Section 44AB of Income Tax Act – Applicability & Audit Reports

Income Tax Audit – Various kinds of audit being conducted under the different laws such as company audit conducted under company law, cost audit, stock audit etc. Similarly, Income tax law also mandates an audit known as ‘Tax Audit’. Tax audit is an examination of books of accounts of the business/profession from income tax perspective.

* Where-

  1. Section 44BB (non resident engaged in the business of exploration of mineral oils)
  2. 44BBB (any foreign company engaged in the business of civil construction etc. in certain turnkey power projects)
  3. 44AD (any business other than business referred to in 44AE)
  4. 44ADA (eligible professionals)
  5. 44AE (business of plying, hiring or leasing of goods carriages)
  • Above are presumptive taxation schemes. Where certain fixed percentage of income or amount is assumed to be the profit for the purpose of taxation.
    Under Income Tax Audit Turnover means the gross receipts of the business or profession, but does not include:
    1. Income received from renting of the house or any other rental income.
    2. Any money received by selling of an asset, held as Investment.
    3. The Income by selling of a Fixed Asset.
    4. Interest Income.

Form 3CA -Where the books of accounts of the business or profession of the person have been audited under any other law, Form 3CA is required to be filed.
Form 3CB– Where the books of accounts of the business or profession of the person have not been audited under any other law, in such a case Form 3CB is required to be filed.
Form 3CD – Form 3CD is the form that has to be filed in both of the above cases. Form 3CD is the Statement of particulars to be furnished under section 44AB
* The audit report under Income Tax shall be shall be filed before 30th September of the relevant Assessment Year.

Cash Accounting vs. Accrual Basis of Accounting

Definition of Cash Accounting

The basis of accounting in which the revenues and expenses are recognized only when cash is actually received or paid. In cash accounting method, the income or expense is recognised when the inflow or outflow of cash exists in reality.

The Cash basis accounting method is mostly used by sole traders, proprietors and other professionals who record their income when there is an actual inflow of cash and expenses of the entity.

Definition of Accrual Accounting

Accrual system of Accounting is also known as the mercantile system of accounting wherein the transactions are recognized and recorded as and when they take place. Under the accrual accounting method, the revenue is recorded when it is actually earned, and the expenses are reported when they are incurred.
The accrual method of accounting is used by most of the entities as it records the past transactions regarding the revenue and expense, but it also predicts the cash receipts and payments expected to arise in the future.

6 Major Differences between Cash Basis of Accounting and Accrual Basis of Accounting

MeaningThe method of accounting in cash basis is when the income or expense is recognized only when there is an actual inflow or outflow of cash. The method of accounting in accrual basis is when the income or expense is recognized on mercantile basis or accrual basis.
Nature The nature of cash accounting is simple. The nature of accrual accounting is complex
MethodThe method of cash basis of accounting is not recognized under the Companies Act.The method of accrual basis of accounting is recognized under the Companies Act.
Revenue Recognition The revenue is recognized when Cash is received.The revenue is recognized when revenue is earned.
Expense RecognitionThe expense is recognized when Cash is paid.The expense is recognized when expense is incurred.
Matching ConceptMatching Concept is not applicable.Matching Concept is applicable.

Know Everything about GST Return Filing

1. What is GST Return?

The term “return” means statement of information furnished by the taxpayer to tax authorities at regular intervals.

The information to be furnished in the GST Return comprises of:

  • Details of business operations
  • Sales/Turnover
  • Purchases
  • Determination and Discharge of tax liability.
  • Deductions and Exemptions
  • All the returns under GST law are to be filed electronically.

2. Frequency of filing GST Return?

In the GST regime, any regular business registered under GST has to file two monthly returns and one annual return. This will results to 26 returns in a fiscal year.

Every registered person has to file one monthly return GSTR 1 (depending upon the turnover) and monthly GSTR 3B for furnishing the summary of outward supplies and inward supplies along with the payment of any GST dues.

3. Furnishing Details of Outward Supplies

  • Every registered person shall be required to file a return containing the details of outward supplies
  • Return has to be submitted in Form GSTR-1
  • GSTR-1 has to be submitted upto 10th of the subsequent month.
  • The details filed under GSTR-1 shall reflect in recipient GSTR-2A (auto populated) to cross verify the ITC available to the recipient

4. Furnishing Details of Inward Supplies

Every registered person shall be required to submit a return containing the details of inward supplies.
Return has to be submitted

5. Types of Returns under GST and Due Dates of filing GST Returns

Return FormParticularsFrequencyDue Date
Form GSTR-1Furnish details of outward supplies of taxable goods and/or services affected Monthly 11th* of the succeeding month with effect from October 2018

*Previously, the due date was 10th
Form GSTR-2A This is auto-populated of inward supplies made available to the recipient on the basis of Form GSTR-1 furnished by the supplier Monthly 11th* of the succeeding month
Form GSTR-2
Detail of inward supplies of taxable goods and/or services affected claiming the input tax credit or modification in GSTR-2AMonthly15th of the succeeding month
Monthly return of details of outward supplies and inward supplies along with the payment of tax.Monthly20th of the succeeding month
GSTR-3B which is a monthly return filed It is a Simple Return in which summary of outward supplies along with Input Tax Credit (ITC) is declared and payment of tax is affected by taxpayerMonthly 20th of the succeeding month
GSTR-4 Furnish details of outward supply. This return is for a taxpayer registered under the composition scheme Monthly18th of the month succeeding quarter
GSTR-5 Furnish details of imports, outward supplies, tax paid, input tax credit etc. This return is for a Non-Resident foreign taxable person Monthly 20th of the succeeding month
GSTR-6 Return for an Input Service Distributor furnishing details of input credit distributed.Monthly 13th of the succeeding month
GSTR-7 Return for authorities furnishing the details of TDS deducted Monthly10th of the succeeding month
GSTR-8 Details of supplies through e-commerce operator and the amount of tax collected on the suppliesMonthly 10th of the succeeding month
GSTR-9Annual Return for a Normal Taxpayer furnishing details of ITC availed and GST paid Annually 31st December of succeeding fiscal year*
GSTR-9A Annual Return for a taxpayer registered under the composition levy anytime during the yearAnnually 31st December of succeeding fiscal year*
GSTR-10 Final Return- For taxpayers whose registration has been surrendered or cancelledOnce, when GST Registration is cancelled or surrenderedWithin 3 months of the date of cancellation or date of cancellation order, whichever is later
GSTR-11Furnish details of inward supplies by a person having UIN and claiming a refundMonthly28th of the month succeeding month for which statement is filed

* Subject to changes by Notifications/ Orders

6. Late Fees for non-filing of return in time

Return filing is mandatory under GST. Even if there is no transaction, you must file a NIL return.

  • You cannot file a return if you do not file previous month/quarter’s return.
  • Hence, late filing of GST return will have a cascading effect leading to heavy fines and penalty of interest
  • The late filing fee of the GSTR-1 is populated in the liability ledger of GSTR-3B filed immediately after such delay.

Section 44AD of Income Tax Act – Presumptive Taxation

  • The scheme shall be applicable to individuals, HUF’s and partnership firms excluding Limited Liability Partnership Firms. The scheme of presumptive taxation is applicable for any business, which has maximum gross sales or turnover or gross receipts of Rs. 2 crore.
  • The presumptive rate of net income is prescribed at 8% of gross turnover/gross receipts (6% in case of digital receipts).
  • An assessee who opts for presumptive taxation scheme, shall be exempted from maintenance of books of accounts related to such business as required u/s 44AA of the Income Tax Act.
  • An assessee may have gross sales/ turnover less than Rs. 2 crore, but show a net income below the presumptive rate of 8% or 6% (where applicable). In such a case, the assessee will need to maintain books of accounts (if such an assessee falls in any tax bracket and also get them audited.
  • The assessee cannot deduct any business expenses against the income under presumptive taxation scheme.
  • Section 44AD shall not apply to-

I. A person carrying on profession;
II. A person having income from commission or brokerage; or
III. A person carrying on agency business

  • Once the presumptive taxation scheme u/s 44AD has been opted by the assessee, he is required to file Income tax return under the presumptive taxation scheme only for a period of 5 years.
  • In case a taxpayer has filed the return as a normal taxpayer under presumptive taxation scheme or opted out of presumptive taxation scheme, then he cannot re-opt for the presumptive taxation scheme for the next 5 years.
  • ITR 4 would be applicable under this.