As per Section 44AA of Income Tax Act, 1961, some specified taxpayers are required to maintain books of accounts for the purpose of income tax.
Books of Accounts refer to the documentation of all the financial data and financial information of the entity. It states financial position of the business. All financial transactions are recorded in it. It is usually maintained at a prescribed place of business as per the different Acts. Generally, it is the responsibility of the owner to record proper information.
It mainly includes-
- Journal
- Ledgers
- Trading Account
- Profit and Loss Account
- Balance Sheet
- Notes to Accounts
- Cash flow Statements
In India, a business entity needs to follow below mentioned laws. Maintenance of BOOKS OF ACCOUNTS provisions are different under-
- Income Tax Act, 1961
- Goods And Service Tax Act, 2017
- The Companies Act, 2013
INCOME TAX ACT, 1961
Who has to maintain Books of Accounts?
The Income Tax law distinguishes person in two categories for the maintenance of Books of Accounts –
- Specified profession
- Legal
- Medical
- Engineering
- Architectural
- Accountancy
- Technical Consultancy
- Interior Decoration
- Authorized Representative
- Company Secretary
- Film artist
- Businesses or Professions other than specified profession.
It is compulsory to maintain books of accounts for-
| Particular | Amount |
| Specified Profession | Gross receipts exceed or Rs 1,50,000 in any of last three previous year. |
| Non-Specified Profession (Individual or HUF) | Income exceed Rs. 2,50,000, or Turnover/ Gross receipts exceeds 25,00,000 in any of the last 3 previous year. |
| Non-Specified Profession (other than Individual or HUF) | Income exceeds Rs. 1,20,000 or Turnover/ gross receipts exceeds Rs. 10,00,000 in any of the last 3 previous year. |
Note: In case Income or Turnover/ Gross Receipts are likely to exceed the above prescribed limit, then its mandatory to maintain the required books of accounts.
Read Also: FAQs on Income Tax Audit under section 44AB of Income Tax
What books of Accounts are required to maintain under Income Tax?
Books of Accounts as per Rule 6F-
- Cash book-A record of day to day cash receipts and payments.
- Journal- A journal is a log of all day to day transactions.
- Ledger– An account where all entries flow from the journal, has details of all accounts, this can be used to prepare the financial statements.
- Daily cash register of 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)
- Photocopied of bills or receipts issued by the business which are more than Rs 25.
- Original bills of expenditure incurred by business which are more than Rs 50.
Exception : If the person declares income according to the provisions of the section 44AD, section 44AE or section 44ADA, then specified books of accounts are not compulsory to maintain for the previous year.
Read Also: Difference between Section 44AD, 44ADA and 44AE
How many years books of Accounts should be maintained under Income Tax Act?
Each year’s books must be kept for a period of 6 years from the end of the relevant Assessment Year. For example, Books of Accounts for FY 2020-21 shall be maintained till FY 2027-28.
Penalty under Income tax
If you fail to maintain books of accounts as prescribed, you may be charged a penalty of Rs 25,000 under section 271A of Income Tax Act, 1961. Read Also: Income Tax Penalties under Income Tax Act, 1961
Read more:
- Mandatory maintenance of Accounts under GST Law
- Mandatory books of Accounts under Companies Act, 2013
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The author of the above article is Aditya Kishore.
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