FAQs on Maintenance of books of accounts under Income Tax Act, 1961

Books of Account Requirements Under Income Tax Law

Section 44AA of the Income Tax Act, 1961, mandates that an assessee must prepare and maintain books of account if their income, gross turnover, or receipts exceed certain specified threshold limits. These requirements vary significantly based on whether the taxpayer is a professional or a business, and whether they opt into a presumptive taxation scheme. Specified Professionals—including those in Legal, Medical, Engineering, Accountancy, or Information Technology—are generally required to maintain their books of accounts irrespective of their gross receipts or income, unless they have opted for the presumptive scheme under Section 44ADA. Conversely, Non-Specified Professionals and businesses are subject to monetary thresholds. For individuals and Hindu Undivided Families (HUFs), books are mandatory if professional income exceeds ₹2,50,000 or gross receipts exceed ₹25 lakhs in any of the three preceding years. For other taxpayers, these limits are lower: income exceeding ₹1,20,000 or gross receipts exceeding ₹10 lakhs. If a business or profession is newly established, the applicable threshold for the current financial year is taken into consideration.

The rules for maintaining books are different for taxpayers utilizing Presumptive Tax Schemes (Sections 44AD, 44AE, 44BB, 44BBB). Generally, these taxpayers are relieved of the book maintenance requirement unless specific conditions are met. For example, a business entity under Section 44AD must maintain books if they cease to opt for the scheme after utilizing it in any of the preceding five years, and their income exceeds the maximum exemption limit. Similarly, taxpayers under 44AE (goods carriage), 44BB (mineral oil exploration), or 44BBB (foreign civil construction) are obligated to maintain records only if they claim that their actual profits are lower than the minimum deemed profits prescribed under their respective sections.

The required books for specified professionals with gross receipts over ₹1,50,000 include a Cash Book, Journal, Ledgers, carbon copies of bills and receipts over ₹25, and original bills for expenditures. Medical professionals have an additional requirement to maintain a Daily Case Register (Form 3C) and an inventory of consumables. All books and documents must be maintained at the principal place where the profession is carried on. The mandatory retention period for these records is six years from the end of the relevant assessment year. Failure to keep, maintain, or retain the books of accounts as required by law can result in a penalty of ₹25,000 imposed under Section 271A.

Q.1 Who is required to maintain books of accounts?

​​​Ans An assessee is required to prepare and maintain books of account if his income or gross turnover or receipts, as the case may be, exceeds the prescribed threshold limit. The requirement to maintain the books of accounts is prescribed under Section 44AA and the requirement to get them audited is mentioned in Section 44AB.

Section 44AA specified different requirements for maintaining books of accounts for the following taxpayers

–  Specified Professions;

–  Non-Specified Professions;

–  Business; and

–  Businesses eligible for presumptive taxation scheme under ​Section 44AD, 44AE, 44BB, or​​44BBB.​

Q.2 What is mandatory to maintain books of account in the case of specified professionals?

​Ans Specified professionals are required to maintain their books of accounts irrespective of their gross receipts and income except in case a presumptive taxation scheme under Section 44ADA​ has opted.

Specified professionals include any person engaged in Legal, Medical, Engineering, Architectural, Technical Consultancy, Interior decoration, Film artist, Authorized Representative, Accountancy Profession, Company secretary, or Information Technology.​

Q.3 What is mandatory to maintain books of account in the case of non-specified professionals?

Ans Non-specified professionals are required to maintain books of account if the income from their profession or gross receipts of such profession exceeds the threshold given below:

For individual or HUF: if the income from such profession exceeds Rs. 2,50,000 or Gross receipts exceeds Rs. 25 lakhs, in any of the 3 years immediately preceding the previous year.

For others: if the income from such profession exceeds Rs. 1,20,000 or Gross receipts exceed Rs. 10 lakhs, in any of the 3 years immediately preceding the previous year.​

Q.4 How to check the threshold limit if business or profession is set up during the previous year?

​Ans Where a business or profession has been set up during the previous year, the threshold limit of income or gross turnover/receipts of the current year shall be taken into consideration.​​​

Q.5 What is mandatory to maintain books of account in the case of taxpayers who opted for a presumptive tax scheme?

​​​Ans A Business entity opting for a presumptive tax scheme under section 44AD, 44AE, 44BB, or​44BBB is required to maintain books of account if the following conditions are satisfied:

(a) Businesses eligible for presumptive tax scheme under s​section 44AD

For resident individuals or HUFs: If the income of the assessee exceeds the maximum exemption limit and he has opted for the presumptive scheme in any of the last 5 previous years but does not opt for the same in the current year.

For resident partnership firm: The taxpayer has opted for the scheme in any of the last 5 previous years but does not opt for the same in the current year.

(b) Businesses eligible for presumptive tax scheme under Section 44AE

If the taxpayer (engaged in plying, hiring, or leasing goods carriage) claims that the profits are lower than the deemed profits computed under section 44AE.

(c) Businesses eligible for Presumptive Tax Scheme under Section 44BB

If the taxpayer (non-resident assessee engaged in the exploration of mineral oil) claims that the profits are lower than the deemed profits computed under section 44BB.

(d) Businesses eligible for Presumptive Tax Scheme under Section 44BBB

If the taxpayer (a foreign company engaged in civil construction) claims that the profits are lower than the deemed profits computed under ​section 44BBB.​

Q.6 Which books of accounts are required to be maintained?

Ans The following books of accounts are required to be maintained: (a) For specified professions other than company secretary and information technology (where gross receipts exceed Rs. 1,50,000 in any of the 3 years immediately preceding the previous year) • Cash book • Journal, if books of accounts are maintained according to the mercantile system of accounting • Ledgers • Carbon copies of bills and carbon copies or counterfoil of receipts issued by the assessee of value exceeding Rs. 25 (must be machine numbered or serially numbered) • Original bills issued to the assessee and receipts in respect of the expenditures incurred by him. • Signed vouchers, if bills and receipts are not issued and the amount of expenditure does not exceed Rs. 50 if the cash book does not contain adequate particulars in respect of these expenditures. However, for medical professions, the following additional books are required to be maintained: – Daily case register in Form 3C – Inventory under broad heads of stock of drugs, medicines, and other consumable accessories used for the purpose of profession, as on the first and last day of the previous year. (b) For specified professions (in every case), and non-specified professions & businesses where income or gross turnover exceeds the limit Such books of account which may enable the Assessing Officer to compute the taxable income.​

Q.7 Where books of account and other documents should be kept and maintained?

​Ans Books of account and other documents should be kept and maintained by the person at the place where he is carrying on the profession or, where the profession is carried on at more than one place, at the principal place of his profession.

However, where the person keeps and maintains separate books of account in respect of each place where the profession is carried on, such books of account and other documents may be kept and maintained at the respective places at which the profession is carried on.​

Q.8 How long should books of account and documents be kept and maintained?

​​Ans ​Books of account and documents should be kept and maintained for a period of 6 years from the end of the relevant assessment year.

However, if the assessment in relation to any assessment year has been reopened under Section 147​ within the prescribed period, all the books of account and other documents which were kept and maintained at the time of reopening of the assessment should be kept and maintained until the assessment so reopened has been completed.​

Q.9 What is the penalty for failure to keep, maintain or retain books of account and documents?

​​Ans If an assessee fails to maintain or retain books of account and other documents for the specified period in accordance with this provision, a penalty may be imposed under Section 271A​ of Rs. 25,000.

(Republished with amendments)