- Who is Required to Maintain Books of Accounts?
- Books of Accounts that need to be Maintained as per Rule 6F
- Penalty for Non-Maintenance of Accounting Records
- Who needs to get their Books of Accounts Audited?
- Which Tax Audit Reports to be Submitted and What are the Due Dates for the same?
- Penalty for not Auditing Books
- FAQs
Who is Required to Maintain Books of Accounts?
The income tax act specifies the books of accounts that need to be maintained for the purpose of the Income Tax. These are mentioned under section 44AA of the income tax act and rule 6F. Every person who has the following professions is required to maintain the books of accounts:
- Legal
- Medical
- Engineering
- Architectural profession
- Profession of accountancy
- Technical Consultancy
- Interior Decoration
- Authorized 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 INR 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 INR 1,50,000.
Here is a summary of the above requirements:
| Type of profession / business | Condition 1 | Condition 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 INR 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 INR 1,50,000.) | – |
| Non- Specified Professions and Business | Income from business and profession exceeds INR 1,20,000. (In case newly set up business or profession if his income from business or profession is likely to exceed INR 1,20,000 during such previous year) | Total sales, turnover or gross receipts in business or profession exceeds INR 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 INR 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.
Books of Accounts that need to be Maintained as per Rule 6F
The following books of accounts and documents are to be maintained as per Rule 6F:
- A cashbook: 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.
- 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.
- Ledger: It is a complete record of financial transactions. It holds account information that is needed to prepare financial statements and includes assets, liabilities, owner’s equity, revenues, and expenses.
- Carbon copies of bills: whenever such bills are issued by the person which are more than INR 25.
- Original bills: in respect of expenditure incurred by a person which is more than INR 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:
- A daily case registers in Form 3C i.e; Patient’s Name, Nature of professional service rendered (general consultancy, surgery, injection, visit, etc), Fees received, Date of receipt.
- 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.
| Taxpayer | Profit/Loss | Applicable Taxing Section | Applicable as per Section 44AA |
| Business | |||
| Income > INR 1,20,000 | Profit | Normal Provisions | Yes |
| Sales, turnover, gross receipts > INR 25 Lakh | Profit/Loss | Normal Provisions | Yes |
| Sales, turnover, gross receipts </= INR 25 Lakh | Proft/Loss | Presumptive Taxation – Section 44AD | No |
| Sales, turnover, gross receipts </= INR 25 Lakh | Profit/Loss | Normal Provisions | No |
| Turnover </= 2 Cr | Profit | Presumptive Taxation – Section 44AD | No |
| Turnover </= 2 Cr | Loss | Presumptive Taxation – Section 44AD | No |
| Turnover </= 2 Cr | Profit/Loss | Normal Provisions | Yes |
| Profession | |||
| Gross receipts </= 50 Lakh | Profit/Loss | Presumptive Taxation – Section 44AD | No |
| Gross receipts </= 50 Lakh | Profit/Loss | Normal Provisions | Yes |
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, a penalty of INR 25,000 will be levied to you.
If you have any international transactions or specified domestic transactions and you fail to maintain such information and documents then you will have to pay penalty for the amount of 2% of the value of each international transaction. However, if the taxpayer can prove there is a reasonable cause for failure to maintain accounting records then such penalty may not be levied.
Penalty for Non-Maintenance of Accounting Records
Failure to maintain the accounting records as per the requirements of Section 44AA, a penalty will be levied under section 271A. The maximum penalty that can be charged is INR 25,000. However, providing a reasonable cause for the failure to maintain accounting records may result in no penalty being levied on the taxpayer.
Who needs to get their Books of Accounts Audited?
Audit of accounts is compulsory under section 44AB in following scenario:
| Tax Payer | Audit of books of accounts when |
|---|---|
| An individual carrying on Business | Total sales, turnover or gross receipts, in business exceeds 1 Crore rupees in any previous year. |
| An individual carrying on Profession | Gross receipts in profession exceed 25 Lakh rupees in any previous year. |
| An individual covered under presumptive income scheme U/S 44AD | Income 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 Tax Audit Reports to be Submitted and What are the Due Dates for the same?
| Taxpayer | Audit Report | Prescribed particulars | Due Date of Audit | Due Date for Submission of Report |
|---|---|---|---|---|
| A person who carries on business or profession who is required to get his accounts audited | Form 3CA | Form 3CD | 30th September of the assessment year | 30th September of the assessment year |
| A person other than those listed above | Form 3CB | Form 3CD | 30th September of the assessment year | 30th 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.
Penalty for not Auditing Books
If the taxpayer fails to carry out the audit of the accounting records 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 applicable is INR 1,50,000. A penalty can be avoided if the taxpayer provides a reasonable cause for not having the accounting records audited.
FAQs
If any person fails to get his accounts audited or furnish audit report as per the requirements of Section 44AB, a penalty of
1. ½ % of total sales, turnover or gross receipts
2. 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.
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.
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 INR 25,000. However, if the taxpayer can prove the reasonable cause for failure to maintain accounting records then such penalty may not be levied.