It was a very long day yesterday and hence it took some time for me to reply here. Usually I let these topics open because there are many contrary views.
Before I give my view let me tell you that this is the most debated topic in all the WhatsApp groups we professionals have. There are multiple views and I shall not post them over here and confuse you guys more. I shall only post my view purely on reading the bare Act.
I shall take few relevant parts of few sections and try to explain.
SECTION 44AB
Every person carrying on business shall get his accounts audited if the total turnover exceeds Rs.10 crore (in the case of F&O 95% or more are digital transactions, hence a threshold of Rs 1 crore is not applicable )
I do not think anybody has any doubt about this section and so let’s move forward.
SECTION 44AB(e)
The audit is required to be done If subsection (4) of section 44AD is applicable & taxable income exceed 44AB(e) basic exemption limit
On careful readying you see that there are two parts to the above section.
- Sec 44AB(e) should be applicable.
- Income above basic exemption limit.
Both the above mentioned parts are separated by ‘and’ which would mean only if both the conditions are satisfied then audit shall be applicable.
So if your income is below basic exemption limit then don’t even bother checking the other condition.
If it’s above basic limit, then let’s see what subsection 4 of 44AD says.
SECTION 44AD(4)
In case, he wants to opt-out and declares losses or income at less than the presumptive rate in the current year, the audit is required to be done under section 44AB (e )
Interpretation:
- He should have opted for presumptive rate in the previous year.
- Now has loss or less than 6 percent profit.
On collective reading of all sections. If you meet all the conditions then audit is applicable.
- Your income is above basic exemption limit.
- Previous year you had opted for presumptive rate.
- Current year you have loss or profit less than 6 percent.
Other questions.
- Is maintenance of books compulsory even if audit is not applicable ?
Yes. - Is we opt for presumptive rate do we have to maintain books?
No - Is 44AD compulsory ?
No.
Conclusion: Either maintain books and declare the actual profit or do not maintain book and declare 6 percent of turnover as profits.
But then next year if you want to show less than 6 percent then you will have to go for audit.
There are so many other views also. To be on the safer side most CAs recommend audit. The moment the books are audited AO places higher reliance on your tax assessment. So to avoid unnecessary notices most of the CAs take this stand. Returns are processed under most of the other stands taken. Having shared my view above the safest route is definitely to go for audit. U can’t be wrong there. Remember if audit is required and you had not got them audited then penalty is much higher than the fees you shed out for audit. It may look to you like your CA unnecessarily recommends audit. Most of the time it’s not true. We know the practical difficulties which follow if your AO doesn’t agree with our opinion. That’s why we take the safer route. And I did mention this in some other post as well.
Ultimately it’s your call.
Disclaimer: The above views are purely my personal views on reading and interpretation of bare Act and needn’t necessarily be right. Kindly consult a Tax expert before you file your returns.