Law Legends


Calculation of turnover for persons engaged in a specified profession and a normal business


Under income tax turnover needs to be calculated to check the applicability of the provisions of the income tax. The threshold for tax audit is provided under section 44AB of the Income Tax Act. Different threshold limits are provided for person carrying business, person carrying profession and person opted for presumptive taxation. Difficulty arises when a person is engaged in more than one business or profession. In this article we discuss case where a person is engaged in a specified profession and a normal business.

Specified Profession: Profession mentioned under section 44AA are specified professions. Specified professionals include any person engaged in Legal, Medical, Engineering, Architectural, Technical Consultancy, Interior decoration, Film artist, Authorized Representative, Accountancy Profession, Company secretary, or Information Technology.

Normal Business or Non-specified professions: Profession or business which is not a specified profession under section 44AA.

Applicability of provision of sec. 44AB :

Section 44AB provides that

  1. “person 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” (the limit will be ₹ 10 Cr. with some conditions)
  2. “person carrying on profession shall, if his gross receipts in profession exceed fifty lakh rupees in any previous year; or”

Let’s take the case of an assessee who is engaged in profession as well as in business. An audit for profession is mandatory when the gross receipts from the profession exceed ₹ 50 lakhs. And audit of business is required when turnover of the business exceeds the ₹ 1 Cr or 10Cr. (as the case may be).

So the question is how to calculate turnover for deciding the applicability of section 44AB i.e. audit needs to be done or not?

As per para 5.16 of the “Guidance Note on Tax Audit under Section 44AB of the Income-tax Act, 1961” published by the ICAI

In case, of an assessee carrying on business and at the same time engaged in a profession then what are the limits applicable to him under section 44AB for getting the accounts audited. Separate limit for profession and business will be considered. If the gross receipts or turnover exceed the relevant limit then it will be necessary for the assesee to get his accounts of the profession as well as the accounts of the business, audited.

Further where the assessee engaged in a profession specified under section 44AA has opted to declare profit from the profession under section 44ADA but declare profit lower than deemed profit and gain then it will be necessary for the assesee to get his accounts of the profession as per the following provision of section 44AB.

(d)“carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year;”

So in the above case even though the gross receipts from the profession or turnover of the business of the assessee not exceeded the specified threshold limit, it is mandatory for the assessee to get books of accounts audited of profession as well as of business.

It is to be noted that if the assessee is engaged in the profession specified in section 44AA and a business. The assessee has option to declare profit from the profession as per section 44ADA. However he cannot take benefit of section 44AD in this case.

If the assessee is engaged in a profession which is not a profession specified in section 44AA and a business. The assessee has option to declare profit from his business as per section 44AD by fulfilling the conditions of this section.

The above provision and applicability can be summarised in the following table:

Case 1 2 3 4 5 6
Turnover (TO) in Business in ₹ 72 lakhs 80 Lakhs 172 lakh 85 Lakhs 85 Lakhs 105 lakhs
Gross receipts (GR) in profession in ₹ 45 Lakhs 54 Lakhs 42 Lakhs 54 Lakhs 54 lakhs 32
Profession specified under 44AA Yes Yes No No No Yes
Opted for 44AD or 44ADA Yes ADA No  (GR limit exceeds) Yes 44AD No Yes 44AD No
Declare profit as per 44AD or 44ADA Yes NA Yes 44AD NA No (Declared lower profit) NA
Requirement of Audit No Yes  [44AB (b)] No Yes  [44AB (b)] Yes [44AB (e)] Yes [44AB(a)]

It can be conclude that, whether the audit is mandatory or not is depend not only on the turnover limit but also on the other relevant conditions like taxpayer has opted for presumptive or not, if opted profit is declared as per provisions or not.  To comply with the law and prevent from the penalty provisions, one should check all the criteria and then decide the applicability of the audit.

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