Did you know? A penalty under Section 271A will be assessed if the taxpayer does not keep the accounting records in accordance with the requirements of Section 44AA. Maintaining proper books of accounts is essential for the smooth functioning of any business or profession. Proper books of accounts help in keeping track of all financial transactions, ensuring compliance with tax laws, and facilitating accurate financial reporting. In this blog, we will discuss how to maintain proper books of accounts as per Section 44AA of the Income Tax Act.
Maintaining proper books of accounts is a legal requirement for all businesses and professions. In today’s digital age, e-filing experts play a crucial role in ensuring compliance with tax laws and facilitating accurate financial reporting. E-filing experts can help businesses and professionals maintain proper books of accounts and file their tax returns online. They can also provide valuable advice on tax planning, tax-saving strategies, and other financial matters.
Know How: Section 44AA of Income Tax Act?
Section 44AA of the Income Tax Act prescribes the maintenance of books of accounts for various types of businesses and professions. It states that every person carrying on a business or profession shall keep and maintain books of accounts in accordance with the provisions of the Act. The section also specifies the types of books of accounts that must be maintained and the period for which they must be preserved.
Who Maintains Books of Accounts under Section 44AA?
Any professions may be added to this list at the Central Board of Direct Taxes’ discretion. In addition, the following people are also responsible for keeping account books:
- Those who work in businesses and in professions that are both specified and not stated
- Anybody earning more than Rs. 1.2 lakh in a different profession or business.
- In any of the three years prior, the business’s total revenue (gross receipts) exceeded Rs. 10 lakhs.
- Anybody who has disclosed less income than the profits anticipated under Sections 44AD, 44AE, or 44AF is covered by those sections.
- Even if the company is brand-new, if it expects to make more than Rs. 1.2 lakh or if its sales will surpass Rs. 10 lakhs, then it should apply.
What Are the Types of Books of Accounts to be Maintained?
Section 44AA specifies the types of books of accounts that must be maintained. The below-mentioned books of must be maintained:
- Cash book: A cash book is a book that records all cash transactions, including receipts and payments.
- Journal: A journal is a book that records all non-cash transactions, including purchases and sales of goods on credit, and expenses paid by cheque.
- Ledger: A ledger is a book that records all transactions related to a particular account.
- Depreciation register: A depreciation register is a book that records the details of fixed assets and the depreciation charged on them.
- Stock register: A stock register is a book that records the details of all goods purchased and sold.
- Profit and loss account: A profit and loss account is a book that records the income earned and expenses incurred during a particular period.
- Balance sheet: A balance sheet is a statement that shows the financial position of a business at a particular point in time.
Do You Know the Period for which Books of Accounts must be preserved?
The books of accounts must be kept for a total of six years from the end of the applicable assessment year, according to Section 44AA. In case of any pending assessment or appeal, the books of accounts must be preserved until the assessment or appeal is completed.
Maintain Your Books of Accounts with MyEfilings Today!
Proper maintenance of books of accounts is essential for every business and profession to ensure compliance with tax laws and facilitate accurate financial reporting. According to a recent survey by the World Bank, only 31% of small and medium-sized enterprises in developing countries maintain proper books of accounts. This indicates that there is a need for greater awareness and education on the importance of maintaining proper books of accounts.
With the advent of e-filing and the availability of expert advice, it is now easier than ever to maintain proper books of accounts and file tax returns online. In fact, the Government of India has made e-filing mandatory for certain categories of taxpayers, including companies and firms with a turnover of more than Rs. 1 crore. E-filing experts can help businesses and professionals streamline their accounting processes and ensure compliance with tax laws.
Businesses and professions must prioritize the maintenance of proper books of accounts to ensure financial transparency, compliance with tax laws, and accurate financial reporting. The services of e-filing experts can be instrumental in achieving these goals and ensuring the long-term success of businesses and professions.