SECTION 44AA of the INCOME TAX ACT
Updated: Oct 14, 2022
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The books of accounts that an assessee is expected to keep for Income Tax are outlined in Section 44AA of the Income Tax Act. Rules 6F and Section 44AA specify the requirements for keeping these books of accounts. According to this provision,
Anyone who practices law,
Medicine,
Engineering,
Architecture,
Accounting,
Technical consulting,
Interior design,
Who serves as an authorised representative for someone else before a tribunal or other body created by law,
Filmmaker,
Office secretary,
Any other profession that the Income Tax Department notifies in the Official Gazette
They all are expected to establish and maintain accounting records that will allow the Assessing Officer to determine the assessee's total income by the Income Tax Act.
Additionally, those who are not among the aforementioned assessees but who are engaged in business or professions must keep and maintain books of accounts if they meet any of the following criteria :
Their business or profession generates an income of more than INR 1,20,000;
Their turnover, total sales, or gross receipts, as applicable, in their profession or business, exceed INR 10,00,000 in any one of the three preceding years; or
They established a new business or Ads by (iv) when an assessee's business profit or gains are calculated by section 44AD(4) and his income exceeds the maximum amount that was not subject to tax in any prior year.
The provisions of section 44AA relating to the keeping of books of account will not apply if a person engaged in business chooses the presumptive taxation scheme of that section (44AD).
In other words, if a person complies with section 44AD's requirements and declares income at 8% or 6% of turnover, he is exempt from the requirement to keep books of account under section 44AA for operations covered by the presumptive taxation system of that section.
Specified books of account, Rule 6F
Cashbook
Journals according to the commercial accounting system
Ledgers from which the financial statement preparation journal draws all of the entries.
Bills or receipts issued by the assessee that are copies and total more than INR 25
Original invoices for expenses beyond INR 50
The assessee incurred Additional criteria for those pursuing careers in medicine
Daily cash book detailing patient information, medical services provided, money paid, and the date of the receipt
Information about the supply of pharmaceuticals and other used consumables
These books must be kept at the assessee's head office or each office. And six years after the end of each year, records for that year must be retained.
Penalty for failing to keep the books of accounts up-to-date
In cases where the assessee has international transactions, failure to maintain such record could result in a penalty of 2% of the total value of such international transaction. If the assessee does not keep the books of accounts as required by the provisions of this section, the assessee may be charged a fine of INR 25,000. Additionally, a penalty under section 271A may be assessed if an assessee fails to maintain the books of account by the provisions of this section. The maximum fine that may be assessed is INR 25,000. The penalty, however, might not be assessed if the assessee can show that there was a valid reason for his failure to keep such accounting documents. Therefore, it is wise to keep the books of accounts up to date and to keep a systematic record of all the incomes and expenses.