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Section 44AB Audit: Key Provisions for Professionals under Section 44AA(1)

3 min Read Jan 22, 2025

Section 44AB – Audit of Accounts of persons carrying on business or profession – Clauses (b) and (d) to cover profession referred to in section 44AA(1) 

Professionals in India have to maintain their books of accounts with utmost precision. Tax laws, especially Section 44AB of the Income Tax Act, specify the audit requirements. In case you are a professional or a business owner, you would need to understand these provisions in order to stay compliant.

Simplifying the complex regulations of tax laws for you at Mind Your Tax, let's discuss Section 44AB clause (b) and (d), with the professionals covered by Section 44AA(1).

Section 44AB of the Income-tax Act

It is a compulsory audit of the accounts of particular persons depending upon their turnover or gross receipts or income. Section 44AB aims to eliminate the evasion of tax and thus to report genuine income.

The Important heads that are covered under the section 44AB are as follows:

  • Businesses with turnover over ₹1 crore.

  • Professionals with gross receipts over ₹50 lakh.

  • Cases where income is declared lower than the prescribed presumptive taxation schemes.

This blog deals with clauses (b) and (d), which specifically apply to professionals referred to in Section 44AA(1).

What Does Section 44AA(1) Specify?

Section 44AA(1) identifies certain professions that require meticulous record-keeping. These include:

  • Legal professionals.

  • Medical practitioners.

  • Engineers and architects.

  • Accountants.

  • Technical consultants.

  • Interior decorators.

  • Other notified professions (like film artists or company secretaries).

These professions are peculiar in the sense that they rely on intellectual expertise. For this reason, the law requires specific compliance on their part.

Clause (b): Gross Receipts Exceeding ₹50 Lakh

Clause (b) of Section 44AB is applicable to professionals if:

 

Their gross receipts exceed ₹50 lakh in a financial year.

Example: If a doctor, for instance, earns ₹60 lakh in one year from private practice, she has to get her accounts audited. There is no chance of misrepresenting any receipt in this regard.

 

Clause (d): Presumptive Taxation and Low Profits

Clause (d) applies where professionals choose the presumptive taxation scheme under Section 44ADA.

Section 44ADA

Under Section 44ADA :

  • A professional whose gross receipts are up to ₹50 lakh can declare 50% of the receipts as taxable income

  • If he declares less income than this and his total income is more than his basic exemption limit, then an audit is always required.

  • For example, suppose an architect made ₹40 lakh in a year. He can declare only ₹18 lakh under presumptive taxation. But if he declares ₹15 lakh, then he needs an audit.

Problem with the wording above:

The current words of the law are ambiguous. Clause (b) refers to "profession," but Section 44AA(1) is not specified on professions. Similarly, Clause (d) does not directly relate with professionals through Section 44ADA.

This obscurity may be misinterpreted. Other professions may misunderstand these clauses, which fall outside Section 44AA(1).

Proposed Reforms

Section 44AB should be amended as follows to make the provisions clear:

  • Professions covered under Section 44AA(1) shall be clearly referred to in clauses (b) and (d).

  • Specify that clauses (a) and (e) apply to businesses and professions other than those in Section 44AA(1).

  • Such changes would reduce confusion and ensure proper compliance.

Why Compliance Matters

Failure to comply with Section 44AB can lead to:

  • Heavy penalties (₹1.5 lakh or 0.5% of turnover, whichever is lower).

  • Increased scrutiny by tax authorities.

  • Legality complications.

By ensuring timely audits, professionals safeguard themselves from legal troubles and maintain financial transparency.

Simplify Your Tax Compliance with Mind Your Tax

We at Mind Your Tax know the burden tax laws can be. Our team simplifies compliance for businesses and professionals alike.

How we can assist you:

  • Audit Assistance: We ensure your accounts meet all legal requirements.

  • Presumptive Tax Guidance: We help you understand and apply Section 44ADA provisions correctly.

  • Tailored Solutions: Whether you're a lawyer, doctor, or consultant, we offer customized tax strategies.

 

Conclusion

Section 44AB is an important provision that ensures transparency in financial reporting. Clauses (b) and (d) specifically apply to professionals under Section 44AA(1). Whether your gross receipts exceed ₹50 lakh or you opt for presumptive taxation with lower profits, audits are essential.

Compliance helps you not just avoid penalties, but it's also an attribute that inspires the trust of other stakeholders. So, we're here to simplify tax compliance through Mind Your Tax. Let us connect today for you to catch up on everything that goes down with tax payments.

Professional services deserve professional care. Allow professionals to sort this out and make way for expert skills at hand!

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