Persons mandatorily required to maintain Books of Accounts:

1. A Company incorporated under the Companies Act 2013

As per section 128 of Companies Act 2013, every company shall prepare and keep at its registered office, books of account and other relevant books and papers and financial statement for every financial year which give a true and fair view of the state of the affairs of the company, including that of its branch office or offices, if any, and explain the transactions effected both at the registered office and its branches and such books shall be kept on accrual basis and according to the double entry system of accounting.

So, the companies are mandatorily required to maintain Books of Account as per the Companies Act in accordance with Accounting Standards or Indian Accounting Standards as applicable to them.

All other Persons required to maintain of books of account as per the Income Tax Act can be classified as follows:

  • Provisions relating to a person engaged in specified profession U/s 44AA
  • Provisions relating to a person engaged in non-specified profession and business.

i. Specified Professionals U/s 44AA who are required to maintain Books of Account mandatorily:

  • Legal
  • Medical
  • Engineering
  • Architectural
  • Accountancy
  • Technical Consultancy
  • Interior Decoration
  • Any other profession as may be notified by the CBDT in future.

So, the above professionals should maintain Books of Account mandatorily irrespective of their Turnover and structure of business.

ii. In addition to above, the following persons also have to maintain account books:

  • Persons involved in non-specified professions and in business
  • Anyone involved in any other profession or business and earns more than Rs. 1.5 lakh in any of the previous 3 years.
  • The total turnover/gross receipts of any business/profession is more than Rs. 25 lakh in any of the previous 3 years
  • Even if the business is new, if it is expected to earn more than Rs. 1.5 lakh or if its sales is expected to cross Rs. 25 lakh, then account books need to be maintained.
  • Any individual covered under Section 44AD, 44AE or 44AF, who has declared less income than the profits estimated under these sections

However, the above-listed individuals are not required to maintain account books if the business turnover in any of the previous years is less than Rs. 1.5 lakh or if the new business is not expected to cross gross receipts of Rs. 1.5 lakh.

Specified books of account as per Rule 6F:

  • Cash book - A record of day to day cash receipts and payments which shows cash balance at the end of the day or at best at the end of the each month and not later.
  • A journal according to mercantile system of accounting- A journal is a log of all day to day transactions. It is a record, in accounting terms, where total credits equal total debits, when we follow the double entry system of accounting ie each debit has a corresponding credit and vice versa.
  • A ledger - where all entries flow from the journal, has details of all accounts, this can be used to prepare the financial statements.
  • Carbon copy of bills or receipts issued by you which are more than Rs 25
  • Original bills of expenditure incurred by you which are more than Rs 50

Following are the additional requirements in case of a person carrying on medical profession — physicians, surgeons, dentists, pathologists, radiologists, etc.

  • Daily cash register with details of patients, services rendered, fees received and date of receipt
  • Details of stock of drugs, medicines, and other consumables used

These books should be maintained at the Head Office or at each of the offices.

How Long it should be maintained?

Books of Accounts as per Income Tax Act are to be maintained for a period of 6 Years from the end of the relevant Assessment Years.

What if you fail to maintain Books of Accounts as per the Income Tax Act?

If any person fails to keep and maintain any such books of account and other documents as required by section 44AA or under Rule 6F, in respect of any previous year or to retain such books of account and other documents for the period specified in the said rules, then the Assessing Officer may direct such person to pay penalty, a sum of Rs.25000.

However, if the Tax Payer provides reasonable justification to the satisfaction of the Assessing Officer , such Penalty may not be levied.

Documents Required:

1. Bank Statements

2. Cash Vouchers

3. Bills

4. Fixed Asset Registers

Apart from complying with various Laws and Regulations , maintaining proper Books of Accounts will help a business entity :

  • To have easy access to Loans from Financial Institutions as the profitability and soundness of business can be measured by Trading and Profit&Loss account and Balancesheet
  • To value their Business effectively in case of selling of the business as a Going Concern or Mergers and Acquisitions.
  • To fix the correct cost and selling price for a product so as to make an edge over the competitor.
  • To Effectively manage the funds and take control of cash and other assets of the business.

We, FIRSTMAN have a network of professionals who apart from assissting in preparing Books of Accounts, will also assist with corporate strategy, provide advice and help businesses to reduce costs, improve their top line and mitigate risks. They also offer advice on areas for enhancements.

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