Section 44AA Of The Income Tax Act: What Are Books Of Accounts Under Section 44AA
Do you need to maintain books of accounts for your business or profession? There are many misconceptions about maintaining account books; not everyone needs them. Section 44AA of the Income Tax Act clarifies which professions are mandated to maintain account books to facilitate income tax scrutiny.
Read along to learn more about Section 44aa of the IT Act.
Provisions of Section 44AA of Income Tax Act
Under Section 44AA of the income tax act, if income from your existing profession is more than Rs. 1,20,000 in the previous three years, you have to maintain books of accounts. The same is applicable if your business’s total sales, turnover, or gross receipts exceed Rs. 10 lakh in any three years before last year.
This requirement extends to all specified professions and businesses, including newly established businesses. Section 44AA of the income tax act is also applicable if the actual profits and gains from a business are deemed to be higher than the amount claimed by the assessee.
For taxpayers who are individuals or HUFs (Hindu Undivided Families), the minimum income limit is increased to Rs. 2,50,000. Moreover, their turnover or gross receipt limit is extended to Rs. 25 lakh with regard to the maintenance of account books.
Also read: Section 80DD of Income Tax Act
Who needs to Maintain Books of Accounts u/s 44AA of Income Tax Act?
As per Rule 6F, people engaged in the following professions must maintain and keep books of accounts.
- Medical (doctors, pathologists, physicians, dentists)
- Film artist (producer, editor, director, story writer, costume designer, singer, art director, music director etc.)
- Company secretary
- Architects
- Accountants
- Authorised representatives (a representative charging a fee to appear before tribunals or other authorities)
- Interior decoration
- Engineers
- Technical consultants
- Any other profession as notified by the Central Board of Direct Taxes (CBDT) in the Official Gazette
What Are Books of Accounts as per Section 44AA of Income Tax Act?
Any taxpayer engaged in business or profession under the above conditions needs to keep books of accounts. This would help the Assessing Officer (AO) compute their total income tax as per provisions of this Act. Taxpayers need to maintain these documents as per Rule 6F of Section 44AA of the Income Tax Act:
- Ledger: In a ledger, all entries flow from a corresponding journal. It has details of all accounts and can be used to make financial statements.
- Journal: You should use a journal when maintaining all accounts as per the mercantile accounting system. This is a journal of everyday transactions where total credits must be equal to the total debits as per the double-entry accounting system.
- Cashbook: This is a record of cash receipts and payments generated daily. With it, you can record cash balances on a daily or monthly basis.
- Signed bills and receipts issued to the taxpayer (for sums exceeding Rs. 50)
- Machine numbered or serial numbered photocopies of invoices (for sums exceeding Rs. 25)
What are the Audit Requirements Under Section 44AA?
A CA or Chartered Accountant has to conduct an account audit for taxpayers who belong to the following categories:
| Taxpayer Category | Which Audit is Necessary? |
| Individuals under Section 44AE’s presumptive income scheme | If presumptive income is more than business income under section 44AE |
| Individuals involved in business | Gross receipts, turnover or sales exceeding Rs.2 crore |
| Individuals under Section 44AD’s presumptive income scheme | If business income is lower than presumptive income under Section 44AD and the total income of the individual exceeds the minimum income that is exempted from tax |
| Individuals involved in a profession | Gross receipts exceeding Rs.50 lakh |
Books of Account for Medical Professionals
Professionals engaged in the medical field need to keep some additional documents for income tax scrutiny. These are as follows:
- Inventory of stocks of medicines, drugs and other consumables required for their profession
- Cash register having the details of services, patients, fees received, etc. (in Form No. 3C)
What are the Due Dates for Submission of Audit Report and Auditing of Records?
| Taxpayer Category | Statement Form | Audit Form | Submission Due Date | Audit Due Date |
| Individuals involved in a profession or business requiring a compulsory audit | Form 3CD | Form 3CA | 30 September of that year of assessment | 30 September of that year of assessment |
| Any other individual not belonging to the above category | Form 3CD | Form 3CB | 30 September of that year of assessment | 30 September of that year of assessment |
How Long Do You Have to Maintain Such Documents?
Professionals have to keep account books and documents mentioned above for at least six years from the end of the assessment year. Under Section 147 of the IT Act, tax assessment of a year may be reopened, and the concerned AO may require these documents.
Professionals need to keep and maintain these documents at the place or places where they carry out their profession. For separate workplaces, taxpayers need to keep and maintain separate books of accounts.
Penalty for Not Maintaining Account Books
The main purpose of Section 44AA of IT Act is to ensure that professionals without fixed salaries do not get involved in tax evasion. In case you do not keep all necessary records, penalties under Section 271A are applicable.
If you fail to maintain a record of transactions, you are liable to a penalty of up to Rs. 25,000. For international transactions, a penalty of 2% for each transaction is applicable. Therefore, it is a good idea to keep track of your income and expenses as a professional.
Exceptions under Section 44AA of Income Tax Act
- When income from your existing profession is not more than Rs. 1,20,000 or turnover/total sales does not exceed Rs. 10,00,000
- The same applies to a newly established business with gross turnover/sales below Rs. 10,00,000
- Taxpayers who have switched to normal taxation from presumptive taxation u/s 44AD and 44ADA (his/her income must also be below the basic exemption limit)
- Professional businesses like goods carriage need not maintain account books under Section 44AE.
Also read: Section 234F of the Income Tax act
Final Word
Section 44AA of the Income Tax Act stipulates the conditions where professionals/businessmen need to maintain books of accounts. Maintaining such records is always a good idea as it helps the Assessing Officer compute income taxes. This makes sure that they have no reasons to reopen your tax assessment later.
Frequently Asked Questions
Ans: Tax audit is the verification of one’s books of accounts to validate income tax calculation. It makes sure that the taxpayer has complied with the laws of the Income Tax Act. Only a certified Chartered Accountant (CA) can carry out auditing of account books.
Ans: No, people engaged in one of the professions listed u/s 44A cannot adopt presumptive taxation u/s 44AD. However, they can declare 50% of gross receipts as income under Section 44ADAif their total gross receipts is under Rs. 50 lakh.
Ans: If you fail to get your accounting records audited u/s 44AB, you could be liable for paying a penalty under Section 271B. According to this, a penalty of 0.5% up to Rs. 1,50,000 is applicable on turnover, gross receipts or total sales.
Ans: For the following categories of taxpayers, an audit of books of accounts by a Chartered Accountant is compulsory.
> Professionals with gross receipts above Rs. 25 lakh
> Taxpayers involved in a business with total sales/gross receipts exceeding Rs. 1 crore
> Individuals opting for presumptive income u/s 44AE with income less than the prescribed limit
Ans: Individuals with professional or business income who have to get audited must do so within 30 September of the assessment year. They must submit their audit form (Form 3CA) and Form 3CD within 30 September as well.
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