Section 44AA: Rules & Limit for Maintenance of Books of Accounts

Section 44AA of Income Tax Act requires: 

"Every individual, HUF, Firm and Companies who is doing business or profession are required to maintain books of accounts compulsorily (on exceeding the limit specified in section 44AA)."

Not only this, a maintained book of accounts should be kept for a certain period. It is not like that you destroy the accounts after one or two years.

Section 44AA also imposes heavy penalties on not complying with the provision of this section.

In the following we have explain the rules and limit under section 44AA:

 

What is Section 44AA of Income Tax Act?

Section 44AA requires every business and profession to maintain its books of account compulsory. Books of accounts should be maintained in such a way, which helps in computing the income.

This section explains the provisions of maintaining compulsory book of account into two categories:

• Maintaining book of account in case of specified professions
• Maintaining book of account in case of business or profession (Other than specified person)

 

How to maintain a book of accounts u/s 44AA in case of specified persons?

Before understanding the provision of maintaining books of account under section 44AA of Income Tax, you should know which professional covers under specified professions.

Specified profession includes

• Medical profession
• Legal professions
• Engineering professions
• Accounting professions
• Architectural profession
• Teaching consultancy profession
• Interior decorations
• Film artists
• Authorized representatives
• Company secretaries
• Such other professions are notified. 

All the above specified profession shall maintain compulsory books of account and other documents specified in rule 6F, only in the following cases:

If gross receipts (turnover) exceed rupees 150000 in all the three years immediately preceding the current financial year.

Example

If gross receipts in the year 2017-18 is rupees 200000, in 2018-19 is rupees 300000 and in 2019-20 is rupees 400000 then you have to maintain a book of accounts specified in rule 6F compulsorily in 2020-21, because in all the three year your gross receipts exceed rupees 150000.

OR

If the profession starts in the current financial year then books of accounts are required to be maintained, if gross receipts are likely to exceed Rs. 150000 in the current financial year.

Example

You have to start your profession in financial year 2021-22 then if there is likelihood that your gross receipts will exceed 150000 in financial year 2021-22 then you are required to maintain books of accounts in FY 2021-22.

 

Important points

List of book of account and other documents [rule 6F]

If person exceed the limit of rupees 150000 under certain condition as mentioned above then he is required to maintain the following accounts compulsory:

• Cash book
• Journal (if mercantile basic of accounting is followed)
• Ledger
• Carbon copies of bills
• Original bills

In case of medical profession, along with above two additional books are to be maintained

• Daily cash register
• Inventory register

If a person is covered under a specified profession but does not exceed the limit of rupees 150000, then he can maintain any book of accounts.

In such a case, No books are prescribed. He can maintain any book of account which may help the assessing officer in computing the income.

Also Read: Section 44AD of Income Tax Act (Presumptive Taxation Scheme)

 

How to maintain books of accounts in case of business or profession (other than specified person) u/s 44AA?

For business or profession (other than specified person), no book of account has been prescribed.

Person should maintain any book of account which may help the assessing officer to compute the income. 

Following are required to maintain accounts only if they exceed the following limits.

 

1) In case of individual or HUF 

Having existing business or profession (other than specified professions)

In this case, a person is required to maintain books of account as per section 44AA if:

• If income from business or profession exceed rupees 2,50,000; OR
• Gross receipts (turnover) exceed rupees 25,00,000 in any of the three previous years immediately preceding the current financial year.

Example

Income in 2017-18 is rupees 150000, 2018-19 is rupees 200000 & 2019-20 rupees 300000 then it is required to maintain accounts in financial year 2020-21 because in 2019-20 it exceeds the limit of rupees 250000.

 

Newly set up business or profession

In case person has set up new business or profession in current financial year then he is required to maintain books only if:

• If income from business or profession is likely to exceed rupees 250000; OR
• Gross receipts (turnover) like to exceed Rs. 25,00,000 during the current financial year.

Example

If a person Set Up new business in 2020-21 then the limit should be checked in 2020-21 itself.

 

2) Other than individual or HUF 

Having existing business or profession

The conditions are similar to the conditions of an individual and HUF having an existing business or profession, the only difference is of limit.

In this case:

• If income from business or profession exceed rupees 120000; OR
• Turnover exceeds Rupees 10 lakh

in any of the three previous years immediately preceding the current financial year.

 

Newly set up business professionals has to check if it's:

• Income is likely to exceed rupees 120000; OR
• Turnover is likely to exceeds Rupees 10 lakh

Then only they are required to maintain books of accounts as per section 44AA.

 

3. Deemed profit under section 44AE, 44BB or 44BBB

Under section 44AE, 44BB  or 44BBB, income is computed on presumptive basis, so if a person claim that his income is lower than deemed income computed earlier (presumptive income) then he is required to maintain book of account compulsory  in Section 44AA. In this case Audit is also compulsory under section 44AB.

 

4. Deemed profit under section 44AD (presumptive income)

In this case, if a person has not declared profit as per the provision of section 44AD (declared low income) and his income exceeds basic exemption limit for computing tax then he is required to maintain a book under Section 44AA and also audit is required under section 44AB.

Also Read: Section 115ba, 115baa, 115bab of Income Tax Act 1961

 

In how many years maintained books of accounts should be kept in record?

Books of account and other related documents should be kept & maintained safely for at least six year from the end of the relevant assessment year.

Example

Books of account of previous year 2018-19 (A.Y. 2019-20) should be kept up to 31st March 2026 (i.e. 6 year from assessment year 2019-20).

It is also important to keep books of account at business places.

If a person is carrying business in more than one place then books to be maintained at principal place.

If separate books are maintained for each business then same to be kept at the respective places.

 

What is the penalty for contravention of section 44AA?

If a person is not maintaining books of account as required under section 44AA and violating any provision of the section then penalty may be imposed under section 271A.

Under section 271A the penalty is rupees Rs. 25000.

 

Summary

Section 44AA of Income Tax Act explains the importance of maintaining books of account and other related documents. If not complied with the provision of this section the penalty may be imposed.

Also Read: Section 271AAD: (Penalty for Fake Invoices / False Entry)