Section 44AA of the Income tax Act, 1961 – Compulsory Maintenance of books of accounts

Section 44AA of the Income Tax Act, 2017 requires certain classes of taxpayers to mandatorily maintain books of accounts.

Governing law: Rule 6F of the Income Tax Rules, 1962 read with section 44AA of the Income Tax Act, 1961

Every person carrying out the following professions are required by law to maintain books of accounts and other documents as required

• Legal
• Medical
• Architect
• Engineering
• Accountancy
• Technical consultancy

• Interior decoration
• Authorized representative
• Film artist
• Company secretary
• IT professional
• Any other profession as maybe by the board

A freelancer pursuing any of the above mentioned professions with gross receipts exceeding Rs. 1,50,000 should maintain books of accounts.

Authorized representative means an individual who represents another person in exchange for a fee before any authority under the law.

Threshold Limit:

1. Cashbook
2. Journal, if the accounts are maintained according to the mercantile system of accounting
3. Ledger
4. Carbon copies of bills exceeding Rs. 25/-
5. Original bills in case the expenditure exceeds Rs. 50/-
6. A daily case register in Form No 3C (applicable only for a person carrying out medical profession).
7. An inventory/stock register as on first and the last day of the previous year, of drugs, medicines, and other consumable accessories used for the purpose of his profession. (applicable only for a person carrying out medical profession).

Threshold Limit:

• These books of accounts should be maintained at the Head Office or at the place at which such profession is being carried on.
• If the profession is carried out in multiple places, the books shall be maintained in the principle place of profession.

• The books must be maintained for a period of 6 years from the end of the relevant assessment year.
• Where assessment under section 147 is reopened for any of the previous year, all the book of accounts which were kept and maintained at the time of reopening of the assessment shall continue to be so kept and maintained till such assessment is complete.

• Failure to maintain records can attract a penalty of up to Rs. 25,000.
• In case of international transactions, the same would lead to a penalty of 2% of the value of international transactions.

Presumptive taxation under section,

• 44AD – not required to maintain books under section 44AA:
  However, if the assessee switches to normal scheme from presumptive taxation and if income exceeds basic exemption limit of Rs. 2,50,000 – taxpayer is required to maintain books of accounts.
• 44ADA – not required to maintain books under section 44AAHowever, if the assessee switches to normal scheme from presumptive taxation and if income exceeds basic exemption limit of Rs. 2,50,000 – taxpayer is required to maintain books of accounts.
• 44AE –
  required to maintain if the assessee has claimed his income to be lower than the profits or gains to be calculated as per the provisions of section 44AE