Jigar M. Patel
International Tax Attorney
Maintenance of Books of Account
Maintaining proper books of account is not merely good business governance – it is, in many cases, even a statutory obligation. Section 44AA of the Income-tax Act stipulates conditions as per which taxpayers engaged in business or profession are required to mandatorily maintain books of accounts.
Under Section 271A, failure to maintain required books of accounts under Section 44AA and rules thereunder, can attract a penalty of up to Rs. 25,000.
Provisions for Specified Professionals
Under Section 44AA specified professionals carrying on legal, medical, engineering, architectural profession or profession of accountancy, technical consultancy, interior decoration, film artist and company secretary are required to maintain such books of account and other documents as notified under Rule 6F of the Income-tax Rules. For the purpose, the limit of annual gross receipts specified for maintaining such accounts has been fixed at Rs. 1.5 lakhs.
Threshold Limits in Other Cases
In case of other professional and business entities, the specified limit of sales, turnover or gross receipts, as the case maybe, is Rs. 10 lakhs or annual income exceeding Rs. 1,20,000. In case of the business entity being an individual or HUF, the aforesaid limits have been fixed at Rs. 25 lakhs and Rs. 2.5 lakhs respectively.
Old Wine in New Bottle – the Irony Continues
It is indeed ironical that while on one hand, personal income-tax exemption limits and even threshold limits for tax audit have been reviewed and raised from time to time, the puny limits of annual income of Rs. 1,20,000 and turnover of Rs. 10 lakhs, last revised in the 1990s, have remained static for over 25 years.
What defies logic is the fact that even under the new Income-tax Act of 2025, the aforesaid limits have remained stagnant, compelling the remark that taxpayers have been offered merely old wine in a new bottle.
Period for which Books Need to be Preserved
A common question in the minds of taxpayers engaged in business or profession is how long they need to preserve books of account. Under Rule 6F, books of account are required to be retained for six years from the end of the relevant assessment year or for a longer period, if the relevant assessments or proceedings in relation to the same are pending.
Tax Audit – When Required?
Governed by the provisions of Section 44AB, the tax audit framework seeks to ensure accuracy of accounts and reporting of income in compliance with the tax provisions.
Tax audit is required based on the prescribed limits of sales, turnover or gross receipts, as the case may be, of the concerned business or profession:
- in the case of a business, if the aggregate amount during the year exceeds Rs. 1 crore.
- in the case of a profession, if the annual amount exceeds Rs. 50 lakhs.
As a special concession, if in the case of a business, the amount of receipts and payments made in cash do not exceed 5% of the aggregate amounts respectively, the threshold limit of Rs. 1 crore for tax audit under Section 44AB shall stand enhanced to Rs. 10 crores.
Presumptive Taxation – a Key Exception
An important statutory relaxation from maintaining books of account has been conferred under the presumptive taxation scheme. The provisions of Section 44AD and Section 44ADA governing eligible businesses and professions which comply with the conditions stipulated under the said sections have been granted exemption from the above referred provisions of Section 44AA.
In a case where the taxpayer’s gross turnover or receipts are within the limits prescribed under the presumptive tax scheme, but he does not declare his taxable income in the manner and proportion as provided therein, he would be mandatorily required not only to maintain his books of accounts, but also adhere to the provisions of tax audit under Section 44AB.
