Summary: Diwali cleaning provides an opportunity for businesses to review old financial records, but books of accounts should not be discarded without considering the applicable legal requirements. The article explains the retention periods under the Income Tax Act, GST law and Companies Act, along with the requirements for electronic accounting records, audit trails and data backups. It discusses the consequences of failing to maintain prescribed records, including penalties and possible estimation of income. Businesses should also consider pending appeals and other proceedings before disposing of documents. Digital cleaning should include removing unnecessary files, protecting accounting data, updating passwords and restricting unauthorised access, while preserving all records required under applicable laws.
Diwali Cleaning: How Long Should Businesses Preserve Books of Accounts Under Income Tax, GST and Companies Act?
- Diwali Cleaning and Preservation of Books of Accounts
- Maintenance of Books of Accounts Under Income Tax Act, 2025
- Maintenance of Books of Accounts Under GST Law
- Maintenance of Books of Accounts Under Companies Act
- Maintenance of Books of Accounts in Electronic Form
- Penalties for Non-Maintenance of Books of Accounts
- Digital Cleaning and Security of Accounting Records
- Diwali, Financial Discipline and Record-Keeping
Diwali Cleaning and Preservation of Books of Accounts
Arjuna (Fictional Character): Krishna, with Diwali approaching, I see many preparing their homes and businesses for the celebration. As people engage in cleaning and renewing their spaces, can you guide us on how to handle old financial records under the various Acts?
Krishna (Fictional Character): Arjuna. Diwali is a time for renewal, letting go of the old, and embracing the new. Goddess Laxmi, who cherishes cleanliness, blesses those who keep their surroundings pure. In the realm of business, multiple tax regulations exist. Each of these laws has specific guidelines on record-keeping. So, it’s essential to understand and follow these regulations when deciding to dispose of old books.
Maintenance of Books of Accounts Under Income Tax Act, 2025
Arjuna (Fictional Character): Krishna, can you enlighten me about the provisions of the Income Tax Act concerning record-keeping?
Krishna (Fictional Character): Arjuna, as per Income Tax Act 2025, books of accounts should be retained for a period of 6 financial years from the end of the relevant Assessment Year in the following cases:
a) the income from business or profession is more than Rs.1,20,000 (in case of Individual and HUF Rs.2,50,000) in any of the 3 preceding P.Y. or
b) If the sale/turnover/gross receipts from the business or profession is more than Rs. 10,00,000 (in case of Individual and HUF Rs. 25,00,000) in any of the 3 preceding P.Y.
Further, books of accounts are not required to be maintained, if the person has declared income on presumptive basis u/s 58 of Income Tax Act 2025 i.e @ 8%/6% of turnover or having transportation business if claimed his income to be more than the profits or gains so deemed to be the profits and gains of his business.
For Example, as per the Income Tax Act, books of accounts relating to the Financial Year 2019–20 (i.e. AY 2020-21) should be retained up to the current Tax year (i.e. Tax Year 2026-27).
Maintenance of Books of Accounts Under GST Law
Arjuna (Fictional Character): Krishna, how long should books of accounts be maintained under GST Law?
Krishna (Fictional Character): Arjuna, every registered person has to maintain correct books of accounts relating to Stock of Goods, ITC availed, Output Tax Payable, Outward & Inward Supply, etc. u/s 35 at the principal place of business till the expiry of seventy-two months from the due date of furnishing of annual return for that year. However, if a registered person has filed an appeal before appellate authority, then such person shall retain the books of accounts for a period of one year after final disposal of such appeal or for the period of 72 months, whichever is later.
For Example, as per GST law the books of accounts relating to financial year 2019-20 should be retained up to current financial year.
Maintenance of Books of Accounts Under Companies Act
Arjuna (Fictional Character): Krishna, how long should companies maintain books of accounts under Companies Act?
Krishna (Fictional Character): Arjuna, every company should maintain books of accounts for 8 years from the end of relevant financial year.
For Example, as per Companies Act, the books of accounts relating to financial year 2018-19 should be retained upto current Tax year (i.e. Tax Year 2026-27).
Maintenance of Books of Accounts in Electronic Form
Arjuna (Fictional Character): Krishna, what about the books of accounts to be maintained in computer software?
Krishna (Fictional Character): Arjuna, if books of accounts are maintained in computer software, there shall be a proper system for storage, retrieval, display or printout. As per Income Tax Act the books of accounts may be kept in electronic form or in digital form or as print outs. Officers can verify these devices, so always check the saved data regularly on external devices. Also, from 1st day of April, 2023, every company which uses accounting software for maintaining its books of account, shall have a feature of recording audit trail of each and every transaction, creating an edit log of each change made in books of account along with the date when such changes were made and ensuring that the audit trail shall not be disabled.
Penalties for Non-Maintenance of Books of Accounts
Arjuna (Fictional Character): Krishna, what are the implications of not maintaining books of accounts as stipulated by all these acts?
Krishna (Fictional Character): Arjuna, If the books of accounts and other documents are not maintained as required by Income Tax Act, then income tax department may impose penalty of Rs.25,000/-. Further if books of accounts are not properly maintained department may compute income on estimated basis.
If in case one fails to maintain such books of accounts in accordance with CGST Act, then he shall be liable to pay a penalty of Rs.10,000/- or an amount equivalent to the tax evaded whichever is higher.
If Managing Director, whole-time director or any other person in charge do not maintain books as required by Companies Act and do not comply with other provisions of Section 128 then they shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5,00,000 or both.
Digital Cleaning and Security of Accounting Records
Arjuna (Fictional Character): Krishna, along with cleaning of homes and offices, what about digital cleaning?
Krishna (Fictional Character): Arjuna, just as we clean our homes before Diwali, we should also clean our digital space. Delete unnecessary files, old emails and duplicate data, but do not delete any records which are required to be retained under various laws. Take a proper backup of accounting data on external devices or cloud, update passwords, remove access of employees who have left, and keep the accounting software and antivirus updated. A clean and secure digital space protects the business from data loss and cyber fraud.
Diwali, Financial Discipline and Record-Keeping
Arjuna (Fictional Character): Krishna, how do books of accounts relate to the spirit of Diwali, and what should we take away from this tradition?
Krishna (Fictional Character): Arjuna, Diwali is not just a festival of lights but also signifies the victory of light over darkness, knowledge over ignorance. When people worship money on “Dhanteras” and their books of accounts on “Laxmipujan”, it symbolizes the importance of honest wealth creation and diligent financial record-keeping.
