With the introduction of section 44AD and section 44ADA, the Government has always emphasized on the ease of compliance to the Traders and Professionals who do not fall within the ambit of the Tax Audit. Currently, this limit has been Rs. 2 Crores and Rs. 50 Lakhs for Section 44AD and Section 44ADA respectively.
Now, further to the ease of compliance initiative being taken by the Government, the Government has further enhanced the limit for the presumptive taxation schemes. In order to streamlining the presumptive taxation scheme in line with 5% cash receipt and cash payment formula being emphasized in section 44AB earlier. The said concept of 5% cash receipt has also been proposed in the Section 44AD and Section 44ADA.
For Section 44AD
For eligibile business, where the amount or aggregate of the amounts received during the previous year does not exceed 5% in cash of the total turnover or gross receipts, the threshold limit shall be Rs. 3 Crores.
To interpretate the amendment, Mr. X is a Trader falling within the definition of eligible business under section 44AD and his turnover for the FY is 2.95 Crores. Now in this case, we have to check whether the cash receipt is more than 5% of the total turnover or not. If the cash receipt is Rs. 14 Lakhs, then Mr.X falls within the ambit of Section 44AD but if the cash receipt is Rs. 20 Lakhs then the provision of section 44AB shall be applicable and Mr. X’s books of accounts shall be liable to tax audit under section 44AB.
For Section 44ADA
For Professions referred to in sub section (1) of section 44AA of the Act, where the amount or aggregate of the amount received during the previous year, in cash, does not exceed 5% of the Gross receipts, the threshold limit shall be Rs. 75 Lakhs.
To interpretate this amendment, Mr. X is a Doctor by profession and his gross receipts from the Profession amounts to Rs. 65 Lakhs in the FY. Now, in this scenario, his cash receipts from the patients are Rs. 3 Lakhs. Hence, in this scenario, the provisions of Section 44ADA shall be applicable to Mr. X and there shall be no tax audit on Mr. X. Now, if we change the scenario for cash receipts to be Rs. 4 Lakhs then the provisions of Section 44ADA shall not be applicable and Mr. X shall be liable for the Tax audit.
These amendments will take effect from 1st April 2024 and will accordingly apply to the AY 2024-25 and the subsequent assessment years.
