Which Account Books Should be Maintained by Professional or Businessman?

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Every person kept some records to noting down his daily expenses and income. According to Income Tax Act, some persons will kept and maintain books for daily expenses, receipts, cash transactions, bank transactions, etc. Not every person needs to maintain books for daily transaction only the person specified by Income Tax Act. In this article, we will discuss about the books which a person should be kept and maintain for future references like to file the income tax return, to prepare profit & loss, balance sheet and other transactions. The books are important in the eyes of Income tax department because on the basis of these record, the department will assess the tax. There are three types of persons who will maintain account books. This provision comes under the section 271A  and rules 6F of Income Tax Act.

  •     By Business man
  •     By Professionals
  •     By Other person

By Business Man

The following books of account shall be maintained by such as person whose gross receipt, sales, turnover more than Rs. 10,00,000 in any one of three immediately preceding year  during the previous year. They are compulsory required to maintain books of accounts. ‘Or’

The person who has income of Rs. 1,20,000 or more than that in previous year or in any one of three immediately preceding years.

From AY 18-19, the limit of Rs. 120,000 has been increased to Rs. 250,000 and Rs. 10,00,000 to 25,00,000.

  •     Journal
  •     Cash Book
  •     bills Payable/Receipt account
  •     Ledger
  •     Cash Memo
  •     Payment voucher

The books and documents must be kept safe for at least six years from the relevant assessment year.

By Professionals

The professionals like accountant, engineers, software engineers, doctors, architects, Interier designers, actors, Ars and consultants shall maintain the books of account if the gross receipt for a previous year is Rs.1,50,000/- or more ‘Or’ in any three years immediately preceding the previous year. It is compulsory for them to maintain the following books of account.

  •     Cash Book
  •     Ledger
  •     Journal
  •     Inventory books (In case of medical profession)
  •     expenditure bills ( like telephone bill, electricity bills, etc.)
  •     Bank Statement (Original bank statements in the year)

The books and documents must be kept safe for at least six years from the relevant assessment year.

For Professions and Businesses covered under section 44AD and 44AE

Businesses covered under section 44AD and 44AE are not required to maintain any books of accounts. However taxpayers who claim that their income from business is lower than the presumed income calculated under section 44AD and 44AE must maintain books of accounts which may enable the Assessing Officer to calculate their taxable income as per the Income Tax Act. No specific records are prescribed.

By Other Persons

If a person does not come under profession or business as mentioned above, then Income Tax department advised that maintain at least cash book and ledger to avoid any arbitrary estimate of Income by Assessing Officer u/s 144.
Penalty for failure to Maintain Books of Accounts or accounts

As it mentions above the books of accounts are compulsory for above specified persons u/s 144AA and Rule 6F. So there is a provision of penalty of Rs. 25000/- on failure to keep and maintain for books of accounts.

Audit Requirements

Audit of accounts is compulsory by a Chartered Accountant for the following persons. More detail here

Tax PayerCompulsory Audit required when
A person carrying on BusinessIf total sales, turnover or gross receipts are more than Rs. 1 crore (From FY 16-17, Rs. 2 crores)
A person carrying on ProfessionIf gross receipts are more than Rs. 25 lakhs (From FY 16-17, Rs. 50 lakhs)
A person covered under presumptive income scheme section 44ADIf income of the business is lower than the presumptive income calculated as per Section 44AD and the person’s total income is more than the minimum income which is exempt from tax.
A person covered under presumptive income scheme section 44AEIf income of the business is lower than the presumptive income calculated as per Section 44AE.

The method of accounting should be in cash or mercantile system. Assessee can maintain books of account manually or in computerized system. There are lots of  accounting software in the marketing for book keeping, the most popular software is tally 9 ERP.  Most of the businessman and professionals nowadays are using computerized system as it easy and fast to maintain books. We are advised to business man and professionals that follow accounting standards as prescribed by Income Tax Act.

There is also a provision in Income Tax Act for audit of account books. We will discuss in next article that about compulsory audit of accounts.

 

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