Section 44AA of Income Tax Act

Section 44AA gives details of who all are required to maintain books of accounts for the purpose of income tax.

Businesses and professions are required to maintain the books of accounts for income tax purpose. The detailed requirements of different transactions are prescribed under section 44AA.

Personal Finance NPS Login Registration | Saving Schemes | UAN epf mobile register change

• Cash book : Book displaying the record of day-to-day transactions of cash received and paid-out. The book should update the balance at the end of the day or at least at the end of every month and not later.

• A journal according to the mercantile system of accounting : A journal is a log of all transactions on a daily basis. In accounting terms, it is a record where total credits are equal to total debits. When the double entry system of accounting is followed, every debit has a corresponding credit and vice versa. A ledger where there is a record of all the entries made in the proper flow manner can be used to prepare financial statements.

• Duplicate copy of bills and receipts issued if the amount exceeds INR 25

• Original copy of expenditure incurred where the amount exceeds INR 50

Below are the additional requirements if an individual is involved in a medical profession like dentists, pathologists, radiologists, physicians, surgeons, etc.

• Need to maintain cash register of daily details of patients, services given, fees received and date of receipt.

• Details of stocks of medicines, drugs and other items used

• All the books are required to be maintained at the Head office or at each of the branch office.

The books are needed to be maintained for a period of 6 years

If the income does not surpass INR 1,20,000 or total turnover, sales or gross receipts don’t exceed more than INR 10,00,000 in all the preceding 3 years then book of accounts is not required. Similarly, in the case of a new start-up business, the same rule applies when the income is anticipated to be less than INR 1,20,000 or sales/turnover/gross receipts are expected to be less than INR 10,00,000.

If the income from the profession is more than INR 1,20,000 or total turnover, sales or gross receipts exceed INR 10,00,000 in all 3 preceding years, such business is required to maintain books of accounts and other necessary documents. In case of new start-up where the income is anticipated to be more than INR 1,20,000 or sales, turnover or receipts are expected to be more than INR 10,00,000, then the same rules apply as above.

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

Professions and Businesses that come under section 44AD and 44AE are not required to keep or maintain any books of accounts. However, individuals or taxpayers who claim that their income from the profession is less than the presumed income calculated under section 44AD and 44AE are required to maintain a book of accounts for the assessing officer to calculate their income tax as per the Income Tax Act, 1961. No specific record type is mentioned by the Income Tax Department.

From the assessment year 2018 -2019 the limit of INR 1,20,000 has been increased to INR 2,50,000 and INR 10,00,000 to INR 25,00,000.

If the individual or taxpayer does not maintain books of accounts as per the requirements mentioned under section 44 AA, he/ she is liable to pay the liability under section 271A. The maximum amount of penalty that may be charged is INR 25,000. However, if there is a genuine reason due to which accounts could not be maintained or shown then the penalty may be excused.

Penalty for Failure to get Books Audited

If the individual or taxpayer does not get the books of accounts audited from a qualified Chartered Accountant or is unable to produce audit report as per the section 44AB then a penalty may be charged under section 271B. The minimum amount of penalty that can be charged is 0.5% of the total turnover, gross receipts or total sales. The maximum penalty that may be charged is INR 1,50,000. However, if the individual can display a genuine cause for not getting the audit done then a penalty may be excused by the Income Tax Department or Assessing Officer.