Maintenance of Accounts
Introduction
An assessee is required to prepare and maintain books of account if his income or gross turnover or receipts, as the case may be, exceeds the prescribed threshold limit. The books of account and documents should be kept and maintained by the assessee at the place where he is carrying on the profession. The prescribed books of account should be kept and maintained for a period of 7 years from the end of the relevant tax year.
1. Who has to maintain books of accounts?
A taxpayer is required to maintain books of accounts and get them audited. The requirement to maintain the books of accounts is prescribed under Section 62, and the requirement to get them audited is mentioned in Section 63.
An assessee shall maintain books of accounts to enable the Assessing officer to compute his total income. Such books of accounts are required to be maintained if its income or gross turnover/receipts during the specified period exceeds the prescribed threshold limit. If the threshold limit, as specified in the below table, is not crossed, the assessee shall not be required to maintain books of accounts in accordance with this provision. However, there are certain professionals who are required to maintain their books of accounts irrespective of their gross receipts and income.
The table below demonstrates the requirement for maintaining books of accounts by different taxpayers. If a taxpayer exceeds either of the threshold of income or gross turnover, he shall be required to maintain the books of account.
| Nature of Business or Profession | Category of Taxpayer | Threshold Limits | |
| For Income | For Gross Turnover or Receipts | ||
| Specified Professions* | Any | Mandatory in every case except where presumptive taxation scheme under Section 58(2) [Table S. No. 3] is opted by the assessee | |
| Non-Specified Professions | Individual or HUF | More than Rs. 2,50,000 in any of the 3 years immediately preceding the tax year** | More than Rs. 25 lakhs in any of the 3 years immediately preceding the tax year** |
| Non-Specified Professions | Others | More than Rs. 1,20,000 in any of the 3 years immediately preceding the tax year** | More than Rs. 10 lakhs in any of the 3 years immediately preceding the tax year** |
| Business | Individual or HUF | More than Rs. 2,50,000 in any of the 3 years immediately preceding the tax year** | More than Rs. 25 lakhs in any of the 3 years immediately preceding the tax year** |
| Business | Others | More than Rs. 1,20,000 in any of the 3 years immediately preceding the tax year** | More than Rs. 10 lakhs in any of the 3 years immediately preceding the tax year** |
| Business eligible for Presumptive Tax Scheme under Section 58(2) [Table S. No. 1] | Resident Individual or HUF | Taxpayer has opted for the scheme in any tax year, but it does not declare profit for any of the 5 tax years suceeding such tax year (if total income exceeds the maximum amount which is not chargeable to tax). | |
| Business eligible for Presumptive Tax Scheme under Section 58(2) [Table S. No. 1] | Resident Partnership Firm | Taxpayer has opted for the scheme in any tax year, but it does not declare profit for any of the 5 tax years suceeding such tax year. | |
| Business eligible for Presumptive Tax Scheme under Section 58(2) [Table S. No. 1 to 3] | Any Assessee engaged in plying, hiring or leasing goods carriage | - | Taxpayer claims that the profits are lower than the deemed profits and total income exceed the maximum amount not chargeable to tax. |
| Business eligible for Presumptive Tax Scheme under Section 61(2) [Table S. No. 5] | Non-resident assessee engaged in exploration of mineral oil | - | Taxpayer claims that the profits are lower than the deemed profits. |
| Business eligible for Presumptive Tax Scheme under Section 61(2) [Table S. No. 4] | Foreign Co. engaged in civil construction | - | Taxpayer claims that the profits are lower than the deemed profits. |
* Meaning of Specified Profession:
a) Legal
b) Medical
c) Engineering
d) Architectural
e) Technical Consultancy
f) Interior decoration
g) Film artist
h) Authorized Representative
i) Accountancy Profession
j) Company secretary
k) Information Technology
** Where business or profession has been set-up during the tax year, the threshold limit of income or gross receipts of current year shall be checked. In other words, in case of new business or profession, if income or turnover or receipt of current year, as the case may be, are not likely to exceed the threshold limit, the assessee shall not be required to maintain the books of account.
2. Which books of accounts have to be maintained?
The following documents should be maintained by the taxpayers to comply with requirement of maintenance of books of accounts:
| Nature of Business or Profession | Threshold Limits | Books of Accounts to be maintained |
| Specified Professions other than company secretary and Information technology | Gross receipt exceeds Rs. 1,50,000 in any of 3 years immediately preceding the tax year | 1. Cash book 2. Journal, if books of accounts are maintained according to mercantile system of accounting 3. Ledgers 4. Copies of bills or receipts issued by the assessee of value Rs. 250 or more 5. Original bills and receipts in respect of the expenditures Rs. 250 or more incurred by him and issued to him 6. Payment voucher prepared and signed by assessee if the expenditure does not exceed Rs. 250 and cash book maintained does not contain adequate particulars in respect of such expenditure. |
| Medical Professions | Gross receipt exceeds Rs. 1,50,000 in any of 3 years immediately preceding the tax year | 1. As specified above for specified professions 2. Daily case register in Form 25 3. Inventroy under broad heads of the stock of drugs, medicines and other consumable accessories used for the purpose of his profession, as on the first and the last day of the tax year |
| Specified Professions | In every case irrespective of gross receipts and Income | Such books of accounts which may enable the Assessing Officer to compute the taxable income. |
| Non-Specified Professions | Income and turnover does not exceed the threshold limit as specified above | Not required to maintain books of accounts |
| Business | Income and turnover does not exceed the threshold limit as specified above | Not required to maintain books of accounts |
| Non-Specified Professions | Income and turnover exceed the threshold limit as specified above | Such books of accounts which may enable the Assessing Officer to compute the taxable income. |
| Business | Income and turnover exceed the threshold limit as specified above | Such books of accounts which may enable the Assessing Officer to compute the taxable income. |
Where business or profession has been set-up during the tax year, the threshold limit of income or gross receipts of current year shall be checked. In other words, in case of new business or profession, if income or turnover or receipt of current year, as the case may be, are not likely to exceed the threshold limit, the assessee shall not be required to maintain the books of account.
3. Other Provisions
3.1. Where books should be kept?
The books of account and other documents should be kept and maintained by the person at the place where he is carrying on the profession or, where the profession is carried on at more than one place, at the principal place of his profession. However, where the person keeps and maintains separate books of account in respect of each place where the profession is carried on, such books of account and other documents may be kept and maintained at the respective places at which the profession is carried on.
3.2. Accessibility of books
The books of account and other documents maintained in electronic mode shall remain accessible in India at all times. The backup of them maintained in electronic form shall be kept daily on servers physically located in India.
3.3. Period of maintenance
The books of account and documents should be kept and maintained for a period of 7 tax years from the end of the relevant tax year. However, where an assessment in relation to any tax year has been reopened under Section 279 or Section 147 of ITA 1961 within the prescribed period, all the books of account and other documents which were kept and maintained at the time of reopening of the assessment should be kept and maintained till the assessment so reopened has been completed.
3.4. Penalty for non-compliance
Main article: Penalty for failure to keep, maintain or retain books of account, documents
If assessee fails to maintain or retain books of account and other documents for the specified period in accordance with this provision, the penalty may be imposed under Section 441.
References
Notification: No. SO 17(E), dated 12-1-1977
‘Authorised Representative’ means a person, who represents any other person, in lieu of fee or remuneration, before any Tribunal or statutory authority, but does not include an employee of the person so represented or a person carrying on legal profession or a person carrying on the profession of accountancy.
This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.