What is Maintenance of Books of Accounts?

The books of accounts, including the receipts and vouchers, are required to be maintained under the statutory laws. These laws are the Income Tax Act, GST Act, and Companies Act, 2013. The compulsion requirements, retention period, and the books to be maintained differ under all three laws. 

Importance of Maintaining Books of Accounts

The financial statements are very important records for both the taxpayers and the tax department. They help in regulating the due tax and determining the deductions for certain payments and investments. It also helps in identifying the income sources and keeping track of income. 

Maintenance of Books of Accounts As Per the Income Tax Act

There are certain categories under which the maintenance of books of accounts Income Tax Act is applied: 

For HUF or Individual:

If the turnover/sales/gross receipts from the profession or business exceeds Rs 25,00,000 or the income from business or profession is more than Rs 2,50,000 in any of the previous three years, then it is compulsory to maintain the books of accounts.

For Other Remaining Persons:

If the turnover/sales/gross receipts from the profession or business exceeds Rs 10,00,000 or the income from business or profession is more than Rs 1,20,000 in any of the previous three years, then it is compulsory to maintain the books of accounts.

Special Cases:

• If the assesse is claiming the lower income u/s 44AD and the net total income is more than the basic exemption limit.
• If the assesse is claiming lower income u/s 44AE, 44BB, 44BBB. 

Maintenance of books of accounts and other documents for notified professions

This provision covers the following professions: 

• Architectural
• Legal
• Engineering
• Medical
• Accountancy
• Technical Consultancy
• Interior Decoration
• Company Secretary
• Authorised Representative (person who charges fees for representing another person in front of any authority or tribunal)
• Film-related artists, such as director, actor, art director, music director, editor, producer, singer, dance director, cameraman, lyricist, story writer, dialogue or screenplay writers, and costume designers. 

If the gross receipts in all three years just before the previous years exceed Rs 1,50,000, or if the profession is newly set up in the previous year, then the gross receipts are most likely to exceed Rs 1,50,000 in the year. In both cases, the professionals should maintain the books of accounts. 

Books of Accounts according to Rule 6F

• Journal 
• Ledgers
• Cash Book
• Regularly maintained cash register with all the details of patients, fees received, services rendered, and receipt date in Form 3C (it is for the persons carrying on the medical profession).
• Details of medicines, stock of drugs, and all the other consumables used ( it is also for persons carrying on a medical profession). 
• The copies of the receipt and original bills in respect of all the expenses incurred. If the bills and receipts are not issued, then the payment voucher needs to be prepared and signed in case the sum is not more than Rs 50. 

If in any of the 3 preceding years, the income is not more than Rs 1,50,000 or it is not going to be more than that in case of a new profession, then also the books of accounts should be maintained. It is not specified which books should be maintained, so you can maintain any books, but they should be in such a manner that the ATO can calculate the income. 

Duration for maintaining the books of accounts

From the end of the specific assessment year, the books should be maintained for a duration of at least 6 years.

Penalties for not maintaining the books of accounts

There is a fixed penalty for the taxpayers if they fail to do the maintenance of books of accounts u/s 44AA, and the penalty is imposed under section 271A. The maximum limit for the penalties to be charged is Rs 25,000. This penalty can be avoided if the taxpayer admits and provides a satisfactory justification for the failure to maintain the records. 

Maintenance of Books of Accounts Under the Companies Act

All companies must maintain the books of accounts at their registered office or any other office decided by the board of directors. In case the company maintains its book of records at an office which is other than its registered office, then it must imitate the same with RoC. The company must maintain the accounts electronically on the computers.

Duration for maintaining the books

Under the Companies Act, 2013, these books should be maintained for a duration of 8 years from the end of the specific financial year. 

Maintained Books of Accounts

• Items of cost
• Statement of cash flow
• Records of liabilities and assets
• Records of sales and purchases
• Documents, writing, vouchers, deeds, minutes, and registers, whether in electronic or physical mode. 

Maintenance of Books of Accounts Under the GST Act

Each and every person who is registered has to maintain the GST records at the primary place of business. 

Records need to be maintained

• Stock of goods
• Availed Input Tax Credit
• Payable output tax
• Manufacture or production of goods
• Inward and Outward supply of the services or goods or both of them
• Records of the goods or services that are imported or exported
• Other prescribed particulars, if any.

Duration for maintaining the books

Under the GST Act, the books and records should be maintained for at least 6 years from the last date of filing the last return for that year, which is on 31st December.