Maintenance of the books of accounts for Income Tax Law: Requirements & Exclusions

Maintenance of the books of accounts for Income Tax Law: Requirements & Exclusions

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Maintenance of the books of accounts for Income Tax Law: Requirements & Exclusions

Whether maintenance of books of accounts is compulsory for all the taxpayers, Whether there is exception or immunity from the requirements of maintaining the same, Whether salaried taxpayers are also required to keep the records for income tax purpose, these are the common questions which are often asked by the taxpayers. One may note that, wherever required, non maintenance of the books of accounts may attract penalty of Rs. 25,000/- u/s 271A of the Income Tax Act-1961. The provision regarding the maintenance of the books of accounts for different categories of taxpayers is contained in section 44AA of the Income Tax Act-1961. Let us know about it:
  1. Salaried Taxpayers:
    Salaried taxpayers are not required to maintain the books of accounts as such. Though the book of accounts is not mandatory, it is advisable for the salaried taxpayers as well to retain and maintain the documents & records of income and investment for reference purposes. High Net worth Individual (HNI) should voluntarily prepare the Balance Sheet as well for better control purposes.
  2. For Businessmen & Professionals:
    The taxpayers are divided in 2 categories for maintenance of the books of accounts, as under:
i. Professionals
ii. Businessmen
i. Professionals:
a) 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. All persons except above will be treated as engaged in “Business” and accordingly rules as applicable in (ii) would be applicable for such taxpayers.
b) 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 the income tax officer to compute the income. No specified books of accounts are prescribed for such taxpayers.
c) 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 the 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.
ii Businessmen:
Persons other than those carrying out specified professions as referred in (i) above are considered as a businessman. Such persons are not required to maintain the books of account if the income from business does not exceed Rs. 1.20 Lakh or the gross receipt does not exceed 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 exceed or likely to exceed the said limit then such taxpayers would be required to keep & maintain such books of account as would enable the income tax officer to compute the total income in accordance with the provisions of the I.T. Act.         
It may be noted that the threshold limit for maintenance of books is too low and almost every business/ profession would be required to maintain the books of accounts. However, to provide ease of business for small taxpayers, immunity is provided by introducing presumptive scheme of taxation as under:
Scheme of presumptive taxation for Individual/HUF/Firm:
To provide an ease of doing business, a relief is provided to few taxpayers from rules of accounts maintenance, as under:
  1. Professionals as mentioned in (i) above are exempt from maintenance of books of accounts if their gross receipts doesn’t exceed Rs. 50 Lakh, provided a 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.
  2. Taxpayers engaged in Business as discussed in (ii) above are exempt from maintenance of books of accounts if their turnover doesn’t exceed 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. However, the presumptive scheme of taxation is not applicable to (a) commission agent (b) Transporter and (c) Agency business. These three categories of the person cannot take the shelter of presumptive schemes and would be required to maintain the books of accounts if their turnover/income is above the required threshold.
  3. Person into 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.
Applicability of ITR & requirements to file the Balance-sheet & P & l A/c:
  1. Individuals & HUF having income from Businessmen/profession are required to file Income Tax Return (ITR) in ITR 3 or 4.
  2. 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.
  3. 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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1 Comment

  1. November 8, 2021
    Manish jain

    I want work can you give me some work from home

    Reply

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