COMPULSORY MAINTENANCE OF Books of ACCOUNTS [SECTION 44AA]

 

 

(1) Maintain the books of account and other documents by notified profession [Section  44AA(1)]: This section provides that every person carrying on the legal, medical, engineering or architectural profession or accountancy or technical consultancy or interior decoration or any other profession as has been notified by the CBDT in the official gazette must statutorily maintain such books of accounts and other documents as may enable the assessing officer to compute his total income in accordance with the provisions of the Income-tax Act, 1961.

Notified professions: The professions notified so far are as the profession of authorised representative; the profession of film artist (actor, cameraman, director, music director, art director, dance director, editor, singer, lyricist, story writer, screenplay writer, dialogue writer and dress designer); the profession of Company Secretary; and information technology professionals.

Prescribed books of accounts & other documents: The CBDT has been authorised,  having due regard to the nature of the business or profession carried on by any class of persons, to prescribe by rules the books of account and other documents including inventories, wherever necessary, to be kept and maintained by the taxpayer, the particulars to be contained therein and the form and manner in which and the place at which they must be kept and maintained.

Rules pertaining to maintenance of books of accounts & other documents:

Rule 6F of the Income-tax Rules contains the details relating to the books of account and other documents to be maintained by certain professionals under section 44AA (1).

A prescribed class of persons: As per Rule 6F, every person carrying on legal, medical, engineering, or architectural profession or the profession of accountancy or technical consultancy or interior decoration or authorised representative or film artist shall keep and maintain the books of account and other documents specified in Rule 6F(2) in the following  cases :

if his gross receipts exceed ` 1,50,000 in all the 3 years immediately preceding the previous year; or

if, where the profession has been newly set up in the previous year, his gross receipts are likely to exceed ` 1,50,000 in that year.

Note: Students may note that professionals whose gross receipts are less than the specified limits given above are also required to maintain books of account, but these have not been specified in the Rule.

In other words, they are required to maintain (as per point (1) above) such books of account and other documents as may enable the Assessing Officer to compute the total income in accordance with the provisions of this Act.

Prescribed books of accounts and other documents [Sub-rule (2) of Rule 6F]: The following books of account and other documents are required to be maintained.

a cash books.

a journal, if accounts are maintained on a mercantile basis, a ledger.

Carbon copies of bills and receipts issued by the person whether machine numbered or otherwise serially numbered, in relation to sums exceeding ` 25.

(v)   Original bills and receipts issued to the person in respect of expenditure incurred by the person, or where such bills and receipts are not issued, payment vouchers prepared and signed by the person, provided the amount does not exceed ` 50. Where the cash book contains adequate particulars, the preparation and signing of payment vouchers are not required.

In case of a person carrying on the medical profession, he will be required to maintain the following in addition to the list given above:

     (i)          a daily case register in Form 3C.

    (ii)          an inventory under broad heads of the stock of drugs, medicines, and other consumable accessories as on the first and last day of the previous year used for his profession.

Place at which books are to be kept and maintained: The books and documents shall be kept and maintained at the place where the person is carrying on the profession or where there is more than one place, at the principal place of his profession. However, if he maintains a separate set of books for each place of his profession, such books and documents may be kept and maintained at the respective places.

Period for which the books of account and other documents are required to be kept and maintained: The Central Board of Direct Taxes has also been empowered to prescribe, by rules, the period for which the books of account and other documents are required to be kept and maintained by the taxpayer.

Prescribed period: The above books of account and documents shall be kept and maintained for a minimum of 6 years from the end of the relevant assessment year.

ILLUSTRATION

Vinod is a person carrying on his profession as a film artist. His gross receipts from his profession are as under:

Financial year 2018-19           1,15,000

Financial year 2019-20           1,80,000

Financial year 2020-21           210000

What is his obligation regarding the maintenance of books of accounts for Assessment Year 2022-23 under section 44AA of the Income-tax Act, 1961?

SOLUTION

Section 44AA (1) requires every person carrying on any profession, notified by the Board in the Official Gazette (in addition to the professions already specified therein), to maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of the Income-tax Act, 1961.

As per Rule 6F, a person carrying on a notified profession shall be required to maintain

specified books of accounts, only if:

his gross receipts in all the three years immediately preceding the relevant previous year have exceeded ` 1,50,000; or

it is a new profession that is set up in the relevant previous year, it is likely to exceed ` 1,50,000 in that previous year.

In the present case, Vinod is a person carrying on his profession as a film artist, which is a notified profession. Since his gross receipts have not exceeded ` 1,50,000 in the financial year 2018-19, the requirement under section 44AA to compulsorily maintain the prescribed books of account is not applicable to him for A.Y. 2022-23.

Mr. Vinod, however, is required to maintain such books of accounts as would enable the Assessing Officer to compute his total income.

 

Maintenance of books of account and other documents by persons carrying on business or profession [other than notified professions referred to in section 44AA (1)] [Section 44AA (2)]:

1. In case of Individual or HUF: An Individual or HUF carrying on any business or profession (other than notified professions specified in section 44AA (1)) must maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance the provisions of the Income-tax Act, 1961 in the following circumstances:

I)                 Existing business or profession: In cases where the income from the existing business or profession exceeds ` 2,50,000 or the total sales, turnover, or gross receipts, as the case may be, in the business or profession exceed ` 25,00,000 in any one of three years immediately preceding the accounting year; or

II)               Newly set up business or profession: In cases where the business or profession is newly set up in any previous year, if his income from business or profession is likely to exceed ` 2,50,000 or his total sales, turnover, or gross receipts, as the case may be, in the business or profession are likely to exceed ` 25,00,000 during the previous year.

2. II. Person (other than individual or HUF): Every person (other than individual or HUF) carrying on any business or profession (other than the notified professions referred to in section 44AA(1)) must maintain such books of account and other documents as  may enable the Assessing Officer to compute his total income in accordance the  provisions of the Income-tax Act, 1961 in the following circumstances:

i)                 Existing business or profession: In cases where the income from the business or profession exceeds ` 1,20,000 or the total sales, turnover, or gross receipts, as the case may be, in the business or profession exceed ` 10,00,000 in any one of three years immediately preceding the accounting year; or

ii)                Newly set up business or profession: In cases where the business or profession is newly set up in any previous year if his income from business or profession is likely to exceed ` 1,20,000 or his total sales, turnover, or gross receipts, as the case may be, in the business or profession are likely to exceed ` 10,00,000 during the previous year.

3. Showing lower income as compared to income computed on a presumptive basis under section 44AE or (section 44BB or section 44BBB): Where profits and gains from the business are calculated on a presumptive basis under section 44AE or section 44BB or section 44BBB and the assessee has claimed that his income is lower than the profits or gains so deemed to be the profits and gains of his business.
4. IV. Where the provisions of section 44AD(4) are applicable in his case and his income exceeds the basic exemption limit in any previous year: In cases, where an assessee is not eligible to claim the benefit of the provisions of section 44AD(1) for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of  44AD(1) and his income exceeds the basic exemption limit during the previous year.