Books of Accounts and Audit Requirements
The Income Tax Act has specified the books of accounts that
are required to be maintained for the purpose of Income Tax. These have
been prescribed under section 44AA and Rule 6F.
Who is required to
maintain books of account?
Books of accounts/accounting records have to be maintained
if the gross receipts are more than Rs. 1,50,000 in 3 preceding years for an
existing profession. This also applies to a newly set up profession whose gross
receipts are expected to be more than Rs. 1,50,000.
The accounting records to be kept have been prescribed in
Rule 6F. The below professions are required to maintain Books of accounts/accounting
records:
- Legal
- Medical
- Engineering
- Architectural
- Accountancy
- Technical consultancy
- Interior decoration
- Authorized representative — 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.
- Film artist — This includes a producer, editor, actor,
director, music director, art director, dance director, cameraman, singer,
lyricist, story writer, screenplay or dialogue writer and costume designers.
- Company secretary
- If you are a freelancer pursuing any of these listed
professions and your gross receipts are more than Rs. 1,50,000, these rules
shall apply to you.
- If the gross receipts of the Professions listed above are
not more than Rs 1,50,000 in any one or more of the preceding 3 years for an
existing profession or for a newly set up profession whose gross receipts are
expected to be not more than Rs 1,50,000 – the professional is not required to
maintain books of accounts as per section 44AA. In such a situation, a
professional has to maintain books of accounts which would enable the AO to
compute the taxable income of the professional from them.
Specified books of
account as per Rule 6F
- Cash book A record of day to day cash receipts and payments
which shows cash balance at the end of the day or at best at the end of each
month and not later.
- A journal according to mercantile system of accounting A
journal is a log of all day to day transactions. It is a record, in accounting
terms, where total credits equal total debits, when we follow the double entry
system of accounting ie each debit has a corresponding credit and vice versa.
- A ledger where all entries flow from the journal, has
details of all accounts, this can be used to prepare the financial statements.
- Photocopied of bills or receipts issued by you which are
more than Rs 25
- Original bills of expenditure incurred by you which are more
than Rs 50
Following are the additional requirements in case of a
person carrying on medical profession — physicians, surgeons, dentists,
pathologists, radiologists, etc.
- Daily cash register with details of patients, services
rendered, fees received and date of receipt
- Details of stock of drugs, medicines, and other consumables
used
These books should be maintained at the Head Office or at
each of the offices.
|
Taxpayer
|
Profit/Loss
|
Applicable taxing section
|
Whether books as per section 44AA applicable
|
|
Business Income > Rs 1,20,000
|
Profit
|
Normal provisions
|
Yes
|
|
Business Sales, turnover, gross receipts > Rs 25 Lakh
|
Profit/Loss
|
Normal provisions
|
Yes
|
|
Business Sales, turnover, gross receipts </= Rs 25 Lakh
|
Profit/Loss
|
Presumptive taxation – Section 44AD
|
No
|
|
Business Sales, turnover, gross receipts </= Rs 25 Lakh
|
Profit/Loss
|
Normal Provisions
|
No
|
|
Business Turnover </= 2 Crore
|
Profit
|
Presumptive taxation – Section 44AD
|
No
|
|
Business Turnover </= 2 Crore
|
Loss
|
Presumptive taxation – Section 44AD
|
No
|
|
Business Turnover </= 2 Crore
|
Profit/Loss
|
Normal provisions
|
Yes
|
|
Profession Gross receipts </= 50 Lakh
|
Profit/Loss
|
Presumptive taxation – Section 44ADA
|
No
|
|
Profession Gross receipts </= 50 Lakh
|
Profit/Loss
|
Normal provisions
|
Yes
|
For how long should
these books be maintained?
Each year’s books must be kept for a period of 6 years from
the end of that year.
Failure to maintain books of accounts: If you fail to maintain books of
accounts as prescribed, you may be charged a penalty of Rs 25,000 or in some
cases where you may have international transactions and you have failed to
maintain information and documents for such transactions – 2% of the value of
each international transaction. It would be diligent to maintain your books of
accounts and keep track of all your expense and income in a methodical way.
When is bookkeeping
not required?
- Where the income does not exceed Rs 1,20,000 or total sales,
turnover or gross receipts are not more than 10,00,000 in all preceding 3 years
— no books of account are required to be maintained. In the case of a newly set
up profession or business the same rule applies when income is expected to be
less than Rs 1,20,000 or sales/turnover/gross receipts are expected to be less
than Rs 10,00,000.
- Where the income is more than Rs 1,20,000 or total sales,
turnover or gross receipts are more than 10,00,000 in all preceding 3 years,
such profession or businesses must maintain books of accounts and other
documents which may enable the Assessing Officer to calculate their taxable
income as per the Income Tax Act. No specific records are prescribed. In case
of a newly set up profession or business, the same rule applies when income is
expected to be more than Rs 1,20,000 or sales/turnover/gross receipts are
expected to be more than Rs 10,00,000.
- For Professions and Businesses covered under section 44AD
and 44AE Businesses covered under section 44AD and 44AE are not required to
maintain any books of accounts. However, taxpayers who claim that their income
from business is lower than the presumed income calculated under section 44AE
must maintain books of accounts as specified in section 44AA and have them
audited under section 44AB. A taxpayer may shifts from presumptive taxation
under section 44AD/44ADA to normal taxation to claim that their income from
business or profession is lower than the presumed income calculated under
section 44AD/44ADA. In such a case, where the income exceeds the basic
exemption limit of Rs 2,50,000, books of accounts as required under section
44AA have to be maintained and audited as per section 44AB.
- In the case of a taxpayer whose turnover was less than Rs 25
Lakh, but having total income above the maximum amount not chargeable to tax,
are excluded from maintenance of books of accounts as per 44AA.
Audit Requirements
Audit of accounts is compulsory by a Chartered Accountant
for the following persons
|
Tax Payer
|
Compulsory Audit required when
|
|
A person carrying on Business
|
If total sales, turnover or gross receipts are more than
Rs. 1 crore
|
|
A person carrying on Profession
|
If gross receipts are more than Rs. 50 lakh
|
|
A person covered under presumptive income scheme section
44AD
|
If income of the business is lower than the presumptive
income calculated as per Section 44AD and the person’s total income is more
than the maximum income which is exempt from tax.
|
|
A person covered under presumptive income scheme section
44AE
|
If income of the business is lower than the presumptive
income calculated as per Section 44AE.
|
|
A person covered under presumptive income scheme section
44ADA
|
If income of the profession is lower than the presumptive
income calculated as per section 44ADA and the person’s total income is more
then the maximum income which is exempt from tax.
|
Due date for getting
records audited and submission of audit report
|
Taxpayer
|
Audit Form
|
Statement Form
|
Due date for Audit
|
Due date for submission of report
|
|
A person carrying on business or profession who is
compulsorily required to get audited under any other statute/law.
|
Form 3CA
|
Form 3CD
|
September 30 of the assessment year
|
September 30 of the assessment year
|
|
A person other than those listed above who are required to
get audited under Income tax law
|
Form 3CB
|
Form 3CD
|
September 30 of the assessment year
|
September 30 of the assessment year
|
The deadline for audit and submission of report is November
30 in case of international or specified domestic transactions.
Penalty when
accounting records as required are not maintained as per Section 44AA
If the taxpayer fails to maintain accounting records as per
the requirements of Section 44AA, 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.
If the taxpayer fails to get the accounting records audited
or furnish audit report as per the requirements of Section 44AB, a penalty may
be levied under section 271B. The minimum penalty that can be charged is 0.5%
of the total sales, turnover or gross receipts. The maximum penalty is Rs
1,50,000. However, if the taxpayer has a reasonable cause for failure to get an
audit done – such penalty may not be levied.
For more information on this visit TAXAJ.
Posted By Twinkle
Team TaxaJ
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