Section 44AA gives details of who all are required to maintain books of accounts for the purpose of income tax.
Businesses and professions are required to maintain the books of accounts for income tax purpose. The detailed requirements of different transactions are prescribed under section 44AA.
The books of accounts have to be maintained by professions when their gross receipts have exceeded INR 1,20,000 for an existing profession in the last 3 preceding years. The same rule also applies to a new start-up profession whose gross receipts are anticipated to be exceeding INR 1,20,000.
Legal
Architectural
Accountancy
Medical
Engineering
Technical consultancy
Interior decoration
Authorized representative: an individual who represents someone before any authority under the law for a fee. It does not have to be an employee; it can simply be someone who is giving the services of accountancy.
Film artist: This includes actor, music director, dance choreographer, producer, lyrist, story writer, screenplay, singer, costume designer, cameraman etc.
Company secretary : This rule will also apply to any freelancer who is involved in any of the listed professions mentioned above and whose gross receipt exceeds INR 1,20,000.
If the gross receipts of the professionals mentioned above do not cross INR 1,20,000 in any or more of the earlier 3 years for an existing profession or new start-up professional whose gross receipt is anticipated to be below INR 120000 – the freelancer or the professional has to maintain books of account. However, the books or records to be kept have not been exactly specified. Although the only criterion is that the AO should be able to calculate the taxable income of the profession from them.
Please note, from the assessment year 2018-2019, the limit of INR 1, 20,000 has been increased to INR 2,50,000.
Cash book : Book displaying the record of day-to-day transactions of cash received and paid-out. The book should update the balance at the end of the day or at least at the end of every month and not later.
A journal according to the mercantile system of accounting : A journal is a log of all transactions on a daily basis. In accounting terms, it is a record where total credits are equal to total debits. When the double entry system of accounting is followed, every debit has a corresponding credit and vice versa. A ledger where there is a record of all the entries made in the proper flow manner can be used to prepare financial statements.
Duplicate copy of bills and receipts issued if the amount exceeds INR 25
Original copy of expenditure incurred where the amount exceeds INR 50
Below are the additional requirements if an individual is involved in a medical profession like dentists, pathologists, radiologists, physicians, surgeons, etc.
Need to maintain cash register of daily details of patients, services given, fees received and date of receipt.
Details of stocks of medicines, drugs and other items used
All the books are required to be maintained at the Head office or at each of the branch office.
The books are needed to be maintained for a period of 6 years
If an individual fails to maintain the books of accounts as per the details are given above then a penalty may be charges of INR 25,000. In the case of international transactions where the individual had failed to maintain books of accounts for such transaction then the penalty will be charged at 2% of the value of each international transaction.
Hence it is strongly recommended to maintain books of accounts and keep track of all the transaction in a proper manner.
If the income does not surpass INR 1,20,000 or total turnover, sales or gross receipts don’t exceed more than INR 10,00,000 in all the preceding 3 years then book of accounts is not required. Similarly, in the case of a new start-up business, the same rule applies when the income is anticipated to be less than INR 1,20,000 or sales/turnover/gross receipts are expected to be less than INR 10,00,000.
If the income from the profession is more than INR 1,20,000 or total turnover, sales or gross receipts exceed INR 10,00,000 in all 3 preceding years, such business is required to maintain books of accounts and other necessary documents. In case of new start-up where the income is anticipated to be more than INR 1,20,000 or sales, turnover or receipts are expected to be more than INR 10,00,000, then the same rules apply as above.
For Professions and Businesses covered under section 44AD and 44AE
Professions and Businesses that come under section 44AD and 44AE are not required to keep or maintain any books of accounts. However, individuals or taxpayers who claim that their income from the profession is less than the presumed income calculated under section 44AD and 44AE are required to maintain a book of accounts for the assessing officer to calculate their income tax as per the Income Tax Act, 1961. No specific record type is mentioned by the Income Tax Department.
From the assessment year 2018 -2019 the limit of INR 1,20,000 has been increased to INR 2,50,000 and INR 10,00,000 to INR 25,00,000.
The accounts audit is mandatory by a qualified Chartered Account for the following individuals
| Tax Payer | Compulsory Audit required when |
|---|---|
| An individual doing Business | If total sales, turnover, or gross receipts are more than INR 1 crore (From FY 2016-2017, INR. 2 crores) |
| An individual doing Profession | If gross receipts are more than INR 25 lakhs (From FY 2016-2017, INR. 50 lakhs) |
| An individual covered under presumptive income scheme section 44AD | If income of the business is lesser than the expected income calculated as per Section 44AD and the person’s total income is more than the minimum income which is exempt from tax. |
| A person covered under presumptive income scheme section 44AE | If income of the profession is lesser than the expected income calculated as per Section 44AE. |
Due date for getting records audited and report submission
| Taxpayer | Audit Form | Statement Form | Audit due date | Due date for submission of report |
|---|---|---|---|---|
| An individual carrying on business or profession who is mandatorily required to get audited. | Form 3CA | Form 3CD | September 30 of the assessment year | September 30 of the assessment year |
| An individual other than that which is listed above | Form 3CB | Form 3CD | September 30 of the assessment year | September 30 of the assessment year |
In the case of international or specified domestic transactions, the deadline for audit and submission of the report is November 30
If the individual or taxpayer does not maintain books of accounts as per the requirements mentioned under section 44 AA, he/ she is liable to pay the liability under section 271A. The maximum amount of penalty that may be charged is INR 25,000. However, if there is a genuine reason due to which accounts could not be maintained or shown then the penalty may be excused.
If the individual or taxpayer does not get the books of accounts audited from a qualified Chartered Accountant or is unable to produce audit report as per the section 44AB then a penalty may be charged under section 271B. The minimum amount of penalty that can be charged is 0.5% of the total turnover, gross receipts or total sales. The maximum penalty that may be charged is INR 1,50,000. However, if the individual can display a genuine cause for not getting the audit done then a penalty may be excused by the Income Tax Department or Assessing Officer.
Which are the professions that are mandated to keep the books of accounts under section 44AA?
The following are the professions that are mandated to keep the books of accounts under section 44AA.
