Maintenance of Books of Accounts Under Income Tax: Section 44AA Rules & Compliance Guide
Section 44AA of the Income-tax Act requires certain persons engaged in specified professions or business activities to maintain proper accounting records. In essence, if a person’s income, gross turnover, or receipts exceed the prescribed threshold limit, they must prepare and maintain books of accounts.
Who Must Maintain Books of Accounts?
A taxpayer (assessee) must maintain accounting records when,
during the relevant period, their income or gross turnover/receipts exceed the
limits prescribed in the income tax laws. These limits differ according to the
nature of the profession or business, and are classified as follows:
- Specified
Professions
- Non-Specified
Professions
- Businesses
under the Presumptive Taxation Scheme (under Sections 44AD, 44AE,
44BB, or 44BBB)
- Other
Business
Specified Professions
Individuals in specified professions must maintain books of
accounts regardless of the amount of their income or receipts—unless they
choose the presumptive taxation scheme under Section 44ADA. The term “specified
professionals” includes persons involved in:
- Legal
services
- Medical
practice
- Engineering
- Architectural
services
- Technical
consultancy
- Interior
decoration
- Film
arts
- Acting
as an authorized representative
- Accountancy
- Company
secretarial work
- Information
technology
Non-Specified Professions
For non-specified professionals, maintaining books is
required only when their professional income or gross receipts exceed certain
thresholds:
- For
Individuals or HUFs: Books must be maintained if, in any one of the
three years immediately preceding the previous year, the professional
income exceeds Rs. 2,50,000 or gross receipts exceed Rs. 25 lakhs.
- For
Others: The requirement applies if, in any one of the three years
immediately preceding the previous year, the income exceeds Rs. 1,20,000
or gross receipts exceed Rs. 10 lakhs.
Businesses Under the Presumptive Taxation Scheme
A business that opts for a presumptive tax scheme under
Sections 44AD, 44AE, 44BB, or 44BBB is also required to maintain books of
accounts according to specific guidelines:
- Under
Section 44AD:
- For
resident individuals or HUFs, if the income exceeds the maximum exemption
limit, and the presumptive scheme was used in any of the past five years
but not in the current year.
- For
resident partnership firms, if they have opted for the scheme in any of
the previous five years but have not opted for it in the current year.
Note: This document is intended for informational
purposes only and does not serve as a legal document. Users are advised to
verify details from the official Government Acts, Rules, or Notifications.
[Amended by Finance (No. 2) Act, 2024]
- Under
Section 44AE:
- Applies
to businesses engaged in plying, hiring, or leasing goods carriage. Books
must be maintained if the taxpayer declares profits lower than the deemed
profits.
- Under
Section 44BB:
- Non-resident
taxpayers involved in the exploration of mineral oil must keep records if
they claim profits lower than the deemed profits.
- Under
Section 44BBB:
- Foreign
companies involved in civil construction are required to maintain books
of accounts if they declare profits lower than the deemed profits.
Other Businesses
For business entities not covered under the above
categories, the requirement to maintain books is as follows:
- For
Individuals or HUFs: If, in any one of the three years immediately
preceding the previous year, the business income exceeds Rs. 2,50,000 or
the gross turnover exceeds Rs. 25 lakhs.
- For
Others: If, during the same period, the income exceeds Rs. 1,20,000 or
the gross turnover exceeds Rs. 10 lakhs.
Note: If a business or profession was established in
the previous year, the current year’s income or turnover will be considered for
determining whether the threshold is exceeded.
Required Books of Accounts
According to Rule 2F of the Income-tax Rules, the following
records must be maintained under Section 44AA:
- For
Specified Professions (other than company secretaries and IT
professionals, when gross receipts exceed Rs. 1,50,000 in any of the three
years immediately preceding the previous year):
- A
cash book.
- A
journal (if using the mercantile system of accounting).
- Ledgers.
- Machine-numbered
or serially numbered carbon copies of bills and counterfoils of receipts
issued for amounts exceeding Rs. 25.
- Original
bills and receipts for incurred expenditures.
- Signed
vouchers, in cases where bills/receipts are not issued and the expense is
Rs. 50 or less, provided the cash book lacks adequate details.
For medical professionals, additional records include:
- A
daily case register (in Form 3C) [Amended by Finance (No. 2) Act, 2024].
- An
inventory of drugs, medicines, and other consumable items used in the
practice, as recorded on the first and last day of the previous year.
- For
Other Cases (specified professions in situations other than those noted
above, and non-specified professions & businesses where gross receipts
exceed Rs. 1,50,000 in any of the three years immediately preceding the
previous year):
- Records
must be maintained in such a manner that they enable the Assessing
Officer to compute the taxable income.
Other Provisions
Location for Maintaining Records
Books of account and related documents should be kept at the
place where the profession or business is carried on. If operations are
conducted at multiple locations, they should normally be maintained at the
principal place. However, if separate records are kept for each location, they
may remain at the respective sites.
Retention Period
All books and documents must be retained for six years
from the end of the relevant assessment year. If any assessment is reopened
under Section 147 within this period, then the records available at the time of
reopening must be kept until the assessment is fully completed.