SEC-44AA & 44AB MAINTENANCE OF ACCOUNTS & TAX AUDIT

MAINTENANCE OF ACCOUNTS & TAX AUDIT LIMIT

ACCOUNTS MAINTENANCE & TAX AUDIT LIMIT
Income Tax Act mandates professionals and businesses to obtain a tax audit from a Chartered Accountant and maintain accounts if the turnover or profit exceeds a certain amount. In this article, we look at the tax audit limit and accounts maintenance limit for businesses under the Income Tax Act.

TAX AUDIT LIMIT – SECTION 44AB

under section 44AB, a compulsory tax audit is required to be completed by a Chartered Accountant if a business has total sales turnover or over Rs.1 crore. In case of a profession, if the profession has total gross receipts of more than Rs.50 lakhs, then tax audit by a Chartered Accountant is mandatory.

In addition to the above limits based on the business turnover, businesses covered under section 44AD, 44AE, 44BB or 44BBB and claiming income to be lower than the deemed profits as specified under respective sections is also required to obtain tax audit mandatorily.

COMPULSORILY REQUIRED TO MAINTAIN ACCOUNTS
Under Section 44AA, the following types of businesses and professions are required to maintain accounts compulsorily.

EXISTING PROFESSION
In case of an existing profession, wherein gross receipts are more than Rs.1.50 lakhs in all three years immediately preceding the previous year, book of accounts must be maintained as per Rule 6F.

If the gross receipts do not exceed Rs.1.50 lakhs in the preceding three years, then the profession must maintain books of account and other documents to enable an assessing officer to compute taxable income in accordance with the Income Tax Act.

NEW PROFESSION
In case of a new profession wherein gross receipts are expected to exceed Rs.1.50 lakhs, books of accounts must be maintained as per rule 6F. If the gross receipts are not expected to exceed Rs.1.50 lakhs, then the profession must maintain book of accounts to enable an assessing officer to compute taxable income in accordance with the Income Tax Act.

EXISTING BUSINESS
An existing business where the profit exceeds Rs.1.20 lakhs or total sales or gross receipts exceeds Rs.10 lakh in any of the 3 years immediately preceding the previous year must maintain book of accounts.

NEW BUSINESS
All new business where the profit are expected to exceeds Rs.1.20 lakhs or total sales or gross receipts exceeds Rs.10 lakh must maintain book of accounts.

RULE 6F OF INCOME TAX – LIST OF BOOKS AND ACCOUNTS TO BE MAINTAINED

The following books and accounts must be maintained by all professions and businesses mandatorily, if they cross threshold limit specified under Income Tax Act.

• Cash book (i.e., a record of all cash receipts and payments, kept and maintained from day-to-day giving the cash balance in hand of each day or at the end of a specified period not exceeding a month).
• Journal, in case of mercantile system.
• A ledger.
• Carbon copies of bills (whether machine numbered or otherwise serially numbered) exceeding Rs. 25 issued by the person and carbon copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by the person.
• Original bills/receipts issued to him in respect of expenditure (payment vouchers if bills/receipts are not issued and amount of expenditure does not exceed Rs. 50).

In addition to above, a person engaged in medical profession (i.e., a physicians, surgeons, dentists, pathologists, radiologists, vaids, hakims, etc.) has to maintain following items:

• A daily case register in prescribed form (i.e. Form 3C), showing date, patient’s name, nature of professional services rendered (i.e., general consultation, surgery, injection, visit, etc.,) fees received and date of receipt &,
• An inventory under broad heads, as on the first and last day of the previous year, of the stock of drugs, medicines and other consumable accessories used for the purpose of his profession.