Hiral Vakil
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:
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.
The following books of accounts and documents are to be maintained as per Rule 6F:
A person carrying on medical profession shall, in addition to the books of account and other documents needs to keep and maintain the following:
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 |
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.
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.
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. |
| 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.
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.
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.
