Learn about the statutory provisions mandating bookkeeping in India for companies. Understand criteria, responsibilities, and penalties under the Companies Act. Get insights from a practicing Chartered Accountant.
In India, there are different statutory provisions that mandate the keeping of books of account. These enactments are Income Tax Act 1961, Goods & Service Tax Act 2017, and the Companies Act 2013. All three statutes have different criteria for the books of account such as its retention period, type of records to be kept, where it is to be kept, and which method of accounting and system of accounting is to be used. Here, we will limit our discussion in the context of the Companies Act, 2013. Every company is under an obligation to maintain books of account irrespective of their nature whether it is a private limited, public limited, One Person Company, and Small company.
What is Books of account?
As per Section 2(13) of the Companies Act, “books of account” includes records maintained in relation to:
- all sums of money received and expended by a company and matters in relation to which the receipts and expenditure take place;
- all sales and purchases of goods and services by the company;
- the assets and liabilities of the company; and
- the items of cost as may be prescribed under section 148 in the case of a company which belongs to any class of companies specified under that section.
What is Book and paper and book or paper?
As per Section 2(12) of the Companies Act “book and paper” and “book or paper” include books of account, deeds, vouchers, writings, documents, minutes, and registers maintained on paper or in electronic form.
What is Financial statement?
As per Section 2(40) of the Companies Act “financial statement” in relation to a company, includes—
(i) a balance sheet as at the end of the financial year;
(ii) a profit and loss account, or in the case of a not-for-profit company, an income and expenditure account for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (I) to sub-clause (iv):
Provided that the financial statement, with respect to One Person Company, small company, and dormant company, may not include the cash flow statement.
Books of Account (Section 128): –
Provisions of this section set out the following requirements,
(1)Every company shall prepare books of account, other relevant books and papers, and financial statements for every financial year;
(2)Books of Accounts to be kept at the registered office of the Company;
However, books of Accounts & other relevant papers, can be kept at such other place in India as the Board of Directors may decide and the registrar shall be informed in Form AOC-5 within 7 days of such decision.
(3)Books of account must be kept on accrual basis and according to the double entry system of accounting;
(4)Books of Accounts & relevant papers, books & financial statements shall give a true fair view of the financial position of the Company including that of its branch offices or other offices, if any;
(5)The books of account maintained by the company within India shall remain open for inspection by directors of the Company either at the registered office or such other place where the books are maintained, during business hours;
Inspection of the Subsidiary Company’s books of account shall be done only by the person authorized by the Board of Directors of the holding company.
Where any other financial information maintained outside the country is required by a director, the director shall furnish a request to the company setting out the full details of the financial information sought, the period for which such information is sought. The company shall produce such financial information to the director within fifteen days of the date of receipt of the written request.
However, the right of inspection of the books of accounts is not available to the members of the company.
(6)The books of accounts together with relevant vouchers relating to a period not less than eight preceding financial years, shall be kept in good order. The Central Government may, where an investigation has been ordered, direct that the books of account may be kept for such longer period as it may deem fit.
Books of Account of Branch
Where a company has a branch office in India or outside India, it shall be deemed to have complied with the provisions of sub-section (1), if proper books of account relating to the transactions effected at the branch office are kept at that office and proper summarized returns periodically are sent by the branch office to the company at its registered office or the other place where the books are maintained.
Responsibility for Maintenance of Books of Account:
The following persons in a company will be responsible for maintaining books of account
- the managing director,
- the whole-time director in charge of finance,
- the Chief Financial Officer or
- any other person of a company charged by the Board with the duty of complying with the provisions of this section.
Penalties for Non-Compliance:
In case of non-compliance or contravention of provisions of this section, the managing director, whole-time director in charge of finance, CFO or such other person of the company shall be punishable with a fine which shall not be less than ₹ 50,000 but which may extend to ₹ 5 lakh. If no person is specifically charged with the responsibility by the Board then it appears that the legislature intends to make all the officers of the company liable for punishment.
Maintenance of Books of Account in Electronic form
Rule 3 of Companies (Accounts) Rules, 2014 gives an option to the company of keeping books or other relevant papers of account or other relevant papers in electronic mode in the following manner;
- shall remain accessible in India so as to be usable for subsequent reference;
- shall be kept in original format;
- information received from the Branch office shall not be altered;
- shall be capable of being displayed in a legible form;
- there shall be proper backup of books of account;
- shall be kept in servers physically located in India.
The company shall intimate to the Registrar on an annual basis at the time of filing of the financial statement following relevant information related to the service provider—
(a) the name of the service provider;
(b) the internet protocol (IP) address of the service provider;
(c) the location of the service provider (wherever applicable);
(d) where the books of account and other books and papers are maintained on cloud, such address as provided by the service provider.
******
Rishikant Mehta, Practicing Chartered Accountant can be contacted For any query/information /suggestion at [email protected]
Author Bio
