What are the records a freelancer is required to maintain.

When you are carrying on some freelancing work, running a business or even maintaining your personal finances, it is always prudent to keep a record of your expenses and income. Not only does this aid in filing your taxes, maintaining accounting details will be good for you to know your profitability, to manage expenses well and also will help you when you plan for your next business moves.

The Income Tax Act does lay down a set of guidelines where it defines specifically whether books of accounts are required to be maintained and what are those books of accounts

Type of Profession Gross Receipts of Profession During Required to maintain books of accounts Type of books of accounts
Specified Profession* Do not Exceed Rs 1,50,000 In the current year if profession has just been started OR else in any 1 or more of the 3 years immediately preceding the current year. Yes No exact books have been prescribed, but record should be such that they are enough for the Assessing Officer to compute taxable income if required.
Specified Profession* Exceed Rs 1,50,000 In the current year if profession has just been started OR else In ALL the 3 years immediately preceding the current year. Yes As per Rule 6F **
Non Specified Profession {Includes those carrying on a Business} Income of such Business or non specified Profession does not exceed Rs 1,20,000 OR the total sales, turnover or gross receipts, do not exceed Rs 10,00,000 In the current year if the business or profession has just been started OR else in all of the 3 years immediately preceding the current year. No NA
Non Specified Profession {Includes those carrying on a Business} Income of such Business or non specified Profession exceeds Rs 1,20,000 OR the total sales, turnover or gross receipts, exceeds Rs 10,00,000Includes those covered under section 44AD, 44AE, 44AF, 44AB, 44BBB In the current year if the business or profession has just been started OR else in any 1 or more of the 3 years immediately preceding the current year. Yes No exact books have been prescribed, but record should be such that they are enough for the Assessing Officer to compute taxable income if required.

From AY 18-19, the limits of Rs. 120,000 and Rs. 150,000 have been increased to Rs. 250,000 and Rs. 10,00,000 to 25,00,000.

*Specified Profession – Legal, medical, engineering, architectural, accountancy, technical consultancy, or interior decoration, or film artist(included actor, director, music director, art director, singer, story writer etc), company secretary, information technology. Also includes authorized representative – who represents any other person, on payment of any fee or remuneration, before any Tribunal or authority constituted or appointed by law (not including employee of the person represented or someone carrying on a legal profession or an accountancy profession).

** Rule 6F – The prescribed books of accounts are-

  • Cash book – record of day to day cash receipts & payments – that shows cash balance at the end of the day or at best at the end of the each month and not later
  • A journal according to mercantile system of accounting (read here to know about mercantile system https://blog.cleartax.in/freelancer-cash-basis-or-accrual-basis-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 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.

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 & 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. Reach out to us at support@cleartax.in and know all about our services for freelancers and businesses here http://cleartax.in/Business

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