Start up & Rules regarding maintenance of books of accounts
With the growth of Start-up culture in the country, new & young talents are turning towards entrepreneurship. Unaware of income tax provisions, one of the common questions put forth by the start up is with regard to law relating to maintenance of books of accounts under the Income Tax Act. Let us know about it.
Provision regarding maintenance of books of accounts for all classes of taxpayers is contained in section 44AA of the Income Tax Act-1961. For better understanding, taxpayers are divided in 2 categories as under:
- Professionals for the purpose of section 44AA are those persons who are engaged in the profession of legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration or other notified professions. Presently, film artists, authorized representatives, company Secretary & professionals in Information Technology have been notified by the Central Board of Direct Taxes (CBDT) as profession for the purpose of section 44AA.
- Professionals with gross receipts not exceeding Rs. 1.50 Lakh in any of the 3 preceding years (or where the profession is newly set up, the gross receipt is not likely to exceed the said amount) are required to maintain only such books of accounts as may enable income tax officer to compute the income. No specified books of accounts are prescribed for such taxpayers.
- Professionals with gross receipts exceeding Rs. 1.50 Lakh in any of the 3 preceding year (or where the profession is newly set up, the gross receipt is likely to exceed the said amount) are required to maintain the books of accounts/ documents as per Rule 6F(2) which are as under:
(i) cash book ; (ii) a journal, if the accounts are maintained according to the mercantile system of accounting; (iii) ledger; (iv) carbon copies of bills whether machine numbered or otherwise serially numbered wherever such bills are received by the person and carbon copies of counterfoils of machine numbered or otherwise serially numbered issued by him for sums exceeding Rs.25; (v) original bills wherever issued to the person & receipts in respect of expenditure incurred by the person or, where such bills/receipts are not issued & expenditure does not Rs. 50, payment voucher prepared and signed by the person. In addition to above, medical professionals have to maintain following additional records as per Rule 6F (3):
(i) Daily case register in form No. 3C; (ii) Inventory under broad head (stock of drugs, medicines & other consumable accessories) as on the first and the last day of the year.
Person other than those carrying out specified profession as referred above are considered as a businessmen. Such persons are not required to maintain the books of account if the income from business does not exceeds Rs. 1.20 Lakh or the gross receipt does not exceeds Rs. 10 Lakh in any one of the 3 years immediately preceding the relevant year. (Where the business is newly set up & the income from business or turnover is not likely to exceed the said limit of Rs. 1.20 Lakh or Rs. 10 Lakh). If the amount exceeds or likely to exceeds the said limit then such taxpayers would be required to keep & maintain such books of account as would enable income tax officer to compute the total income in accordance with the provisions of the I.T. Act.
Scheme of presumptive taxation:
To provide an ease of doing business, a relief is provided to few taxpayers from rules of accounts maintenance, as under:
- Individual Professionals as mentioned above are exempt from maintenance of books of accounts if their gross receipts doesn’t exceeds Rs. 50 Lakh, provided minimum of 50% of gross receipts is offered for taxation. If it is less than 50% of the gross receipts then they are not only required to maintain accounts but are also required to get it audited.
- Individual businessmen (other than those who are working as commission agent, transporter or in agency business) are exempt from maintenance of books of accounts if their turnover doesn’t exceeds Rs. 2 Cr provided minimum of 8% (6% if the payment is received in digital mode) of turnover is offered for taxation. If it is less than 8% (or 6%) then they are not only required to maintain the accounts but are also required to get it audited.
- Person in to the business of plying, hiring or leasing of goods carriage & owns not more than 10 trucks are exempt from the provision of maintenance of books of accounts if minimum of Rs. 7,500/- per truck per month is offered for taxation. (From the FY 2018-19, Rs. 7,500/- pm for every truck is increased to Rs. 1,000/- per tonne of gross vehicle weight of vehicles having weight of more than 12,000 Kgs).
Businessmen/professional are required to file Income Tax Return (ITR) in ITR 3 or 4. If required to maintain the books of accounts as mentioned above then filling B/s & P & L A/c in ITR (ITR-3) is mandatory. If covered by presumptive taxation scheme, then B/s & P/L account filling is not mandatory & only 8 figures are required to be reported in ITR-4 which are- (a) Sundry Debtors (b) Creditors (c) Stock (d)Cash in Hand (e)Gross Receipts (f) Gross Profit (g) Expenses (h) Net Profit.
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