For income tax scrutiny by an Assessing Officer, there is a long list of professions which are mandated to maintain books of accounts. These range from legal to the film industry. There are different transactions to be maintained under Section 44AA.
The Income Tax Act specifies as to who should maintain account books for the purpose of income tax scrutiny by an Assessing Officer, if and when required. As per Section 44AA and Rule 6F, persons involved in the following professions are mandated to maintain books of account:
The Central Board of Direct Taxes is free to add professions to this list. In addition to this, the following persons also have to maintain account books:
- Persons involved in specified as well as non-specified professions, and in business;
- Anyone involved in other profession/business, who earns more than Rs. 1.2 lakh;
- The total turnover/gross receipts of business/profession is more than Rs. 10 lakh in any of the previous 3 years;
- Any individual covered under Section 44AD, 44AE or 44AF, who has declared less income than the profits estimated under these sections;
- Even if the business is new, if it is expected to earn more than Rs. 1.2 lakh or if its sales is expected to cross Rs. 10 lakh, then account books need to be maintained.
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.
What Accounts Need To Be Maintained Under Section 44AA?
“Maintaining account books” refers to keeping an account of all transactions undertaken by the individual or firm during an assessment year. The following books of accounts have to be maintained under Section 44AA:
- Cash book: A daily record of all cash receipts, payments and cash balance.
- Journal, in case of use of Mercantile Accounting format
- Carbon copies of bills and receipts, with serial numbers, issued by the assessee. This is applicable only if the amount involved in a transaction is more than Rs. 25,000.
- Original bills and receipts for expenditure incurred by the assessee. If bills and receipts are not available, and the expenditure is below Rs. 50,000, then the person can prepare payment vouchers, or input the transaction information in the cash book.
- Those in the medical profession also have to maintain a daily case register in Form 3C, and an Inventory Book of the stock of medicines, drugs, injections, tools and other consumables used in the profession.
All relevant account books and documents have to be kept at the place of profession, or at the main office of the profession in case there are more than 1 branches, or at each branch office of the profession. These records have to be kept for 6 years after the end of the relevant assessment year. The main purpose of maintaining these records is to ensure that you are not involved in tax fraud or evasion, and if your case comes to income tax scrutiny, the Assessing Officer could check your records of transactions.
When bookkeeping is not required
Bookkeeping is not required under the following conditions:
- Businesses and professions under Section 44AD and Section 44AE: Businesses and professions under these sections do not have to maintain books of accounts. The exception to this is if taxpayers claim that their business income is lesser than the presumed income under the sections 44AD and 44AE. Such taxpayers must maintain their book of accounts. This will enable the Assessing Officer to calculate their accurate taxable income under the Income Tax Act. However, specific records have not been prescribed.
- If income is less than Rs.1.20 lakh or the total sales/gross receipts or turnover do not exceed Rs.10 lakh in the preceding 3 years: Businesses and professions that fall into this category do not have to maintain books of accounts.
- For newly established businesses or professions with income less than Rs.1.20 lakh/total sales/gross receipts or turnover not more than Rs.10 lakh in the preceding 3 years: Books of accounts need not be maintained for such businesses or professions.
A Chartered Accountant has to compulsorily conduct audit of accounts for the following categories of taxpayers:
|Category of taxpayer||When audit is compulsory|
|An individual involved in a profession||Gross receipts exceed Rs.25 lakh (Rs.50 lakh from FY2016-17)|
|An individual involved in a business||Gross receipts, turnover, or total sales exceeding Rs.1 crore (Rs.2 crore from FY2016-17)|
|An individual under Section 44AE’s presumptive income scheme||If business income is lower than presumptive income under Section 44AE|
|An individual under Section 44AD’s presumptive income scheme||If business income is lower than presumptive income under Section 44AD and the total income of the individual exceeds the minimum income that is tax exempt|
Due date for audited records and audit report submission
|Category of taxpayer||Statement Form||Audit Form||Audit Due Date||Submission Due Date|
|An individual involved in a profession or business who has to get audited compulsorily||Form 3CD||Form 3CA||September 30 of that assessment year||September 30 of that assessment year|
|Any individual other than in the above category||Form 3CD||Form 3CB||September 30 of that assessment year||September 30 of that assessment year|
Penalty for not maintaining accounting records as per Section 44AA
If the accounting records are not maintained by the taxpayer as per Section 44AA’s requirements, a penalty under Section 271A will be levied. The maximum chargeable penalty under this section is Rs.25,000. However, the penalty may not be levied if the taxpayer is able to prove beyond doubt that there was a reasonable cause for not being able to maintain the required accounting records.