Maintenance of books of accounts is an important work for a successful business. Proper books of accounts can give you all the detailed records. You can find out any information about cash-in-hand, stock, dues from parties etc.
In most of the cases, my clients ask me about the procedure of maintenance. They are confused about the maintenance of proper books of accounts. Here I try to clear the confusion and discuss it in details.
Maintenance of Books of Accounts by persons carrying on Specified Profession [Section 44AA (1)]:
According to provisions of section 44AA (1), following are the notified professions which have to maintain books of accounts to enable the Assessing Officer for computing the total income and tax liability:
- Legal
- Medical
- Engineering
- Architectural
- Accountancy
- Interior Decoration
- Film Artist
- Company Secretary
- Information Technology
- Technical Consultancy
- Authorized Representative
- Any other profession as notified by the Board
Prescribed Limit
Suppose you are carrying on a specified profession as mentioned above. This does not mean that the books of accounts are required to be maintained compulsorily. There are some prescribed limits.
However, these prescribed limits can be divided into two parts. One is for the existing profession and another is for newly setup profession.
- Existing Profession: The maintenance of books of accounts is compulsory if the gross receipts of all three preceding previous year exceed Rs. 1,50,000.
- Newly setup Profession: Newly setup profession means a profession which is established in the current previous year. The maintenance of books of accounts is compulsory if the gross receipts are likely to exceed Rs. 1,50,000 in that particular previous year( i.e. in the year of establishment)
It may also happen that the gross receipts are less than the prescribed limit. In that case maintenance of books of accounts is not compulsory. However, it is very clear that you have to maintain such books of accounts which may enable the assessing officer to compute the total income and tax liability.
For example, Mr. Avishek is a person carrying on a profession as a company secretary. His gross receipts from profession are as under:
| Previous Years | Gross Receipts |
| 2015-16 | Rs. 1,00,000 |
| 2016-17 | Rs. 1,15,000 |
| 2017-18 | Rs.1,25,000 |
It is very clear from the above-mentioned information that the gross receipts in all three preceding previous year do not exceed Rs 1,50,000. Hence he is not required to maintain books of accounts as per provisions of section 44AA. However, he has to maintain such books of accounts which enable the assessing officer to compute his total income and tax liability.
Person carrying on Business or carrying on Non-specified profession [44AA (2)]
Non-specified profession means other than those mentioned in section 44AA (1), i.e. specified profession. In the case of business and non-specified profession, the prescribed limit for maintaining books of accounts are as follows:
a) Existing business or profession
In the case of existing business or profession, the books of accounts are required to be maintained if;
- Total income exceeds Rs. 1,20.000 or
- The turnover or Gross receipts exceed Rs. 10,00,000
In any one of the three previous years immediately preceding the relevant previous year.
b) Newly set up business or profession
Where the business or profession is newly set up in any previous year, such business or profession shall keep and maintain books of accounts if;
- The total income from business or profession, as the case may be, is likely to exceed Rs. 1,20,000 during such previous year or
- The total turnover or gross receipts of such business or profession, as the case may be, are likely to exceed Rs. 10,00,000 during such previous year.
It is very much clear that there are two types of criteria. One is related to total income and another is related to turnover/gross receipts. In order to maintain books of accounts, any of the criteria must be fulfilled.
From the above we can found another important point for existing business or profession. If the prescribed criteria are fulfilled in any one previous year, then the maintenance of books of accounts is compulsory.
For example, M/S Avishek & Company is a partnership firm. It is carrying on a retail business. Its total income and total income from business are as follows:
| Previous Year | Total Income | Turnover |
| 2015-16 | Rs. 1,05,250 | Rs. 8,95,000 |
| 2016-17 | Rs. 1,10,000 | Rs. 9,15,000 |
| 2017-18 | Rs 1,25,000 | Rs. 9,85,000 |
It is very clear from the above data that the turnover in every previous year is less than Rs. 10,00,000 but in the previous year 2017-18 the total income is more than Rs. 1,20,000. As per provisions of section 44AA of The Income Tax Act 1961, the books of accounts are required to be maintained if the total income exceeds Rs. 1,20,000 or total turnover exceeds Rs. 10,00,000 in any one of the three previous years immediately preceding the relevant previous year.
Hence maintenance of books of accounts is compulsory from the previous year 2018-19
Individual or HUF
In case of individual or HUF, the prescribed limit is little different from the above-mentioned limit. Difference minces difference in terms of amount. It is also an important point that the profession carried out by any individual or HUF must be other than the specified profession. Now the prescribed limit shall be:
a) Existing Business or Profession (Other than Specified Profession)
In the case of existing business or profession, the books of accounts are required to be maintained if;
- Total Income exceeds Rs. 2,50,000 or
- The turnover or Gross Receipts exceed Rs. 25,00,000
In any of the three years immediately preceding the relevant previous years
b) Newly set up Business or Profession (Other than the Specified profession)
Where the business or profession is newly set up in any previous year, such business or profession shall keep and maintain books of accounts if;
- The total income from business or profession, as the case may be, is likely to exceed Rs. 2,50,000 during such previous year or
- The total turnover or gross receipts of such business or profession, as the case may be, are likely to exceed Rs. 25,00,000 during such previous year.
So, the matter is the same. Only the amount is different.
For example, Mr. Avishek is an individual It is carrying on a profession which is other than the specified profession. His total income and gross receipts from the business are as follows:
| Previous Year | Total Income | Turnover |
| 2015-16 | Rs. 1,95,000 | Rs. 18,95,000 |
| 2016-17 | Rs. 2,05,000 | Rs. 19,15,000 |
| 2017-18 | Rs 2,25,000 | Rs. 25,95,000 |
It is very clear from the above data that the total income in every previous year is less than Rs.2,50,000 but in the previous year 2017-18 the total turnover is more than Rs. 25,00,000. As per provisions of section 44AA of The Income Tax Act 1961, in case of individual or HUF, the books of accounts are required to be maintained if the total income exceeds Rs. 2,50,000 or total turnover exceeds Rs. 25,00,000 in any one of the three previous years immediately preceding the relevant previous year.
Hence maintenance of books of accounts is compulsory from the previous year 2018-19
Specified Books of Accounts and other Documents
The following books of accounts and other documents are required to be maintained:
- Cash Book,
- Journal (In case of the mercantile system of accounting),
- Ledger,
- Carbon copies of bills, exceeding Rs. 25, issued by the assessee,
- Original bills whenever issued to the person and receipts in respect of expenditure incurred by the person where such bill exceeds Rs. 50.
In the case of a person carrying on the medical profession, such a person is required to maintain two more books,
i) a daily cash register in Form 3C and
ii) inventory records of drugs, medicines etc.
Place at which Books of Accounts are to be kept and maintained
The books and other documents shall be kept and maintained at the principal place of business or profession. It may also happen that the assessee has more than one place of business or profession. If separate books are maintained for each place of business/profession, then such books can be kept and maintained at the respective places. Otherwise, that must be kept at the principal place of business/profession.
Prescribed period for which books of accounts and other records are required to be kept & maintained
The above-mentioned books of accounts shall be kept and maintained for a period of 6 years from the end of the relevant assessment year. For example, if any person wants to keep books of accounts for the assessment year 2018-19, he must keep such books up to the assessment year 2024-25.
Penalty for failure to maintain books of accounts
Where the assessee fails to comply with the above provisions he shall be liable to the penalty of Rs.25,000.
Presumptive Income scheme
It may also happen that an assessee is carrying on a business or profession under presumptive income scheme i,e, under section 44AD, 44ADA, 44AE, 44BB or 44BBB. He can claim that his income is equal to or higher than the prescribed deemed income as per above-mentioned sections ( i.e. 44AD, 44ADA, 44AE etc). In such a case, he is not required to maintain books of accounts under section 44AA.
If he declares his income lower than the prescribed income under the relevant sections then he has to maintain books of accounts compulsorily.
For instance, as per section 44AD, the deemed profit of your business must be not less than 8% or 6% as the case may be. If you declare an income which is lower than 8% or 6% then you have to maintain books of accounts compulsorily.
If your income is more than the specified limit then no compulsory books of accounts are required to be maintained.
Now if your turnover is Rs 2 crore or more in a previous year then you cannot take the benefit of provisions of section 44AD. In that case, you have to maintain proper books of accounts.
Specified profession and section 44ADA
In case an assessee is carrying on a specified profession, maintenance of books of accounts is compulsory except when he is covered under section 44ADA.
As per section 44ADA, the assessee must be a resident in India. He is engaged in a profession specified in section 44AA (1). The total gross receipts from that specified profession do not exceed Rs. 50,00,000 in a previous year. An amount equal to 50% or more of the gross receipts shall be deemed to be the profit of that previous year.
In such a case, books of accounts are not required to be maintained compulsorily.
However, if the assessee claims an income lower than the 50% of the total gross receipts, then he has to maintain compulsory books of accounts.
Compulsory audit of the Books of Accounts
In the following cases audit of the books of accounts is compulsory:
- In the case of a business if the total turnover or total sales or gross receipts are more than Rs. 2 crores, then the audit of the books of accounts is compulsory;
- In the case of a profession if the gross receipts are more than Rs 50 Lakhs, then the audit of the accounts is compulsory;
- It may also happen that a business is covered under presumptive income scheme under section 44AD. If the amount of profit is lower than 8%( or 6% as the case may be), then also the audit of accounts is compulsory;
- In the case of a person, carried on a profession and covered under presumptive income scheme under section 44ADA and the amount of profit is lower than 50% of the gross receipts, the audit is compulsory;
- In the case of a business covered under section 44AE and the amount of profit is less than the specified limit, the books of accounts must be audited.
The due date for Audit of the books of accounts
Specified due date of the audit shall be as under:
- In case of International Transaction u/s 92B or specified domestic transaction u/s 92BA the due date is 30th November of the relevant assessment year.
- In any other cases, the due date is 30th September of the relevant Assessment Year.
Final View
We can see many different criteria for maintaining books of accounts. If you fulfill such criteria, you can avoid maintenance of books. But, as per my opinion you have to maintain books of accounts compulsorily. You can maintain only those books of accounts which can give you proper information. It will help you in the future.