Maintenance of Accounts under Section 44AA & Rule 6F

Section 44AA of the Income Tax Act, 1961, mandates certain taxpayers to maintain books of accounts, while Rule 6F specifies the record-keeping requirements for professionals.

1. Who Must Maintain Books of Accounts?

A.  Businesses

• Mandatory if:
  • Annual turnover/gross receipts exceed ₹10 lakh(for businesses) or ₹2.5 lakh (for professions) in any of the last 3 years.
  • New businesses: If expected turnover exceeds ₹10 lakh (business) or ₹2.5 lakh (profession).
• Presumptive Taxation (Section 44AD/ADA/AE):
  • If opted, no books requiredunless turnover exceeds ₹2 crore (business) or ₹50 lakh (profession).

B.  Specified Professionals (Rule 6F)

• Applies to:
  • Doctors, Lawyers, Architects, Engineers, Accountants, etc. (Full list in Rule 6F(2)).
• Threshold: Gross receipts > ₹1.5 lakhin any of the last 3 years (or expected in current year).

2. Books of Accounts Required

For Businesses

• Cash Book(daily transactions).
• Ledger(consolidated accounts).
• Inventory Records(if trading/manufacturing).
• Bank Statements & Receipts/Payment Vouchers.

For Professionals (Rule 6F)

1. Cash Book(daily receipts & payments).
2. Journal(if mercantile system followed).
3. Ledger(consolidated accounts).
4. Copies of Bills (> ₹25)and Receipts.
5. Original Bills/Expenses (> ₹50).

3. Penalty for Non-Compliance

• Section 271A: ₹25,000 penaltyif books are not maintained.
• Disallowance of Expenses: AO may reject deductions if records are inadequate.

(A) Persons Carrying on Specified Professions [Section 44AA (1)]

Section 44AA(1) of the Income Tax Act, 1961 mandates certain professionals to maintain books of accounts to ensure transparent income computation. Below is a detailed breakdown of its applicability, requirements, and penalties.

1. Specified Professions Under Section 44AA(1)

The following professionals must maintain books of accounts if their gross receipts exceed ₹1.5 lakh in any of the last 3 years (or are expected to exceed this in a new profession):

1. Legal(Lawyers, Advocates)
2. Medical(Doctors, Surgeons, Dentists)
3. Engineering
4. Architectural
5. Accountancy(CAs, Tax Consultants)
6. Technical Consultancy
7. Interior Decoration
8. Film Artists(Actors, Directors, Music Composers, etc.)
9. Authorized Representatives(Fee-based representatives before tribunals)
10. Company Secretaries
11. Information Technology Professionals(Notified by CBDT)

Exception: If gross receipts do not exceed ₹1.5 lakh in all 3 preceding years, simplified records suffice (no prescribed books required).

2. Books of Accounts Required (Rule 6F)

For professionals with gross receipts > ₹1.5 lakh, the following records must be maintained:

Retention Period: 6 years from the end of the relevant assessment year.

3. Penalty for Non-Compliance

• Section 271A: Penalty of ₹25,000for failure to maintain books.
• Increased Scrutiny: Risk of income estimation by the Assessing Officer (AO) if records are absent.

4. Exceptions & Relaxations

• Presumptive Taxation (Section 44ADA):
  • Professionals with gross receipts ≤ ₹50 lakhcan declare 50% as income and avoid maintaining books.
  • If income is declared below 50%, books must be maintained.
• New Professionals: If gross receipts unlikely to exceed ₹1.5 lakh, no prescribed books needed

(B) Maintenance of Accounts for Non-Specified Professions & Businesses [Section 44AA(2)]

Section 44AA(2) of the Income Tax Act, 1961 governs bookkeeping requirements for:

1. Non-specified professions(not covered under Section 44AA(1))
2. Businesses(trading, manufacturing, etc.)

1. Applicability & Thresholds

Exception: If presumptive taxation (Section 44AD/44ADA) is opted:

• Businesses (44AD): No books required if turnover ≤ ₹2 crore.
• Professionals (44ADA): No books required if receipts ≤ ₹50 lakh.

2. Books of Accounts Required

1. For Businesses
2. Cash Book(daily cash transactions)
3. Ledger(consolidated accounts)
4. Inventory Records(if trading/manufacturing)
5. Bank Statements & Payment Vouchers
6. For Non-Specified Professions
7. Cash Book(receipts & payments)
8. Journal(if mercantile accounting)
9. Ledger(if turnover > ₹2.5L)
10. Bills & Invoices(for expenses > ₹50)

3. Penalty for Non-Compliance

• Section 271A: ₹25,000 penaltyif books not maintained.
• Income Estimation: AO may estimate income if records are missing.

(C)  When Maintenance of Books of Accounts is NOT Required

Under the Income Tax Act, 1961, certain taxpayers are exempt from mandatory bookkeeping based on their income level, business type, or tax scheme opted for. Below are the key scenarios where maintaining books of accounts is not compulsory:

1. Small Businesses & Professionals (Below Threshold Limits)

A.  Businesses (Trading/Manufacturing)

• No books required if:
  • Annual turnover/gross receipts ≤ ₹10 lakh(in all 3 preceding years).
  • New businesses: Expected turnover ≤ ₹10 lakh.

B.  Non-Specified Professions

• No books required if:
  • Annual gross receipts ≤ ₹2.5 lakh(in all 3 preceding years).
  • New professionals: Expected receipts ≤ ₹2.5 lakh.

C.  Specified Professionals (Doctors, Lawyers, CAs, etc.)

• No books required if:
  • Annual gross receipts ≤ ₹1.5 lakh(Rule 6F).

2. Taxpayers Opting for Presumptive Taxation

A.  Businesses (Section 44AD)

• No books required if:
  • Turnover ≤ ₹2 crore(₹3 crore if ≤ 5% cash receipts).
  • Income declared at 6% (digital) or 8% (cash)of turnover.

B.  Professionals (Section 44ADA)

• No books required if:
  • Gross receipts ≤ ₹50 lakh.
  • Income declared at 50% of receipts.

C.  Transport Operators (Section 44AE)

• No books required if:
  • Income declared at ₹1,000 per vehicle/month(goods transport).

3. Agricultural Income (Exempt from Tax)

• Farmers earning only agricultural income(no books required).

4. Salary Earners (No Business Income)

• Individuals with only salary income(no business/profession).

5. Exceptions Where Books Are Still Recommended

Even if not mandatory, maintaining basic records is advisable for:

✔ Loan applications (banks may require financial statements).

✔ GST compliance (if registered).

✔ Avoiding disputes with tax authorities.

6. Penalty for Non-Maintenance When Required

• Section 271A: ₹25,000 penaltyif books are not maintained when mandatory.
• Income Estimation Risk: AO may estimate higher income if no records are provided.