For most of people keeping business records is always a tricky question for most people in any business or profession. Many misconceptions exist about maintaining accounts under Section 44AA of the Income Tax Act of 1961. Section 44AA of the Income Tax Act of 1961 provides criteria when deciding whether to keep an account. Here you will get to know sec 44aa of income tax act.
Who Is Required to Maintain Accounts u/s 44AA
A ledger is not required if your revenue in the last 3 years. It does not exceed INR 1,20,000 or if your total turnover or revenue does not exceed INR 10,00,000. Similarly, for newly incorporated companies, if revenue is expected to be less than INR 1,20,000 or turnover/turnover/gross revenue is expected to be less than INR 10,00,000, the same Rules apply.
If income from the profession exceeds INR 1,20,000 or total turnover, or gross income in the last 3 years exceeds INR 10,00,000. This company will keep business books and other required documents if needed.
What Is the Limit of 44AA
If the income exceeds the basic allowance of Rs 2,50,000, the account must be kept in accordance with Section 44AA and audited in accordance with Section 44AB.
A taxpayer whose turnover is less than Rs 25 Lakh but whose total income exceeds the non-taxable limit is prohibited from maintaining an account of less than 44AA.
What Is Specified Profession u/s 44AA (1)
Prescribed Books1
For certain occupations 2, total income may exceed Rs. 1,50,000/- in any of the three years immediately preceding the previous year or if the occupation is newly established If gross receipts are likely to exceed Rs.1,50,000/- during previous year.
- Assessees under Section 44ADA if two conditions are met:
- Claim a lower profit than the assumed u/s 44ADA. i.e. 50% of gross income & his total income exceeds the basic allowance.
Any Books of Accounts3:
- For certain occupations, if gross income is less than Rs. 1,50,000/-.
- For business or unspecified occupation, if gross income exceeds Rs. 1,20,000/- or gross income/turnover/turnover is Rs. 10,00,000/- in any of 3 years.
- Immediately preceding the previous year or in the case where the business or profession has been newly established if it is likely to exceed the total income of Rs. 1,20,000/- or gross receipts of Rs. 10,00,000/- during such previous year.
Assessees covered u/s 44AD/44AE/44BB/44BBB when claiming their earnings were less than those assumed in the relevant section. Example: u/s 44 AD Income is estimated at 8% of total income.
Assessees opting estimated us 44AD taxation are required to keep books if they fall under subsection 4* of that section and gross income exceeds the basic threshold limit.
All ledgers must be maintained for six years after the end of each evaluation year.
Prescribed Books means Carbon copies of cashbooks, journals, ledgers, and invoices are issued for amounts exceeding Rs. 25/- etc. For medical organizations, keep a daily case register and share certificates on Form 3C.
Specified Profession includes Medicine/Law/Engineer/Architect/Accountant/Technical Advisor/Interior Decoration/Authorized Agent/Film Artist/C.S. etc.
Any Books of Accounts means: To calculate the total income of the assessee in accordance with the provisions of the A.O. Income Tax Act.
What Is Section 44AA and 44AB
Section 44AA
Section 44AA details who must keep all the books for income tax purposes.
Businesses and professionals are required to keep books for income tax purposes. Detailed requirements for various transactions are set out in Section 44AA.
Professionals are required to keep business records if their existing occupational gross income exceeds INR 1,20,000 in the last three years. The same rule applies to newly established professions whose total income he expects to exceed INR 1,20,000.
the professionals should keep business records if the total income of the existing profession or newly established. Professionals is expected to be less than INR 120,000 for more than 1 year in the past 3 years of above professionals need to do it. However, the books or records to be kept are not specified. The only criterion is that the AO can calculate professional taxable income from them.
Section 44AB
Any person carrying on a business whose total sales, turnover, or gross income exceeded INR 1 crore in the previous year.
- A person whose previous year’s occupation and gross income exceed INR 50 lakhs.
- If a beneficiary reports earnings below the estimated taxable amount, the earnings will be 44AE, 44BB, or 44BBB less than required by these sections.
- If the beneficiary reports profits under Section 44ADA and claims that income is less than the profits and gain required by that section and that income exceeds the maximum amount deduction from income tax for the previous year.
- A person who owns a business to which the provisions of Section 44AD(4) apply and whose income exceeds the maximum amount not attributable to income tax for the previous year.
What Is the Penalty If Any Person Fails to Maintain the Books of Accounts as Required under the Act
A fine of up to Rs.10,000 per day shall be levied for the failure to maintain books of account or records, fails to maintain the same.
Frequently Asked Questions (FAQs):
Is 44aa applicability to partnership firm?
Broadly speaking, the provisions of Section 44AD of the Act apply to any resident individual or HUF or partnership carrying on business other than specified (excluded) business with gross turnover/income not exceeding Rs 2 crore.
Which profession is not specified profession under section 44AA?
Under Section 44AA and Rule 6F, the occupation of a “teacher” is an unspecified occupation. Therefore the provisions of Section 44AA apply to her, and the assessing officer, to the extent possible, records such books. Other documents as may enable the Assessing Officer to compute her taxable income under the Income tax.
Closing up
Now you got to know about sec 44aa income tax act. Businesses and professionals are required to keep books for income tax purposes. Detailed requirements for various transactions are set out in Section 44AA. A fine of up to Rs.10,000 per day shall be levied for the failure to maintain books of account or records. It fails to maintain the same.