Maintenance of Accounts Section 44AA

Maintenance of Accounts Section 44AA | Who Need to Maintain Account Books for Income Tax?

Maintenance of Accounts Section 44AA: The Income Tax Act specifies the books of accounts that must be kept for the purposes of income tax. Under the Income Tax Act Section 44AA and Rule 6F, maintenance of books is mandatory. These accounts are official documents that show how much money your company has made and spent over the years it has been in operation. In addition, the data you collect can be used to calculate your total tax liability.

These account books will be scrutinized by the income tax department officials from time to time. In this article, let’s understand what is Section 44AA under the income tax act, who is required to keep records, what goes into those documents, and how long those records must be available for inspection.

What is Section 44AA?

Section 44AA specifies who is needed to keep books of accounts for the purposes of income taxation. For income tax purposes, businesses and professions are required to keep books of accounts. Section 44AA specifies the specific conditions for various transactions which need to be maintained in the account books.

Who is Liable to Maintain Accounts as per Section 44AA?

A large number of professions are required to keep books of accounts in order to be audited by an Assessing Officer for income tax purposes. Individuals who should maintain the account books for income tax inspection by an Assessing Officer is specified by the officials of income tax. The list of persons in the following professions are required to keep books of account under Section 44AA and Rule 6F:

  • Accountancy
  • Architectural
  • Engineering
  • Film Artists
  • Interior Decoration
  • Legal
  • Medical
  • Technical Consultancy

However, the officials of the Central Board of Direct Taxes can add more professions to the above list from time to time. Apart from the above-mentioned profession, individuals meeting the following criteria will also have to maintain the account books:

  • These rules apply to you if you are a freelancer in one of the mentioned professions and your gross receipts exceed Rs. 1,50,000.
  • If the gross receipts for an existing profession were higher than Rs. 1,50,000 in the previous three years.
  • This also applies to a newly established profession with estimated gross receipts of more than Rs. 1,50,000.
  • Any person who is subject to Sections 44AD, 44AE, or 44AF and has declared less income than the profits calculated under these sections must maintain the account books.

What Accounts Need To Be Maintained Under Section 44AA?

The term “keeping account books” refers to keeping track of all transactions made by an individual or company during a given assessment year. As per the rule 6F, individuals will have to maintain the following books:

  1. Cash Books: All cash receipts, payments, and cash balances are recorded on a daily basis.
  2. Ledger: A ledger contains details of all accounts and can be used to produce financial statements because all entries flow from the journal.
  3. Journal: If you’re using the Mercantile Accounting format, keep a journal.
  4. The assessee issues carbon copies of bills and receipts with serial numbers. This is only applicable if the transaction amounts to more than Rs. 25,000.
  5. Medical professionals must also keep a daily case register in Form 3C, as well as an Inventory Book of their supply of medicines, drugs, injections, tools, and other consumables.
  6. Original bills and receipts for the assessee’s expenditures. If bills and receipts aren’t accessible and the amount spent is less than Rs. 50,000, the user can make payment vouchers or enter the transaction information into the cash book.

How Long You Should Maintain Books of Accounts?

All essential account books and papers must be held at the profession’s place of business, or at the profession’s main office if there are multiple branches, or at each branch office. After the end of the relevant assessment year, these records must be retained for a period of six years. The major objective of keeping these records is to guarantee that you are not involved in tax fraud or evasion, and if your case is under investigation for income tax, the Assessing Officer may examine your transaction records.

Who Needs To Audit Their Accounts?

A Chartered Accountant is legally required to audit the accounts of the following types of taxpayers:

Taxpayer Category
Audit Necessary For
An individual involved in a profession
The gross profit is more than Rs.25 lakh (Rs.50 lakh from FY2016-17)
An individual involved in a business
Exceeding Rs.1 crore in gross collections, turnover, or total sales (Rs.2 crore from FY2016-17)
An individual under Section 44AE’s presumptive income scheme
If your company income is less than the presumed income under Section 44AE, you can deduct the difference.
An individual under Section 44AD’s presumptive income scheme
If the individual’s total income exceeds the tax-free minimum income, the business income is lower than the presumed income under Section 44AD.

Due Date for Audited Records & Audit Report Submission

The deadline for having your records audited and submitting your audit report is tabulated below:

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 AY
September 30 of that AY
Any individual other than in the above category Form 3CD Form 3CB September 30 of that AY
September 30 of that AY

Penalty for Non-Maintenance of Books of Accounts

  1. A penalty may be imposed under section 271A if the taxpayer fails to keep accounting records as required by Section 44AA. A maximum penalty of Rs. 25,000 can be imposed.
  2. A penalty may be imposed under section 271B if the taxpayer fails to have the accounting records audited or provide an audit report as required by Section 44AB. A minimum penalty of 0.5 percent of total sales, turnover, or gross receipts can be imposed. A maximum fine of Rs 1,50,000 is imposed.

However, if the taxpayer has a good justification for not having an audit done, a penalty may not be imposed.

FAQs on Books of Accounts and Audit Requirements

Question 1.
When Assesses should maintain books of accounts compulsory?

Answer:
According to Section 44AA, if the income from a business is more than Rs.250,000 in any of the three preceding years, then books of account are required to be kept compulsorily.

Question 2.
Is an insurance agent required to maintain books of accounts?

Answer:
Insurance agents are required to keep books of accounts in order to claim expenditures. However, small insurance agents, whose yearly commission income does not exceed Rs. 60,000, are exempted from keeping a full account of expenses.

Question 3.
What is meant by books of accounts for company?

Answer:
The term “books of accounts” refers to the documenting of a company’s financial condition. It keeps track of all financial transactions.

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