Previously, a tax audit was mandatory if profits were below 8%. Now, the tax audit requirement is triggered only if the taxpayer avails the benefits of Section 44AD and then opts out within the next five years. The discussion seeks opinions on this interpretation, with a query about the impact if the profit is 5% instead of 1%.