Home > Topics > Income Tax > Miscellaneous Provisions – Section 44AA/AB (Books & Audit)
← PreviousNext →

Miscellaneous Provisions – Section 44AA/AB (Books & Audit)

Running a business isn't just about making profit; it's about claiming it correctly! The Income Tax Act mandates strict rules on who must keep Books of Accounts and who needs a Tax Audit by a CA.

Maintenance of Books of Accounts (Section 44AA)

Who must maintain books?

1. Specified Professionals

Doctors, Lawyers, Engineers, Architects, CAs, Movie Artists, etc.

  • Requirement: MUST maintain books if Gross Receipts > ₹1,50,000 in any of the 3 preceding years.
  • (Basically, almost all professionals must maintain books).

2. Business & Other Professions

  • Requirement:
    • Income > ₹2.5 Lakhs OR
    • Turnover > ₹25 Lakhs
    • (In any of the 3 preceding years).
  • Small Business: If below these limits, no prescribed books needed (but basic records recommended).

Penalty: Flat ₹25,000 for failure to maintain books (Section 271A).

Compulsory Tax Audit (Section 44AB)

When your turnover crosses a threshold, your books must be audited by a Chartered Accountant.

Threshold Limits for Audit (FY 2024-25):

CategoryAudit Mandatory If...
1. Business (Normal)Turnover > ₹1 Crore
2. Business (Digital)Turnover > ₹10 Crore (If Cash Receipts & Payments < 5%)
3. ProfessionGross Receipts > ₹50 Lakhs
4. Presumptive CasesDeclaring Profit < 8%/6%/50% AND Income > Basic Exemption Limit

Example 1:

  • Mr. A (Trader) Turnover: ₹2 Crores. Cash sales 10%.
  • Audit: Yes (limit ₹1 Cr crossed, cash > 5%).

Example 2:

  • Mr. B (Trader) Turnover: ₹8 Crores. All digital.
  • Audit: No (Limit is ₹10 Cr for digital businesses).

Example 3:

  • Dr. C (Doctor) Receipts: ₹60 Lakhs.
  • Audit: Yes (> ₹50L).

Presumptive Opt-Out

If you opt for Section 44AD (8% profit) and then declare lower profit (e.g., 4%) in a subsequent year, you must get an Audit done, regardless of turnover (if income > ₹2.5L).

Due Dates

  • Tax Audit Report (Form 3CD): By September 30th.
  • Income Tax Return (ITR): By October 31st (for audit cases).

Penalty for No Audit: 0.5% of Turnover (Max ₹1.5 Lakhs).

Summary

  • Section 44AA: Keep books if Inc > ₹2.5L or Sales > ₹25L (Specified Professionals > ₹1.5L receipts).
  • Section 44AB (Audit):
    • Business > ₹1 Cr (₹10 Cr if 95% digital).
    • Profession > ₹50 Lakh.
    • Below Presumptive Limits if claiming lower income.
  • Digital Push: The jump from ₹1 Cr to ₹10 Cr limit is to encourage cashless transactions.

Quiz Time! 🎯

Loading quiz…

Next Chapter: Depreciation Rules! 📉

Loading calculator link…

← PreviousNext →