Guide: Book Keeping and Audit for Business and Profession

Author
By Hiral Vakil on March 8, 2019

Who is required to maintain books of accounts?

Every person carrying on profession like:

  • Legal
  • Medical
  • Engineering
  • Architectural profession
  • Profession of accountancy
  • Technical Consultancy
  • Interior Decoration
  • Authorised Representative
  • Film Artist
  • Or Any other profession as is notified by the Board in the Official Gazette shall keep and maintain the books of accounts and other documents if his total gross receipt in the profession exceeds Rs. 1,50,000 in any one of the 3 years immediately preceding the previous year, or where the profession has been newly set up in the previous year than in that case if his total gross receipts in the profession for that year are likely to exceed Rs. 1,50,000.

Here is a summary of the above requirements:

Type of profession / businessCondition 1Condition 2
Specified Professions i.e; Legal, Medical, Engineering, Architectural, Accountancy, Technical Consultancy, Interior Decorator, Authorized Representative, Film Artist.Total Gross Receipt in the profession exceeds Rs. 1,50,000 in any one of the 3 years immediately preceding the previous year. (where the profession has been newly set up in the previous year than in that case if his total gross receipts for that year are likely to exceed Rs. 1,50,000.)
Non- Specified Professions and BusinessIncome from business and profession exceeds Rs. 1,20,000.(In case newly set up business or profession if his income from business or profession is likely to exceed Rs. 1,20,000 during such previous year)Total sales, turnover or gross receipts in business or profession exceeds Rs. 10,00,000 in any one of the 3 years immediately preceding the previous year. (In case of newly set up business or profession if his total sales, turnover or gross receipts is likely to exceed Rs. 10,00,000 during such previous year.)

In the case of Specified professions, even if you don’t fulfill the condition 1 as mentioned above, you need to maintain the books of account. The only condition here is that the Assessing office should be able to calculate the taxable income of your profession.

Which Books of Accounts to be maintained?

The following books of accounts and documents are to be maintained as per Rule 6F:

  1. A cash book: Records of all day-to-day cash receipts and payments and the cash balance in hand at the end of each day or at the end of each month.
  2. A journal: if the accounts are maintained according to the mercantile system of accounting. A journal is a record of financial transactions in order by date. It is often defined as the book of original entry.
  3. A ledger: It is a complete record of financial transactions. It holds account information that is needed to prepare financial statements and includes for assets, liabilities, owner’s equity, revenues, and expenses.
  4. Carbon copies of bills: whenever such bills are issued by the person which are more than Rs. 25.
  5. Original bills: in respect of expenditure incurred by a person which are more than Rs. 50.

A person carrying on medical profession shall, in addition to the books of account and other documents needs to keep and maintain the following:

  1. A daily case register in Form No. 3C i.e; Patient’s Name, Nature of professional service rendered (general consultancy, surgery, injection, visit etc), Fees received, Date of receipt.
  2. An inventory as on the first and the last day of the previous year, of the stock of drugs, medicines and other consumable accessories used of his profession.

The books of accounts and other documents should be kept and maintained at the principal place of his profession or at the respective places at which the profession is carried on.

How long one should keep these books of accounts?

The books of accounts and other documents specified above shall be kept and maintained for a period of 6 years from the end of the relevant assessment year. In case you fail to maintain the books of accounts and other documents penalty of Rs. 25,000 will be levied to you.

If you have any international transactions or specified domestic transactions and you fail to maintain such informations and documents, than you will have to pay penalty for the amount of 2% of value of each international transaction. However, if the taxpayer can prove there is a reasonable cause for failure to maintain accounting records than such penalty may not be levied.

Who needs to get their books of accounts audited?

Audit of accounts is compulsory under section 44AB in following scenario:

Tax PayerAudit of books of accounts when
An individual carrying on BusinessTotal sales, turnover or gross receipts, in business exceeds 1 Crore rupees in any previous year.
An individual carrying on ProfessionGross receipts in profession exceed 25 Lakh rupees in any previous year.
An individual covered under presumptive income scheme U/S 44ADIncome of business is lower than the presumptive income calculated as per section 44AD and the total income is more than the minimum income which is exempt from tax.

Which Audit Reports to be submitted and what are the due dates for the same?

TaxpayerAudit ReportPrescribed particularsDue Date of AuditDue Date for Submission of Report
A person who carries on business or profession who is required to get his accounts auditedForm 3CAForm 3CD30th September of the assessment year30th September of the assessment year
A person other than those listed aboveForm 3CBForm 3CD30th September of the assessment year30th September of the assessment year

In the case of international or specified domestic transactions, the time limit for audit and submission of report is November 30.

Frequently Asked Questions

1. What is the penalty for not getting books of accounts audited as per Section 44AB?

If any person fails to get his accounts audited or furnish audit report as per the requirements of Section 44AB, a penalty of

  • ½ % of total sales, turnover or gross receipts
  • a sum of Rs. 1,50,000 whichever is less is levied.

However, if an assessee has a reasonable cause for failure to get an audit done in that case penalty may not be levied.

2. When is Book keeping not required?

If you are following the presumptive taxation scheme as per section 44AD / 44ADA / 44AE of the Income tax Act, you need not maintain books of accounts. However, if your business income is lower than the presumptive income calculated as per section 44AD / 44ADA / 44AE then you will have to maintain books of accounts as prescribed in section 44AA.

Presumptive Taxation Scheme which allow small business owners and professionals to file an income tax return without books of accounts.

3. What is the penalty for not maintaining books of accounts as per Section 44AA?

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