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.

[Paari KumaraRaj]

In the above example instead of 1% if it 5% what is the impact ?

AI Summary

Presumptive taxation election under section 44AD now determines tax audit liability rather than a fixed profit percentage. The amended provision under section 44AD links tax audit liability to the taxpayer's election to avail the presumptive taxation scheme: tax audit consequences arise where a taxpayer has adopted the presumptive scheme in a year and then does not avail the scheme in any of the next five years; by contrast, a taxpayer who does not opt into the presumptive scheme is not automatically subject to tax audit merely because reported profits are below the presumptive percentage.