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The Income Tax Act has specified the books of accounts that are required to be maintained for the purpose of Income Tax. These have been prescribed under section 44AA and Rule 6F.

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Who is required to maintain books of account?

Books of accounts/accounting records have to be maintained if the gross receipts are more than Rs. 1,50,000 in 3 preceding years for an existing profession. This also applies to a newly set up profession whose gross receipts are expected to be more than Rs. 1,50,000.

books of accounts

The accounting records to be kept have been prescribed in Rule 6F. The below professions are required to maintain Books of accounts/accounting records:

  • Legal
  • Medical
  • Engineering
  • Architectural
  • Accountancy
  • Technical consultancy
  • Interior decoration
  • Authorized representative — A person who represents another person for a fee before a tribunal or any authority constituted under any law. It does not include an employee of the person so represented or a person who is carrying on the profession of accountancy.
  • Film artist — This includes a producer, editor, actor, director, music director, art director, dance director, cameraman, singer, lyricist, story writer, screenplay or dialogue writer and costume designers.
  • Company secretary

If you are a freelancer pursuing any of these listed professions and your gross receipts are more than Rs. 1,50,000, these rules shall apply to you.

If the gross receipts of the Professions listed above are not more than Rs 1,50,000 in any one or more of the preceding 3 years for an existing profession or for a newly set up profession whose gross receipts are expected to be not more than Rs 1,50,000 – the professional is not required to maintain books of accounts as per section 44AA. In such a situation, a professional has to maintain books of accounts which would enable the AO to compute the taxable income of the professional from them.

Specified books of account as per Rule 6F

  • Cash book
    A record of day to day cash receipts and payments which shows cash balance at the end of the day or at best at the end of each month and not later.
  • A journal according to mercantile system of accounting
    A journal is a log of all day to day transactions. It is a record, in accounting terms, where total credits equal total debits, when we follow the double entry system of accounting ie each debit has a corresponding credit and vice versa.
  • A ledger where all entries flow from the journal, has details of all accounts, this can be used to prepare the financial statements.
  • Photocopied of bills or receipts issued by you which are more than Rs 25
  • Original bills of expenditure incurred by you which are more than Rs 50

Following are the additional requirements in case of a person carrying on medical profession — physicians, surgeons, dentists, pathologists, radiologists, etc.

  • Daily cash register with details of patients, services rendered, fees received and date of receipt
  • Details of stock of drugs, medicines, and other consumables used

These books should be maintained at the Head Office or at each of the offices.

 

Taxpayer

Profit/Loss

Applicable taxing section

Whether books as per section 44AA applicable

Business

Income > Rs 1,20,000

Profit

Normal provisions

Yes

Business

Sales, turnover, gross receipts > Rs 25 Lakh

Profit/Loss

Normal provisions

Yes

Business

Sales, turnover, gross receipts </= Rs 25 Lakh

Profit/Loss

Presumptive taxation – Section 44AD

No

Business

Sales, turnover, gross receipts </= Rs 25 Lakh

Profit/Loss

Normal Provisions

No

Business

Turnover </= 2 Crore

Profit

Presumptive taxation – Section 44AD

No

Business

Turnover </= 2 Crore

Loss

Presumptive taxation – Section 44AD

No

Business

Turnover </= 2 Crore

Profit/Loss

Normal provisions

Yes

Profession

Gross receipts </= 50 Lakh

Profit/Loss

Presumptive taxation – Section 44ADA

No

Profession

Gross receipts </= 50 Lakh

Profit/Loss

Normal provisions

Yes

For how long should these books be maintained?

Each year’s books must be kept for a period of 6 years from the end of that year.

Failure to maintain books of accounts

If you fail to maintain books of accounts as prescribed, you may be charged a penalty of Rs 25,000 or in some cases where you may have international transactions and you have failed to maintain information and documents for such transactions – 2% of the value of each international transaction.

It would be diligent to maintain your books of accounts and keep track of all your expense and income in a methodical way.

When is bookkeeping not required?

  • Where the income does not exceed Rs 1,20,000 or total sales, turnover or gross receipts are not more than 10,00,000 in all preceding 3 years — no books of account are required to be maintained. In case of a newly set up profession or business the same rule applies when income is expected to be less than Rs 1,20,000 or sales/turnover/gross receipts are expected to be less than Rs 10,00,000.
  • Where the income is more than Rs 1,20,000 or total sales, turnover or gross receipts are more than 10,00,000 in all preceding 3 years, such profession or businesses must maintain books of accounts and other documents which may enable the Assessing Officer to calculate their taxable income as per the Income Tax Act. No specific records are prescribed. In case of a newly set up profession or business, the same rule applies when income is expected to be more than Rs 1,20,000 or sales/turnover/gross receipts are expected to be more than Rs 10,00,000.
  • For Professions and Businesses covered under section 44AD and 44AE
    Businesses covered under section 44AD and 44AE are not required to maintain any books of accounts.

    However taxpayers who claim that their income from business is lower than the presumed income calculated under section 44AE must maintain books of accounts as specified in section 44AA and have them audited under section 44AB.

    A taxpayer may shifts from presumptive taxation under section 44AD/44ADA to normal taxation to claim that their income from business or profession is lower than the presumed income calculated under section 44AD/44ADA. In such a case, where the income exceeds the basic exemption limit of Rs 2,50,000, books of accounts as required under section 44AA have to be maintained and audited as per section 44AB.

  • From AY 18-19, the limit of Rs. 120,000 has been increased to Rs. 250,000 and Rs. 10,00,000 to 25,00,000.

  • In the case of a taxpayer whose turnover was less than Rs 25 Lakh, but having total income above the maximum amount not chargeable to tax, are excluded from maintenance of books of accounts as per 44AA.

Audit Requirements

Audit of accounts is compulsory by a Chartered Accountant for the following persons

Tax Payer Compulsory Audit required when
A person carrying on Business If total sales, turnover or gross receipts are more than Rs. 1 crore
A person carrying on Profession If gross receipts are more than Rs. 50 lakh
A person covered under presumptive income scheme section 44AD If income of the business is lower than the presumptive income calculated as per Section 44AD and the person’s total income is more than the maximum income which is exempt from tax.
A person covered under presumptive income scheme section 44AE If income of the business is lower than the presumptive income calculated as per Section 44AE.
A person covered under presumptive income scheme section 44ADA If income of the profession is lower than the presumptive income calculated as per section 44ADA and the person’s total income is more then the maximum income which is exempt from tax.

Due date for getting records audited and submission of audit report

Taxpayer Audit Form Statement Form Due date for Audit Due date for submission of report
A person carrying on business or profession who is compulsorily required to get audited under any other statute/law. Form 3CA Form 3CD September 30 of the assessment year September 30 of the assessment year
A person other than those listed above who are required to get audited under Income tax law Form 3CB Form 3CD September 30 of the assessment year September 30 of the assessment year

The deadline for audit and submission of report is November 30 in case of international or specified domestic transactions.

Penalty when accounting records as required are not maintained as per Section 44AA

If the taxpayer fails to maintain accounting records as per the requirements of Section 44AA, a penalty may be levied under section 271A. The maximum penalty that can be charged is Rs. 25,000. However, if the taxpayer can prove there is a reasonable cause for failure to maintain accounting records – such penalty may not be levied.

If the taxpayer fails to get the accounting records audited or furnish audit report as per the requirements of Section 44AB, a penalty may be levied under section 271B. The minimum penalty that can be charged is 0.5% of the total sales, turnover or gross receipts. The maximum penalty is Rs 1,50,000. However, if the taxpayer has a reasonable cause for failure to get an audit done – such penalty may not be levied.

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