Section 44AA of Income Tax Act- who is required to maintained books of accounts

Books of accounts- Under Income Tax Act, you might have to maintain books of accounts. The Income Tax Act has specified the books of accounts that are required to be maintained for the purpose of Income Tax, the same has been prescribed under section 44AA of Income Tax Act and Rule 6F.

Who is required to maintained books of accounts

As per section 44AA of the Income Tax Act, 1961 there is a list of professional who is required to maintained books of accounts, the same is listed here-

As per section 44AA (1) following professionals are required to maintain books of accounts.

  • Interior decorates
  • Technical consulting
  • Engineering
  • Accounting
  • Legal
  • Medical
  • Architecture
  • Other professionals, as mentioned below-

a. Movie artists include a producer, editor, actor, director, music director, art director, dance director, cameraman, singer, lyricist, story writer, screenplay or dialogue writer, and costume designers.

b. Authorized representative means a person who represents another person for a fee before a tribunal or any authority constituted under any law. It does not include an employee of the person so represented or a person who is carrying on the profession of accountancy.

c. Any other notified professionals.

Also Read:- Section 44AD of Income Tax Act- Presumptive Scheme

As per section 44AA (2) following persons are required to maintain books of accounts.

Every person carrying on business or profession (not being a profession referred to in subsection (1) above is required to maintained books of accounts if the following condition are satisfied.-

a) If his income from an existing business or profession exceed Rs. 1,20,000 or his total sales, turnover or gross receipts as the case may exceed Rs. 10 Lakhs in any one or more of the preceding 3 years.

b) If his income from a new business or profession expected to exceed Rs. 1,20,000 or his total sales, turnover or gross receipts as the case may likely to exceed Rs. 10 Lakhs during such previous year.

Note:- In the case of individual and HUF, the above-mentioned limit has been changed to Rs. 2,50,000 and for sales etc. it has changed to Rs. 25,00,000. This was effective from the assessment year 2018-19.

Rule 6F- Books of accounts

What books of accounts are required to be maintained as per rule 6F

As per rule 6F, the following books of accounts are required to be maintained.

Cash Book- Book displaying the record of day to day transactions for cash received and paid out. Cashbook should also update the balance of cash at the end of the day or at the end of each month and not later.

Journal Book- This book needs to be maintained according to the mercantile system of accounting.

Ledger- A ledger where all entries flow from the journal, has details of all accounts, this can be used to prepare the financial statements.

Also Read:- Section 44ADA of Income Tax Act- Presumptive Scheme for professionals

Photo copy of bills- Photocopied of bills or receipts issued by you which are more than Rs. 25.

Original Bills- Original bills of expenditure incurred by you which are more than Rs. 50.

Additional Requirenmnt for medical professional e.g. dentists, pathologists, radiologists, physicans, surgeons etc.

They need to maintain the cash register of daily details of patients, service is given, fees received, and date of receipts.

Details of stocks of medicine, drugs and other item issued.

What is the time period to maintained books of accounts- Section 44AA (3) of Income Tax Act

As per section 44AA (3), under rule 6F, the books of accounts should be maintained for a period of 6 years from the end of the relevant year.

Also Read- Advance Tax: Meaning, Due Dates, Calculation, Payment, Penal Interest, and some FAQs

Where books of accounts should be kept- Section 44AA of Income Tax Act

As per section 44AA (3), under rule 6F, the books of accounts should be maintained by the person at the place where he is carrying on the profession or where the profession carried on in more places than one, at the principal place of the profession.

Where the person keeps and maintains separate books of accounts in respect of each place where the profession is carried on, such books of accounts and other documents may be kept and maintained at the respective places at which the profession carried on.

Penalty for not maintaining books of accounts- Section 44AA of Income Tax Act

If the taxpayers fail to maintain accounting records as per the requirement of section 44AA of Income Tax Act, 1961, a penalty may be levied under section 271A. The maximum penalty that can be charged is Rs. 25,000. However, if the taxpayer can prove there is a reasonable cause for failure to maintain accounting records, such penalty may not be levied.

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Disclaimer: The information contained in the above article are solely for informational purpose after exercising due care. However, it does not constitute professional advice or a formal recommendation. The author does not own any responsibility for any loss or damage caused to any person, directly or indirectly, for any action taken on the basis of the above article.

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Compiled by- CA Chirag Agarwal (Practicing Chartered Accountants)

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