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Presumptive Taxation and Tax Audit

Introduction of Presumptive Taxation and Tax Audit

Presumptive Taxation is available for download at www.cakart.in. The excellent download file is in the format of pdf. Students taking CA IPCC  and ca final exam or students preparing for Taxation will find the file very useful. Here we are providing Presumptive Taxation and Tax Audit notes in PDF file which is applicable for CA IPCC and Final May 2017 exam

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Understanding of 44AB Tax Audit

Introduction- The object of audit under section 44AB is only to assist the Assessing Officer in computing the total income of an assessee in accordance with different provisions of the Act. Therefore,

  • Even though the income of a person is below the taxable limit, he will have to get his accounts audited and if his turnover in business exceeds the prescribed limit.
  • If Assessing Officer wants the assessee to get his accounts audited in cases where the figures of turnover as appearing in the books of account of the assessee do not exceed the prescribed limits, he has no option but to pass an order under section 142(2A) directing the assessee to get his accounts audited from a chartered accountant as may be nominated by the Commissioner of Income-tax or the Chief Commissioner of Income-tax

Hence It must also be understood that the issue whether the turnover/gross receipt exceeds the prescribed limit is to be determined in each year independent of the results obtained in the preceding year or years. This section applies only if turnover/gross receipt exceeds the prescribed limit according to the accounts maintained by the assessee. It would be advisable to maintain basic records to support the turnover/gross receipt for declare audit required or not.

Basics

♠ Tax audit is applicable With Following Conditions:

  • Must be a person under Income tax Act
  • Must carry on business or profession
  • Must maintain books of account
  • Object to earn profit or gain
  • Profit or gain computable under Chapter IV
  • Income is Taxable or Loss allowable under Act

♣ In the Following Conditions Tax Audit is not apply:

  • Entire income exempt under chapter III i.e. section 10
  • Agricultural income [sec 10(1)]

Provision of Section 44AB

Audit of accounts of certain persons carrying on business or profession”.44AB. Every person, —(a) carrying on Business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year; or(b) carrying on Profession shall, if his gross receipts in profession exceed twenty-five lakh rupees in any previous year; or(c) carrying on the Business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or(d) carrying on the Business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AD and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his business and his income exceeds the maximum amount which is not chargeable to income-tax in any previous yearget his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.

Analysis of Provision

♣ Who are required to get their accounts audited?

Every Person

  • Individual/Proprietorship
  • HUF
  • Company
  • Partnership Firm
  • AOP/BOI
  • Local Authority
  • Co-operative / Trust
  • AJP

As per Guidance Note on Tax Audit Issued By ICAI the following activities have been held to be Business :

(i) Advertising agent

(ii) Clearing, forwarding and shipping agents – CIT v. Jeevanlal Lalloobhai & Co.

(iii) Couriers

(iv) Insurance agent

(v) Nursing home

(vi) Stock and share broking and dealing in shares and securities – CIT v. Lallubhai Nagardas & Sons

(vii) Travel agent.

♣ Turnover

It includes

  • Profit on sale of Export License/ Duty Drawback/Cash Assistance
  • Gross interest income received by Moner lender
  • Exchange rate difference on export sales.
  • Advance received & forfeited from customers
  • Where excise duty is included in turnover, the corresponding amount should be distinctly shown as a debit item in the profit and loss account

It excludes

  • Sale/ Purchase of Fixed Assets
  • Sale Proceeds of Assets held as Investments
  • Rental Income
  • Income by way of Interest unless assessable as business income
  • Any expense which is reimbursable to the agent by the client
Nature of BusinessGross Receipts/ Turnover
Selling Agent entitled only for commissionCommission Earned/ Receivable
Selling agent who is vested with the Rights of Property, risk & reward in relation to goodsSales Price Received/Receivable
Consignment AgentCommission Earned
Commission Agent      a)            Pacca Arahtia      b)            Kaccha Arahtia  Total SalesCommission Earned
Building ContractorGross Receipts including value of material supplied
Speculation BusinessNet Gain from speculation is considered as Turnover, Since “Actual delivery” of scrips or items is not made
Money Lending BusinessInterest Earned
Chit Fund BusinessCommission Income, Brokerage Income, Service Charges
Leasing BusinessGross Receipts including Lease Rent
Share Brokers Dealing on behalf of customers: Only BrokerageDealing on Personal Account: Sale Value

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Presumptive Taxation and Tax Audit notes

Presumptive Taxation

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