Section 44AA

Section 44AA — the law in short

What the courts have decided on section 44AA, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Nitin Soni High CourtHelps taxpayer
  I returned income for my trucks under s.44AE. The officer says my real income was higher and has taxed the difference. Can he?
  No, not on the facts of this case. The High Court held that the words 'shall be deemed' in s.44AE indicate a legislative intent that tax is chargeable on the presumptive income computed under sub-section (2). The presumptive income, which may be less or more than the truth, is what is taxable; such an assessee is not required to maintain books at all; and so even where the actual income in a given case is more than the figure computed under sub-section (2), it cannot be taxed. The addition of Rs 29,21,738 made under the head income from other sources was deleted, and the Revenue's appeal was dismissed summarily. Two limits matter. The officer had identified no other source in the assessment order, and it was not disputed that s.44AE applied. A genuinely separate source of income remains taxable in the ordinary way.
• Surajmal Parsuram Todi v CIT High CourtHelps taxpayer
  I never maintained books of account at all. Can the department penalise me under section 271B for not getting them audited?
  No. The Gauhati High Court held that where an assessee has not maintained books of account at all, penalty under section 271B for failure to get them audited cannot be imposed. Maintenance of accounts is required by section 44AA, and failure there is punished by section 271A. Once that default is complete there is nothing to audit, so no failure under section 44AB can arise and section 271B has nothing to bite on. The Tribunal had overlooked this. The question was answered in the negative and in favour of the assessee, leaving the department to act under section 271A.
• Dinesh Chandra Das v ITO — s.44AD(6) shuts out the agent and the s.44AA(1) professional, but the whole receipt is still not income ITATCuts both waysNo later treatment found
  The Assessing Officer says my client, who runs a pathology sample collection centre, cannot use s.44AD at all and has added the entire understated receipt. Is that right?
  On the first point the department was upheld: s.44AD(6) excludes a person carrying on a profession referred to in s.44AA(1), a person earning income in the nature of commission or brokerage, and a person carrying on any agency business, and the Tribunal agreed the assessee was a commission agent so that s.44AD did not apply. On the second point the assessee got relief: the entire differential receipt could not be treated as income because expenses had to be incurred, and the Tribunal directed a net profit rate of forty-five per cent on the gross receipts the Assessing Officer had worked out.
• Neeraj Dewangan v ITO ITATHelps departmentJudgment not reachable
  I offered 8% under 44AD for consultancy work. Can the AO push me into 44ADA at 50%?
  Yes, where the work is professional in character. Liaison services, coordination of statutory no-objection certificates and related facilitation were held to require specialised technical knowledge and so to amount to 'technical consultancy', a specified profession under s.44AA(1) read with s.44ADA — which made s.44AD unavailable and the 50% rate applicable.
• Neeraj v PCIT — a s.263 revision directing a s.68 addition against a s.44AD return quashed for want of jurisdiction ITATHelps taxpayerNo later treatment found
  The Principal Commissioner has revised my client's assessment under s.263 and directed the officer to tax his cash deposits under s.68, although he filed under s.44AD and keeps no books. Can that order stand?
  The Delhi Bench quashed it. Once an assessee has surrendered himself to a particular statute he becomes entitled to all its attending benefits; an assessee under s.44AD computes income as a percentage of turnover and is not required to maintain books of account, so the Principal Commissioner's direction to make a s.68 addition was questionable and the revision order suffered from a lack of requisite jurisdiction. The Bench recorded that it has consistently held that invocation of s.263 is not permissible in cases where the assessee files his return under s.44AD.
• Dipyaman Dutt v ITO ITATHelps taxpayerNo later treatment found
  I declared income under 44AD. Can the AO still add my cash deposits as unexplained income?
  No. Where income has been offered on a presumptive basis under s.44AD on declared turnover, cash deposits representing that turnover cannot be added again as unexplained income — that taxes the same receipts twice, once as deemed profit and once as unexplained credits.
• Hemant Kumar Agrawal v ITO ITATHelps department
  I am a partner in a professional LLP. Can I offer my partner's remuneration under section 44ADA at 50 per cent?
  No, on this Tribunal's view. Remuneration from the firm is not the partner's own turnover or gross receipts, so section 44ADA does not apply to it. But it is still business income in the partner's hands, and expenses with a direct nexus to earning it are deductible in the ordinary way.
• Bright Singh Chelladurai v ITO ITATHelps taxpayerHigh Courts differ
  The officer penalised my client Rs 25,000 under s.271A for not keeping books and then another Rs 1,50,000 under s.271B for not getting them audited. Can he do both for the same year?
  No. Having levied the s.271A penalty for not maintaining books under s.44AA, the officer ought not to have levied a s.271B penalty as well — if no books were kept there was nothing to audit, so s.44AB was not violated. The Tribunal deleted the s.271B penalty and left the s.271A penalty standing.
• Lokesh Kumar Sharma v ITO ITATHelps taxpayerNo later treatment found
  I never maintained books at all. Can they penalise me under 271B for not getting them audited?
  No. Section 44AB requires a person to get 'his accounts' audited, which presupposes that accounts exist. Where the default is at the earlier stage of not maintaining books under s.44AA, the audit obligation never arises, and the penalty for that default is s.271A — not s.271B.
• Shakir Ahmad v ITO — s.44AE covers only the goods carriages the assessee owns, so expenditure on hired vehicles remains deductible ITATHelps taxpayerNo later treatment found
  My client is assessed under s.44AE on his own trucks, but he also hired trucks from the market. The officer has disallowed all the running expenses. Is that right?
  No. Section 44AE applies to an assessee who owns not more than ten goods carriages and deems the income from all the goods carriages owned by him; receipts relating to owned goods carriages are subject to the section, but vehicles taken on hire are outside it. The Delhi Bench directed the Assessing Officer to allow the deduction of expenditure relating to goods carriages not owned by the assessee but taken on hire from the open market for carrying out the transportation activities.
• Rashmi Subhash Jha v ITO — 'consultancy' is not 'technical consultancy', and deduction under s.194J does not make the receipt professional ITATHelps taxpayerNo later treatment found
  The CPC has re-cast my client's s.44AD return as a s.44ADA return under s.143(1)(a) because her clients deducted tax under s.194J. Is a consultant a professional for this purpose?
  No, on this order. The word 'consultancy' does not appear in s.44AA(1), which speaks of 'technical consultancy', and technical consultancy means the rendering of technical services; a consultant is therefore carrying on a business and may return income under s.44AD. The rate at which a client deducts tax while paying the assessee is of absolutely no relevance to the character of the receipt in the recipient's hands, and the adjustment made by the Assessing Officer and the CPC under s.143(1)(a) was held bad in law.
• Arthur Bernard Sebastine Pais v DCIT (CPC) ITATHelps taxpayer
  CPC has processed my return, decided that my receipts belong under s.44ADA at 50 per cent instead of s.44AD at 8 per cent, and raised a demand. Can that be done in a s.143(1) intimation?
  No. The Tribunal held that the whole of the gross receipts had in fact been included in the return, under s.44AD, so the condition for an adjustment under s.143(1)(a)(vi) — that income appearing in Form 26AS has not been included in computing the total income — was simply absent, and the addition fell on that ground alone. It went further and said that whether the income has to be taxed under s.44AD or under s.44ADA cannot be the subject matter of a decision in processing under s.143(1)(a). Be careful what you take from this. The Tribunal expressly declined to decide whether the assessee's management consultancy receipts were assessable under s.44ADA or s.44AD, and nothing in the order holds that they were not professional receipts.
• ADIT (International Taxation) v Shandong Tiejun Electric Power Engineering Co. Ltd — where s.44BBB(2) is complied with, the officer cannot reject the books under s.145(3) and fall back on the 10 per cent ITATHelps taxpayerNo later treatment found
  We are a foreign company on an approved turnkey power project. We keep books, they are audited, and we recognise revenue on percentage of completion under AS-7. The Assessing Officer has rejected the books under section 145(3) and taxed 10 per cent of our billings under section 44BBB(1). Can he do that?
  The Ahmedabad Bench of the Tribunal held he could not, on these facts, and dismissed the Revenue's appeal. Section 44BBB(2) gives the assessee an option to be assessed on lower profits on two conditions only — that it keeps and maintains books and other documents as required under s.44AA(2) and that it gets its accounts audited and furnishes the s.44AB report — and where those are satisfied and a recognised method of accounting under AS-7 has been regularly followed and disclosed, the officer's action in rejecting the books under s.145(3) and assessing under s.44BBB(1) on a presumptive basis is not justified.
• Statutory position — s.194H: two per cent on commission or brokerage paid to a resident since 1 October 2024, on a threshold that became twenty thousand rupees on 1 April 2025 CBDT Circulars & InstructionsCuts both ways
  I pay my selling agents a percentage on every order they bring in, and I give my distributors a discount off the list price. Do I deduct under section 194H, at what rate, and from what figure does the obligation start?
  Section 194H makes a payer who is not an individual or a Hindu undivided family deduct tax on any income by way of commission or brokerage paid to a resident, at two per cent. It was five per cent until 30 September 2024 and was substituted by Act No. 15 of 2024 with effect from 1 October 2024, so anything still applying five per cent to a later payment is applying a superseded rate. The threshold is an annual aggregate, not a monthly one: no deduction is required where the amount, or the aggregate of the amounts, credited or paid or likely to be credited or paid to that payee during the financial year does not exceed twenty thousand rupees, a figure substituted for fifteen thousand rupees by Act No. 7 of 2025 with effect from 1 April 2025 — and it stayed an annual aggregate on the very date section 194-I's rent threshold became a monthly one, so a payer who runs both rent and commission now applies two different kinds of test. Insurance commission is expressly outside the section and belongs to section 194D, and services rendered that are "professional services" are excluded from the definition and belong to section 194J; the section is also not divided into sub-sections, being printed as one unnumbered operative paragraph, three provisos and an Explanation in four clauses. All of this is the Income-tax Act, 1961, which the CBDT's transition FAQ says stands repealed on 1 April 2026. For a credit or payment on or after that date the corresponding provision is serial number 1(ii) of the Table to section 393(1) of the Income-tax Act, 2025, at the same two per cent and the same twenty thousand rupees.
• Statutory position — s.194J: two per cent on technical fees and film royalty, ten per cent on everything else, and a fifty thousand rupee threshold that never reaches a director CBDT Circulars & InstructionsCuts both ways
  I pay a consultant, I pay an engineering firm for technical work, and I pay my company's non-executive director a sitting fee. Do I deduct two per cent or ten per cent on each, and does the fifty thousand rupee limit apply to all three?
  Section 194J does not have one rate. Since 1 April 2020 it has two, and which one you use depends on which limb of sub-section (1) the payment falls into: two per cent for fees for technical services that are not professional services and for royalty that is consideration for the sale, distribution or exhibition of cinematographic films; ten per cent for everything else the section catches — professional fees, director's remuneration, other royalty and a non-compete sum under s.28(va) — and two per cent again, under a separate proviso, where the payee is engaged only in the business of operation of a call centre. The threshold in the first proviso is fifty thousand rupees, raised from thirty thousand by the Finance Act, 2025 with effect from 1 April 2025, and it is set out limb by limb for clauses (a), (b), (c) and (d) only — clause (ba), the director limb, is not in that list, so a single rupee of director's fee carries tax. An individual or Hindu undivided family is outside the section altogether unless the second proviso pulls them back in, and then only for fees for professional or technical services. All of this governs a sum credited or paid up to 31 March 2026: the Income-tax Act, 1961 stands repealed on 1 April 2026, and for a payment on or after that date the governing provision is section 393(1), Table, Serial No. 6(iii) of the Income-tax Act, 2025, which carries the same two rates and the same fifty thousand rupee threshold.
• Statutory position — s.44ADA: fifty per cent, the Rs 50 lakh / Rs 75 lakh ceiling, and the audit condition in s.44ADA(4) CBDT Circulars & InstructionsCuts both ways
  My client is a professional with gross receipts of about Rs 62 lakh, nearly all banked. Can he still use s.44ADA, and if he wants to declare less than fifty per cent, must he be audited?
  Section 44ADA deems fifty per cent of the total gross receipts of a resident individual or partnership firm (not an LLP) engaged in a profession referred to in s.44AA(1) to be the profits of that profession, where gross receipts do not exceed fifty lakh rupees — raised to seventy-five lakh rupees where cash receipts do not exceed five per cent of gross receipts. By s.44ADA(4), a professional who claims profits LOWER than the deemed fifty per cent must keep books under s.44AA(1) and get them audited under s.44AB only if his total income exceeds the maximum amount which is not chargeable to income-tax.
• Statutory position — s.44AE: Rs 1,000 per tonne for a heavy goods vehicle from AY 2019-20, Rs 7,500 for every other goods carriage CBDT Circulars & InstructionsCuts both ways
  My client runs six trucks, two of them well over twelve tonnes. What does he declare under s.44AE, and from which year did the per-tonne rate start?
  For a heavy goods vehicle the deemed profit is one thousand rupees per tonne of gross vehicle weight or unladen weight, as the case may be, for every month or part of a month of ownership, or the amount claimed to have been actually earned from that vehicle, whichever is higher; for every other goods carriage it is seven thousand five hundred rupees a month on the same 'whichever is higher' basis. That differentiated structure, and the definition of a heavy goods vehicle as a goods carriage whose gross vehicle weight exceeds 12,000 kilograms, were substituted into s.44AE by section 16 of the Finance Act 2018 with effect from 1 April 2019 — that is, from AY 2019-20.
• Statutory position — s.44AA(2): who must keep books of account, and the thresholds CBDT Circulars & InstructionsCuts both waysNo later treatment found
  My client runs a small business, not a notified profession. At what point is he obliged to keep books at all, and what are the current figures?
  For a business or a non-specified profession, books must be kept if income from the business or profession exceeds Rs 1,20,000 OR total sales, turnover or gross receipts exceed Rs 10,00,000 in any one of the three years immediately preceding the previous year. For an individual or a Hindu undivided family two provisos raise those figures to Rs 2,50,000 and Rs 25,00,000 respectively.
• Statutory position — s.44AD(4) and s.44AD(5): the five-year lock-out, and why the books-and-audit duty bites only if total income exceeds the exemption limit CBDT Circulars & InstructionsCuts both ways
  My client filed under s.44AD for two years and then declared below eight per cent in the third. What happens to him for the next five years, and does he now have to get audited?
  By s.44AD(4), an eligible assessee who has declared profit in accordance with s.44AD and who, in any of the five assessment years relevant to the succeeding previous years, declares profit NOT in accordance with s.44AD(1), is shut out of s.44AD for the five assessment years subsequent to the assessment year in which he broke ranks. By s.44AD(5), that assessee must keep books under s.44AA(2) and get them audited and reported under s.44AB only if his total income exceeds the maximum amount which is not chargeable to income-tax — a condition that both the department and the assessee routinely read out of the sub-section.
• Statutory position — section 44DA: royalty and fees for technical services effectively connected with a permanent establishment, and the second proviso that shuts section 44BB out from 1 April 2011 CBDT Circulars & InstructionsCuts both ways
  Our foreign company earns fees for technical services from an Indian oil company and we have a permanent establishment here. We have always returned the income at 10 per cent under section 44BB. The Assessing Officer says section 44DA applies instead. When did that change, and what does section 44DA require us to do?
  It changed with the Finance Act 2010, with effect from 1 April 2011, which inserted a second proviso to s.44DA(1) reading "Provided further that the provisions of section 44BB shall not apply in respect of the income referred to in this section." Section 44DA(1) applies where royalty or fees for technical services are received from Government or an Indian concern under an agreement made after 31 March 2003, the non-resident or foreign company carries on business in India through a permanent establishment or performs professional services from a fixed place of profession, and the right, property or contract in respect of which the royalty or fees are paid is effectively connected with that permanent establishment or fixed place; the income is then computed under "Profits and gains of business or profession" in accordance with the provisions of the Act — that is, on a net basis — and s.44DA(2) requires books under s.44AA, an audit by an accountant within the meaning of the Explanation below s.288(2), and the audit report furnished along with the return.
• Statutory position — section 44BBB: the 10 per cent turnkey power presumption, the international-aid condition dropped in 2003, and the lower-profit claim in sub-section (2) CBDT Circulars & InstructionsCuts both ways
  We are a foreign company erecting plant for a power project in India. The Assessing Officer wants to tax 10 per cent of our billings under section 44BBB although our audited books show much less. Can we claim the lower figure, and does it matter that our project is not funded by any aid programme?
  You can claim the lower figure, and the aid-funding point no longer matters. Section 44BBB(2), inserted by the Finance Act 2003 with effect from 1 April 2004, provides that notwithstanding sub-section (1) an assessee may claim lower profits and gains than the 10 per cent, if he keeps and maintains books of account and other documents as required under s.44AA(2) and gets his accounts audited and furnishes the audit report as required under s.44AB — whereupon the Assessing Officer must proceed to make an assessment of the total income or loss under s.143(3). The same Finance Act 2003 omitted, with effect from the same date, the words "and financed under any international aid programme" which until then had confined the section to aid-funded turnkey power projects; what remains is the requirement that the turnkey power project be approved by the Central Government in that behalf.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.