Income Tax Law makes a mandatory requirement for businesses and professionals to maintain books of accounts as per Section 44AA and Rule 6F.
A) A person carrying on a specified profession would be required to maintain the book of accounts if his or her gross receipts are more than Rs.1,50,000 in previous three years. Specified profession under section 44AA and rule 6F of the Income Tax Act includes professions such as:
- Technical Consultancy
- Interior Decoration
- Authorized Representative
- Company Secretary
- Film artist
B) Businesses or Professions other than specified above:
As per section 44AA(2), it is mandatory to maintain books of accounts in the following cases:
- In case of income from business or profession, book of accounts must be mandatorily maintained if the income exceeds Rs.2,50,000 during current year Or if total sales or turnover or gross receipts exceed Rs.25 lakhs in any one of the previous 3 years.
- Where in case of a new business or profession, if the income is expected to exceed Rs 2,50,000 or the total sales or turnover or gross receipts are expected to exceed Rs 25 lakhs.
- If the assessee is covered under section 44AD or section 44AE or section 44ADA and has claimed his income lower than the profits or gains deemed under section 44AD or section 44AE or section 44ADA respectively in the Income Tax Return.
Note: The limit of Rs. 150,000 has been increased to Rs. 250,000 from FY 2017-18 (AY 2018-19).
Specified books of account to be maintained as per Rule 6F:
- Cash book having day to day cash transactions
- Journal according to mercantile system of accounting
- Record of all cash receipts and payments which show cash balance in hand at the end of the day or at the end of each month (not exceeding a month).
- Carbon copies of bills or receipts of more than Rs 25 in value issued by you must be kept
- Carbon copies of bills of expenditure of more than Rs 50 in value incurred by you must be kept
- A ledger should also be maintained.
There are further requirements for those taxpayers who are involved in the medical profession, (for e.g. physicians, surgeons, dentists, pathologists, radiologists, etc.) to maintain additional books along with the books mentioned above. Such as:
- Daily cash register in Form No.3C with details of patients, services rendered, fees received and date of receipt
- Details of inventory of drugs, medicines, and other consumables used as on the first and last day of the previous year
Note: These books should be maintained at the Head Office or at each of the offices.
Period of maintenance of Books of Accounts
All the books of accounts mentioned above should be kept for duration of 6years from the end of the relevant assessment year.
Penalty on Non-maintenance of Books of Accounts
In case of Non-maintenance of books of account as per the provisions of section 44AA, then the penalty of Rs. 25,000 shall be levied under section 271A. You can avoid the penalty if you can give a reasonable cause for the non-maintenance of books of accounts to the Assessing Officer.