ITR 4 – Presumptive Business Tax Return Form
February 17, 2018
Get Aadhar Card – Check Status, Download & Update Aadhaar Details Online
February 22, 2018

Certain businesses and professions need to maintain books of accounts and get them audited by a certified Chartered Accountant. Non-compliance with this spells trouble for the taxpayer. Read this guide by H&R Block India to learn about the audit requirements if you carry on a business or profession.

Books of Accounts to be Maintained u/s 44aa of Income Tax Act

Last Update Date : August 20, 2018

The government is always concerned about tax evasion. The quantum of tax evasion is high in cases where income is high. Therefore, the I-T laws make it mandatory for certain high income businesses and professions to maintain books of accounts under section 44AA and get those books audited under section 44AB by a Chartered Accountant. The audit ensures that the books of accounts are proper. As a proof of audit, an audit report is prepared, certified by a Chartered Accountant and submitted at the time of filing I-T returns. This guide will help you understand the audit requirements.

Who is required to Maintain Books of Accounts?

There is a list of professions specified under section 44AA(1) who needs to maintain books of accounts for I-T purpose if they satisfy any of the following two conditions:

  • If their gross receipts exceed Rs 1,50,000 in any of the three preceding years.
  • If it’s a new profession expecting its gross receipts to exceed Rs 1,50,000 in that previous year.

The list of such professions is given below. Such professions include:

  • Legal
  • Medical
  • Engineering
  • Architectural
  • Accountancy
  • Technical consultancy
  • Interior decoration
  • Any other Profession notified by the board in the Official Gazzete
  • Authorised representative — A person who represents someone for a fee before a tribunal or any authority constituted under the law. It does not include an employee of the person so represented or someone who is carrying on the profession of accountancy.
  • Film artist — This includes a producer, editor, actor, director, music director, art director, dance director, cameraman, singer, lyricist, story writer, screenplay or dialogue writer and costume designers.
  • Company secretary

Note: If the profession does not satisfy any of the two conditions mentioned above, they still need to maintain some books of accounts but such books have not been specified in the I-T Act.

Such businesses or professions which are not specified above, the rules regarding maintenance of books of accounts are covered under section 44AA(2). As per that section, it is mandatory to maintain books of accounts in the following cases:

  • If the income of business or profession exceeds Rs 1,20,000 or the total sales or turnover or gross receipts exceed Rs 10 lakhs in any of the three preceding previous years.
  • In case of a new business or profession, if the income is expected to exceed Rs 1,20,000 or the total sales / turnover / gross receipts are expected to exceed Rs 10 lakhs.
  • If the taxpayer is covered under section 44AD or section 44AE or section 44AF and the taxpayer has claimed his income in the income tax return to be lower than the profits or gains deemed under section 44AD or section 44AE or section 44AF respectively.

Note: The limit of Rs 1,20,000 has been replaced by Rs 2,50,000 and Rs 10 lakhs by Rs 25 lakhs from AY 2018-19 effectively. This change is applicable only to individuals and HUF.

Who is required to get his books of accounts audited?

Table Showing Taxpayers Requiring Compulsory Audit

Type of Taxpayer

Audit is Compulsory when

A person carrying on a business The total sales / turnover / gross receipts exceed Rs 1 crore
A person carrying on a profession The gross receipts exceed Rs 25 lakhs (revised to Rs 50 lakhs from FY 2016-17)
A person covered under presumptive income scheme under section 44AD If the income from the business is lower than the presumptive income but exceeds the minimum income which is exempt from tax
A person covered under presumptive income scheme under section 44AE If income from the business is lower than the presumptive income

When is Audit Compulsory?

There are 4 cases where a business or profession needs to get his books audited compulsorily before the specified date:

Case 1: Audit is compulsory for a taxpayer carrying on a business if the gross receipts or turnover of such business exceeds Rs 1 crore.

Case 2: Audit is compulsory for a taxpayer carrying on a profession if the gross receipts of such profession exceed Rs 50 lakhs.

Case 3: Audit is compulsory for a taxpayer covered under presumptive income scheme of section 44AD if his income falls below the presumptive income but exceeds the minimum exemption limit.

Case 4: Audit is compulsory for a taxpayer covered under presumptive income scheme of section 44AE if the taxpayer falls below the presumptive income but exceeds the minimum exemption limit.

What is Audit Report Form?

All the taxpayers who need to get the audit done are required to submit audit report in Form 3CA and Form 3CD.

Due Date to Submit Audit Report

Audit reports, i.e. Form 3CA and Form 3CD need to be submitted by 30th of September of the Assessment Year.

Table showing Due Dates for getting Books of Accounts Audited and Submission of Audit Report

Taxpayer Audit Form Statement Form Due date for Audit Due date for submission of report
A person carrying on business/ profession requiring a compulsory audit. Form 3CA Form 3CD 30th of September of the AY 30th of September of the AY
A person other than those mentioned above Form 3CB Form 3CD 30th of September of the AY 30th of September of the AY

Note: The deadline for audit and submission of the report is November 30 in case of international or specified domestic transactions.

Maintaining Books of Accounts and Audit Requirement

Books of Accounts to be Maintained

Section 44AA and Rule 6F of the Income Tax Act prescribe the books of accounts to be maintained by the taxpayers for the purpose of Income Tax.

A Cash book: It is a book of accounts where day to day cash transactions, i.e. cash payments and receipts are recorded.
A journal: A profession should maintain a journal as per the mercantile system of accounting. In this journal, day to day transactions are recorded using double entry system of accounting.

  • A ledger should also be maintained by the taxpayers.
  • Photocopies of bills or receipts exceeding Rs 25 must also be kept
  • Photocopies of bills of expenses exceeding Rs 50 must also be kept

Persons carrying out medical profession like physicians, surgeons, dentists, pathologists, radiologists, etc. need to maintain additional books along with the books mentioned above. Such books include:

  • Daily case register in Form No. 3C which records details of patients, services rendered, fees received and date of receipt.
  • An inventory as on the first and last day of the previous year, of the drugs, medicines and other consumable used.

Note: All the books mentioned above need to be maintained at the Head Office or each of the offices.

Tenure to Maintain Books of Accounts

The I-T laws require businesses and professions to maintain books of accounts for a period of 6 years from the end of the year to which the book belongs.

Penalty on Failure to maintain Books of Accounts

Penal provisions for not maintaining books of accounts as per the requirements of section 44AA are covered under section 271A of the I-T Act.

Quantum of Penalty

  • Monetary penalty for those who fail to maintain the books of accounts is Rs 25,000.
  • The penalty can be avoided if you can give a reasonable cause for the failure to the Assessing Officer.

Penalty for not getting Books of Accounts Audited

The audit requirements are covered in section 44AB. The taxpayer who fails to get his accounts audited as per the requirements of section 44AB may get penalised if he does not provide a good reason for failure to the Assessing Officer.

Quantum of Penalty

  • The penalty for failure to get the books of accounts audited is imposed under section 271B.
  • The penalty is 0.5% of the annual turnover, sales or gross receipts.
  • The penalty cannot exceed Rs 1,50,000.

Cases where Bookkeeping is not required

Case 1: Income does not exceed Rs 1,20,000 or total sales / turnover / gross receipts do not exceed Rs 10,00,000 in the preceding 3 years in case of non-specified professions.

Case 2: New business or profession with expected income not exceeding Rs 1,20,000 or total sales / turnover / gross receipts not expected to exceed Rs 10,00,000 in case of non-specified professions.

Case 3: Businesses and professions covered under section 44AD and 44AE. Such taxpayers do not need to maintain any books of accounts if they do not claim their income to be lower than the presumed income.

Note: The limit of Rs 1,20,000 and Rs 10,00,000 have been replaced by Rs 2,50,000 and Rs 25,00,000 respectively from AY 2018-19 effectively. This change is applicable only to individuals and HUF.

So, get your books of accounts audited on time but do not forget to e-file your Income tax returns as well. You can get your business tax returns e-filed by any of our dedicated tax experts at H&R Block India.

Not sure how to file your Business Tax Return? Let H&R Block help you file your taxes.
  • Share: 

Still Have Questions?