Company Formation
Accounts Maintenance

Maintenance of Books of Accounts

A Businessman or a group of businessman runs their business and doing various financial transactions on day to day basis becomes part and parcel of their business.  So it becomes necessary for them maintain record of all these financial details which can be accessed at one place. This is when accounting or maintenance of books of accounts comes as a troubleshooter.

In India Maintenance of books of accounts is not compulsory for all. But generally to know true picture of profit and loss and Financials of their businesses almost 80% businessman prefers to get their books of accounts maintained by employees or professional.

 

Who all are required to maintain books of accounts as per Indian Statutes -

§  When person is in specified profession like Legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, authorized representative, film artist, company secretary and information technology, and his professional receipts exceeds Rs. 150000 in all the three years preceding previous year or when he is new in profession, his receipt from newly set up business is likely to exceed Rs. 150000 in the year, he should maintain books of accounts compulsory as per manner given in rule 6F of the Income Tax Act.

§  When person is doing business and sales, turnover or receipt from that business exceeds Rs. 10 Lacs in all the three years immediately preceding the previous year or the person has newly set up business and sales, turnover or receipt from that business is likely to exceed Rs. 10 Lacs in the year, he is required to maintain books of accounts.

§  The person whose business is covered under section 44AE, section 44AF, section 44BB, section 44BBB and he claims lower profit than prescribed under provisions of these sections. Means person is showing lower profit than prescribed minimum limit of these sections.

§  The person whose business is covered under section 44AD and he claims his profit lower than prescribed limit (8%) mentioned in section 44AD and his income exceeds maximum amount which is not chargeable to tax. In short, if person has income more than basic exemption limit (as per tax slab which changes every year) and he claims profit lower than 8%. If he incurs loss in business, he can claim profit lower than 8% (negative income) and he is not required to maintain books of accounts.

Specified books of accounts as per rule 6F:

§  Cash book

§  Journal book

§  Ledger

§  Copies of bills exceeding Rs. 25 and the copy of invoice should be serially numbered.

§  Original bill of expense exceeding Rs. 50 and when the expense amount does not exceed Rs. 50 and bill is not maintained, payment vouchers prepared and sign by persons.

Additional books which should be maintained by medical professional (physicians, surgeons, dentists, pathologists, radiologists, vaids, hakims etc)

§  Daily cash register in Form NO. 3C showing date, name of patient, service rendered, fees received, date.

§  Inventory of medicines as on first and last date of previous year.

Other points for maintenance of books of accounts u/s 44AA:

§  The books of accounts should be maintained at the principal place of business.

§  It should be maintain for a period of 6 years from the end of the relevant assessment year.

§  If assessment in relation to any assessment year has been reopened under section 147, the books should be maintained until the assessment has been completed.

 

Penalty for non maintenance of books of accounts as per section 44AA:

As per section 271A, failure to keep or maintain books of accounts invites minimum penalty Rs. 25000 to the person.

Maintenance of books of accounts under section 44AA is bit costly and some businessmen choose to use section 44AD to avoid maintenance of accounts.