Summary: In the context of pre-Diwali preparations, the need for proper financial record management is guided by multiple statutory regulations. The Income Tax Act mandates retaining books of accounts for 6 financial years from the end of the relevant Assessment Year, with certain threshold conditions for maintenance. Under GST Law, a registered person must keep records for 72 months from the due date of furnishing the annual return for that year, extending to one year after the final disposal of any related appeal, if later. Similarly, the Companies Act requires all companies to preserve records for a minimum of 8 financial years. For electronic records, compliance mandates proper storage, retrieval, and from April 1, 2023, the use of accounting software with an un-disableable audit trail and edit log. Failure to adhere to these retention periods and maintenance standards can result in penalties under each act, including fines of up to Rs. 25,000 under the Income Tax Act, Rs. 10,000 or the tax evaded (whichever is higher) under GST, and both fine and imprisonment for responsible individuals under the Companies Act. Diligent record-keeping reflects the spirit of Diwali, symbolizing knowledge, honesty in wealth creation, and good governance.
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.
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 Act, 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 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 Example, as per the Income Tax Act, books of accounts relating to the Financial Year 2018–19 (i.e. AY 2019-20) should be retained up to the current financial year (i.e. FY 2025-26).
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 2017-18 should be retained up to current financial year (i.e. FY 2025-26).
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 2017-18 should be retained upto current financial year (i.e. FY 2025-26).
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.
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.
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.
(Republished with Amendments)
Author Bio
very good & useful information