Maintenance of Books of Accounts Under the Income Tax Act

Taxpayers often get confused about the maintenance of books of accounts and the period for which books are maintained and as a result they non-comply the income tax provisions.

To understand the provisions, one need to first get an idea about books of accounts and Specified profession, and non-specified profession and business.

Books of accounts: Books of accounts is a cumulation of record of the company. It is a financial information that produces relevant information to the stakeholders. As per the income tax act every person (Specified Profession) carrying on

  • Legal, medical,
  • engineering or
  • architectural profession or
  • the profession of accountancy or
  • technical consultancy or
  • interior decoration or
  • authorised representative or
  • film artist

shall keep and maintain the books of account and other documents specified under the relevant rule of income tax act.

Books of accounts includes ledgers, daybook, cash book, bank books, journal ledgers, whether kept in a loose paper form, binding form, floppy, hard disc, Pen drive, or any form of electronic storage device.

Books of accounts are required to be maintained under section 44AA of the income tax act 1961. Maintaining books of accounts will make enable the assessing officer to compute your taxable income and income tax liabilities. Requirement to maintain books of accounts can be summarized in below:

Specified Profession

Gross receipt < Rs.1,50,000 in any of the three years immediately preceding the previous year.

Person coming under this category is required to maintain books of accounts, however books of account has not been prescribed for this category of person

Specified Profession

Gross receipt > Rs.1,50,000 in any of the three years immediately preceding the previous year.

Person covered under this category is to maintain books as prescribed by rule 6F

Non-Specified Profession and business

Whose income from business and profession< 120000

or

Total sale, turnover, gross receipt <10,00,000 in all immediately preceding 3 years

Books of accounts are not required to be maintained

Non-Specified Profession and business

Whose income from business and profession> 120000

or

Total sale, turnover, gross receipt >10,00,000 in all immediately preceding 3 years

Books of accounts are required to be maintained

From the above categories it is clear that which person is required to maintain books of account. Now comes to the Specified books of account. CBDT has specified the certain books of account under the rule 6F. These books are as given below:

  1. a cash book;
  2. a journal, if the accounts are maintained according to the mercantile system of accounting;
  3. a ledger;
  4. carbon copies of bills, whether machine numbered or otherwise serially numbered, wherever such bills are issued by the person, and carbon copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by him;
  5. original bills wherever issued to the person and receipts in respect of expenditure incurred by the person or, where such bills and receipts are not issued and the expenditure incurred does not exceed fifty rupees, payment vouchers prepared and signed by the person:

       Apart from aforesaid books, a medical professional should maintain additionally the following books:

  1. a daily case register in Form No. 3C;
  2. an inventory [under broad heads,] as on the first and the last day of the previous year, of the stock of drugs, medicines and other consumable accessories used for the purpose of his profession.

Important Points:

  1. Books of accounts should be maintained at the place of profession or business. If you have more than one places than you should keep and maintain at the principal place of profession and business as per the provision of income tax act.
  2. Generally, it is asked that for how long should businessman maintain his books of accounts? Let us tell you that income tax act makes it mandatory to keep and maintain it for 6 years from the end of the relevant assessment year.
  3. Cash book means a record of all cash receipt and payment happened on day to day and giving closing and opening balance at each day.
  4. “film artist” means
    • an actor;
    • a cameraman;
    • a director, including an assistant director;
    • a music director, including an assistant music director;
    • an art director, including an assistant art director
    • a dance director, including an assistant dance director;
    • an editor;
    • a singer;
    • a lyricist;
    •  a story writer;
    • a screen-play writer;
    • a dialogue writer; and
    • a dress designer.
  5. Failure to keep and maintain books of account under section 44AA may invite penalty of Rs.25,000.
  6. Rule 6F has only specify the books for Specified professional, No specific books has been provided for Businessman and other professional not coved under section 44AA.

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