Introduction: Arjuna (Fictional Character) and Krishna (Fictional Character) engage in a conversation about the cleaning and maintenance of financial records in the spirit of Diwali. Diwali, the festival of lights, is not only a time to refresh our homes but also an occasion to tidy up our financial books and embrace the new. In this dialogue, we explore the legal obligations related to record-keeping under various acts and how they align with the deeper values of Diwali.
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? This will help businesses declutter.
Krishna (Fictional Character): Certainly, 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.
Arjuna (Fictional Character): Krishna, can you enlighten me about the provisions of the Income Tax Act concerning record-keeping?
Krishna (Fictional Character): See Arjuna, as per Income Tax, books of accounts should be maintained 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.
c) In case of certain specified professions, assessee need to maintain books of accounts if his total gross receipts in the profession exceed Rs. 1,50,000 in any one of the three years immediately preceding the previous year. Books to be maintained such as Cash book, Journal, ledgers, Carbon copies of Receipts by him and original copies of Payment Vouchers as per Rule 6F.
Further, books of accounts are not required to be kept, if the person has declared income on presumptive basis u/s 44 AD i.e @ 8/6% of turnover or u/s 44AE 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 Ex: In the current financial year, which is 2022-2023, the assessment year is 2023-2024. According to the Income Tax Act, you are required to maintain your books of account for the preceding six years, starting from the financial year 2017-2018 to the current financial year 2022-2023.
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 accounts of Stock of Goods, ITC availed, Output Tax Payable, Outward & Inward Supply, etc. u/s 35 at the principal place of business for the period not less than period of 6 years from the last date of filing of the annual return for that year.
In case of Composition Dealer no need to maintain details of ITC availed.
For Ex: A company” ABC Traders Pvt. Ltd.” filed Annual return GSTR-9 for the financial year 2022-2023 on December 31, 2023, such company need to keep books of accounts for the years 2017-2018 to 2022-2023 to comply with the GST 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 year.
For Ex: A company “XYZ Enterprises Ltd.” whose financial year ends on 31/03/2023. According to the Companies Act, the company should maintain books of accounts for 8 years from the end of the relevant year, which in this case is 2014-2015.
Arjuna (Fictional Character): Krishna, what about the books of accounts maintained in computer software?
Krishna (Fictional Character): Arjuna, even 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 printouts or electromagnetic storage devices. Officers can verify these devices, so always check the saved data regularly on external devices. In old days, changes were difficult as books of accounts were maintained manually. However now computerized data is easy to change, so beware of it.
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 and person benefiting from such be liable to penalty which may extend to Rs.25000/-.
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.
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. While the fiscal year for financial laws commences from 1st April and concludes on 31st March, our Hindu traditions celebrate a new beginning with “Padva” during Diwali, marking the start of “Vikram Samvat 2080” this year. This implies that while financial prudence is crucial, it must align with our moral and ethical values. Goddess Laxmi represents wealth, and she blesses those who uphold integrity, honesty, and righteousness in their financial endeavors. Hence, the importance of Diwali lies not just in the external celebrations but also in imbibing these deeper values in our daily lives, especially in our financial transactions.
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very good & useful information