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Section 44AA: Who Needs to Maintain Books Of Accounts?

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What is Section 44AA of the Income Tax Act?

Section 44AA of income tax talks about those who need to maintain Books Of Accounts for Income Tax purposes. It gives information about businesses and professions that maintain accounts to ensure easy compliance with the detailed requirements of different transactions mentioned under Section 44AA.

Who is liable to maintain books of Accounts as per section 44AA?

As per Section 44AA, any person who holds the following professions or notified section of the business has to maintain the books of accounts :-

  • Legal
  • Medical
  • Engineering
  • Architectural
  • Accountancy
  • Technical Consultancy
  • Interior Decoration
  • Film Artist – This also includes
    1. Actor
    2. Cameraman Director, including an Assistant Director
    3. Music Director, including an Assistant Music Director
    4. Art Director, including an Assistant Art Director
    5. Dance Director, including an Assistant Dance Director
    6. Editor
    7. Singer
    8. Lyricist
    9. Story Writer Screenplay, Writer Dialogue
    10. Dress Designer
  • Company Secretary

Section 44AA: Who else Needs to Maintain Books of Accounts

As discussed above, people in certain professions are needed to maintain proper records. People who are not on that list are required to manage their books of accounts only :-

  • If the income from Business or Profession exceeds Rs. 1,50,000 or the Total Sales/ Turnover/Gross receipts exceeds Rs. 25,00,000 in any of the previous three years.
  • If a business or profession is newly established, then in that case also, Books of Accounts need to be maintained if it crosses the limits mentioned above.
  • If the citizen is covered under Section **44AD/Section 44AE/Section 44AF and the citizen has asserted his pay in the annual government form to be lower than the benefits or gains considered under Section 44AD/Section 44AE/Section 44AF separately.

**Section 44AD/Section 44AE/ Section 44AF – these are a presumptive Taxation Scheme where the assessee is exempted from keeping the Books of Accounts.

What Information Goes Into The Account

The following needs to be maintained and taken into consideration while maintaining books of accounts :-

  • Cash Book
  • Journal (if the Accounts are maintained according to the Mercantile system of Accounting)
  • Ledger
  • Carbon copies of Bills in machine numbered or serial numbered form, but it is not applicable if the amount is not more than Rs. 25000
  • Original Bills
  • Cash flow statement
  • Records of sales and purchases
  • Records of assets and liabilities
  • Cost of items
  • Deeds, vouchers, and minutes

What is the Penalty for Not Maintaining Accounting Records as per Section 44AA?

Maintenance of books of accounts under Income Tax Act, 1961 is compulsory for businesses or notified professions as per section 44AA, or else a penalty under Section 271A will be levied. As per law, the chargeable penalty under this section is Rs.25,000. But if the entity can prove their innocence through reasonable cause, then they may be given exemption.

How are Books of Accounts Used – Why Accounting is Important for Business Owners as Per Law – Section 44AA?

Maintaining books of account is the process of contriving financial transactions of the business on a daily business. The main aim is to ensure that transactions are accurate, up-to-date, and error-free. It is often seen that Small and Medium Enterprises (SMEs) and micro-businesses fail to maintain their finances due to no accounting records, as they feel books of accounts are meant for big enterprises. In reality, financial management is pivotal to the success of a small business. Here is the rundown of why accounting is important for business owners :

  • To meet tax obligations – During the course of the business, you need to pay income tax, sales tax, excise duty, service tax, central sales tax.  To know the exact tax obligation and litigations, you need to give accurate books of account.
  • Effective financial management – To prepare and manage the balance sheet, profit and loss account, cash flow statement, you need books of account. Having well-maintained books help to deliver information to investors and bankers with ease.
  • Price Allocation – One of the major problems of SMEs is that they face a strain when it comes to fixing the price of the products. With the proper book of records, you can swiftly ascertain the cost of a product.

Conclusion

Now we hope you have a comprehensive understanding of the concept of Section 44AA for maintenance of books of accounts under the Income Tax Act, 1961 and its importance for business owners.  We at Slate strongly believe in simplifying business finances & accounting and presenting an accurate picture of the business that helps plan the future course of action with confidence. So if you haven’t started maintaining the books of accounts, it’s time to do so!

Slate Team

Slate Team

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