Books of Accounts Under Section 44AA of the Income Tax Act

Maintaining proper financial records is a basic responsibility for taxpayers earning income from business or profession. The Income Tax Act sets clear rules on this matter. These rules are covered under Section 44AA of the Income Tax Act and related provisions. They define who must maintain books of accounts, what records are required, and how long they should be preserved.

This article explains the key aspects of Section 44AA in a clear and practical way.

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What Are Books of Accounts?

Books of accounts are written or digital records that track income, expenses, assets, and liabilities. These records help calculate taxable income accurately. They also allow tax authorities to verify financial details when needed.

Under Section 44AA of the Income Tax Act, certain taxpayers must keep such records if their income or turnover crosses prescribed limits.

Who Is Required to Maintain Books of Accounts?

The requirement depends on the type of activity and the level of income or turnover.

For Business or Profession (General Rule)

Books of accounts must be maintained if, in any of the three preceding years:

• Income exceeds ₹1,20,000, or
• Turnover or gross receipts exceed ₹10,00,000

For individuals and Hindu Undivided Families (HUFs), higher limits apply:

• Income limit: ₹2,50,000
• Turnover or gross receipts limit: ₹25,00,000

The same conditions apply to newly started businesses or professions if income or turnover is expected to cross these limits.

Specified Professionals Under Section 44AA

Certain professions have specific rules. These include:

• Legal
• Medical
• Engineering
• Architectural
• Accountancy
• Technical consultancy
• Interior decoration
• Authorised representatives
• Film artists
• Company secretaries

If income from these professions exceeds ₹1,50,000 in all of the three preceding years, books of accounts must be maintained. Freelancers working in these fields are also covered.

Prescribed Books as per Rule 6F

For specified professionals, Rule 6F lists the records that must be maintained.

Medical professionals must also maintain a daily patient register and stock details of medicines and consumables.

These records should be kept at the head office or place of practice.

Businesses and Other Professions

For businesses and professions not listed as specified professionals, no fixed list of records is prescribed. However, the books maintained should be sufficient to allow the Assessing Officer to compute taxable income correctly.

Taxpayers opting for presumptive taxation under sections such as 44AD or 44ADA are generally not required to maintain books. This changes if they declare income lower than the prescribed presumptive rate and their income exceeds the basic exemption limit.

Period for Which Books Must Be Maintained

Books of accounts must be preserved for six years from the end of the relevant assessment year. This applies even if the business has been discontinued.

When Bookkeeping Is Not Required

Books of accounts are not mandatory if:

• Income does not exceed ₹1,20,000, and
• Turnover or gross receipts do not exceed ₹10,00,000

This condition must be met in all of the preceding three years. For newly started activities, the same limits apply based on expected income and turnover.

Penalty for Non-Compliance

Failure to maintain books as required under Section 44AA may attract a penalty of up to ₹25,000 under section 271A. The penalty may be waived if a reasonable cause is shown.

If audit requirements under Section 44AB are not met, an additional penalty may apply. This is calculated as 0.5% of turnover or gross receipts, subject to a maximum of ₹1,50,000.

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Conclusion

Section 44AA of the Income Tax Act plays a key role in ensuring financial discipline among taxpayers. It sets clear rules on record-keeping while allowing flexibility where income levels are lower. Maintaining proper books helps avoid penalties and supports accurate tax reporting. For businesses and professionals alike, organised financial records are not just a legal requirement but a sound practice.