In this article we are going to discuss the applicability where you are required to maintain the Accounts of your business or profession, as the case may be, if you are a businessman or engaged in rendering services your income will be charged under the head “Profits and Gains of Business of Profession”, under this head you are required to furnish the details of your income derived from your business or profession.
Prescribed books of accounts and other documents [Rule 6F]
Before diving into the provisions contained under the Income Tax Act, 1961 regarding the maintenance of accounts and their audit lets understands what are books of accounts and other documents. The following books of accounts and other documents are required to be maintained [Rule 6F(2)]:
(i) A cash book
(ii) A journal, if the accounts are maintained according to the mercantile system of accounting
(iii) A ledger
(iv) Carbon copies of bills, whether machine numbered or otherwise serially numbered and sum exceeds Rs 25
(v) Original bills wherever issued to the person and receipts in respect of expenditure incurred by the person, or where such bills or receipts are not issued, payment vouchers prepared and signed by the person, and the expenditure incurred does not exceed Rs 50.
The requirement to prepare and signing of payment vouchers shall not apply in case where the cash book maintained by the person contains adequate particulars in respect of expenditure incurred by him.
In case of a person carrying on medical profession [Rule 6F(3)]:
Person carrying on medical profession shall, in addition to the books of accounts and other documents specified in Rule 6F(2), keep and maintain the following namely:
(i) A daily case register in Form No 3C
(ii) An inventory under broad heads, as on the first and the last day of the previous year, of the stock of drugs, medicines and other consumable accessories used for the purpose of his profession.
Compulsorily Maintenance of Books of Account [Section 44AA]
(1)Maintenance of books of account and other documents by notified professionals [Section 44AA(1)]
Under this section every person carrying on the following profession:
- Legal
- Medical
- Engineering
- Architectural Profession
- Accountancy Profession
- Technical Consultancy
- Interior Decoration
Any other professions notified by the CBDT in the official gazette must statutorily maintain such books of accounts and other documents as may enable the assessing officer to compute his total income in accordance with the provisions of the Income tax Act, 1961. Other professions notified by the CBDT:
- Profession of authorised representative
- Profession of film artist
- Profession of Company Secretary
- Information technology profession
As per Rule 6F of the Income tax Rules, every person carrying on the aforementioned profession shall keep and maintain the books of account and other document specified in Rule 6F(2) if:
- His gross receipt, in all the 3 years immediately preceding the previous year, exceeds Rs 1,50,000; OR
- Where the profession has been newly set up in the previous year, his gross receipts are likely to exceed Rs 1,50,000 in that year.
(2) Maintenance of books of account and other documents by person carrying on business or profession, other than notified professions u/s 44AA(1) [Section 44AA(2)]
In case of Individual or HUF
- In case of existing business or profession, maintenance of Books of Accounts by persons being Individual or HUF where gross receipts, sales, or turnover exceeds Rs 2,50,000 in any one of 3 years immediately preceding the accounting year
- In case of newly set-up business or profession, maintenance of books of account by person being Individual or HUF where sales, turnover or gross receipt are likely to exceed Rs 2,50,000 during the accounting year.
In case of person other than Individual or HUF
- Every person, not being Individual or HUF, carrying on any business or profession, not being notified professions referred to in section 44AA(1), must maintain the books accounts:
- In case of existing business or profession
- income exceeds Rs 1,20,000; or
- Sales, turnover or gross receipt exceeds Rs 10,00,000
- In any one of 3 years immediately preceding accounting year
- In case of newly set-up business or profession
- Income is likely to exceed Rs 1,20,000; or
- Sales, turnover or gross receipts are likely to exceed Rs 10,00,000
- During the previous year.
- In case of existing business or profession
(3) Maintenance of books of account and other documents by person showing lower income as compared to computed on presumptive basis under section 44AE or section 44BB or section 44BBB
If assess claims that his income so computed is lower than the profits and gains as computed on presumptive basis by applying the provisions of section 44AE or section 44BB or section 44BBB than he must maintain the books of accounts.
(4) Maintenance of books of account where the provisions of section 44AD(4) are applicable and income exceeds the basic exemption limit in any previous year
If an assess declares profits as per the provisions of section 44AD (presumptive basis) for any previous year and he declares profit for any of the 5 succeeding assessment years relevant to previous year are not in accordance with the provisions of section 44AD(1), he shall not be eligible to claim the benefits of section 44AD for 5 subsequent assessment years relevant to previous year in which the profits has not been declared in accordance with the provisions of section 44AD(1) and he is required to maintain the books of account.
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