Maintenance of Books of Accounts Under Income Tax Act, GST Act & Companies Act

Books of accounts including vouchers and receipts are required to be maintained under different statutory laws – Income Tax Act, Companies Act 2013 and GST Act. Books to be maintained, retention period and compulsion requirements are different under all the 3 laws.

Importance of Maintaining Books of Accounts

Financial statements are essential records for both the tax department and taxpayers. They help regulate the tax due and determine the deductions for certain payments and investments, identify income sources, and keep track of income.

Maintenance of Books of Accounts Under the Income Tax Act

For Individual or  HUF :

If the sale/turnover/gross receipts from the business or profession is more than Rs. 25,00,000 or the income from business or profession is more than Rs. 2,50,000 in any of the 3 preceding years, then books of accounts will be compulsorily maintained.

For Persons Other than Individual or HUF : 

If the sale/turnover/gross receipts from the business or profession is more than Rs. 10,00,000 or the income from business or profession is more than Rs. 1,20,000 in any of the 3 preceding years, then books of accounts will be compulsorily maintained.

Special Cases :

• Assessee claiming lower income u/s 44AD and Net Total Income is greater than the basic exemption limit
• Assessee claiming lower income u/s 44AE, 44BB, 44BBB

Maintenance of books of account and other documents for notified professions

The following professions are covered under this provision:

• Legal
• Medical
• Engineering
• Architectural
• Accountancy
• Technical consultancy
• Interior decoration
• Authorised Representative (one who charges fees for representing someone before the tribunal or any authority)
• Film artist (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 Gross receipts exceed Rs 1,50,000/- in all the 3 year immediately preceding the previous year or Where the profession has been newly set up in the previous year, his gross receipts are likely to exceed Rs 1,50,000 in the year, Then the professionals should have to maintain a books of accounts.

Books of Accounts as Per Rule 6F

• Cash Book
• Journal
• Ledgers
• Copies of bills or receipts
• Daily case register with details of patients, services rendered, fees received, and date of receipt (persons carrying on medical profession)
• Details of stock of drugs, medicines, and other consumables used (persons carrying on medical profession)

If the income isn’t more than Rs.1,50,000 in any of the 3 preceding years or not expected to be more than Rs.1,50,000  in case of a new profession, then also books should be maintained. However, books, in this case, haven’t been specified – so any books can be maintained but it should be such that ATO can calculate the income. Books should be maintained for a period of 6 years from the end of the relevant year.

Penalty for Not Maintaining Books of Accounts

There’s a fixed penalty if the taxpayer fails to maintain the accounting records as per the Section 44AA, and the penalty is levied under Section 271A. The maximum penalty is charged at the limit of INR 25,000. The penalty may also be avoided if the taxpayer can provide any reasonable justification for the failure in maintaining the records.

Maintenance of Books of Accounts Under Companies Act.

Every company has to maintain books of accounts at its registered office or any other office that the board of directors may decide. If the company maintains books at an office other than its registered office, it must intimate the same to RoC. The company can also maintain the accounts electronically.

Duration for which the Books Need to be Maintained

Books should be maintained for a period of 8 years from the end of the relevant financial year as per Companies Act, 2013.

Books of Accounts to be Maintained

• Cash flow statement
• Records of sales and purchases
• Records of assets and liabilities
• Items of cost
• Deeds, vouchers, writing, documents, minutes, and registers whether in physical or electronic mode

Maintenance of Books of Accounts under the GST Act

Every registered person has to maintain GST records at the principal place of business.

Records to be Maintained

• Production or manufacture of goods
• Inward and outward supply of goods or services or both
• Stock of goods
• Input tax credit availed
• Output tax payable and paid and
• Records of goods or services Imported or exported
• Other particulars as may be prescribed

Duration for which the Books Need to be Maintained

Books and records should be maintained for 6 years from the last date of filing of the annual return (31st December) for that year under the GST Act.