As someone nearing the end of my articleship and currently preparing for CA Final, I’m grappling with a specific situation regarding presumptive taxation under Section 44AD. During my articleship at a mid-sized firm, I handled several cases involving small businesses opting for presumptive taxation. However, I’m now facing a tricky scenario that I can’t quite reconcile with the ICAI guidance notes.
The client, a small textile trader, declared income under 44AD for AY 2023-24. Now, for AY 2024-25, his turnover has slightly exceeded the INR 2 crore threshold, reaching INR 2.1 crore. He wants to opt-out of 44AD now. My confusion stems from understanding the applicability of Section 44AD(5). Since he opted into 44AD in the previous year, does the six-year lock-in apply despite him exceeding the turnover limit? Does exceeding the turnover automatically disqualify him, or does he still need to formally opt-out and potentially face scrutiny under the six-year rule outlined in the ICAI’s “Guidance Note on Tax Audit under Section 44AB of the Income-tax Act, 1961”? What are the practical implications and potential pitfalls in this situation?