Mandatory Maintenance of Books of Accounts Under the provisions of Income Tax Act, Goods & Services Tax (GST) and Companies Act
It is Mandatory for the Small, medium and Large Business to maintain its day to day records of transactions like Sales, Purchases, Expenses, other Payment and receipts in cash or in bank(s) as per Generally accepted accounting principle. In India Institute of Chartered Accountants of India (ICAI) issued Accounting standards to regulate prudent accounting practice in India.
Accounting Standard as Per Companies Act 2013 (133 of Companies Act 2013):-
The financial statement of the company is required to be prepared in compliance with the accounting standards issued by the central government and as per schedule III of the act. Section 133 prescribes that the central government on the recommendation of the Institute of chartered accountants of India and in consultation with the National Financial Reporting Authority (NFRA) shall prescribe the accounting standards.
Therefore company has to maintain books of accounts, at the registered office or any office that board of directors may decide. If the company is maintaining books at an office other than the registered office, it has to intimate the same to RoC. The company can maintain the accounts electronically also.
For how long should the books be maintained?
Books should be maintained for a period of 8 years from the end of the relevant financial year.
Books of accounts to be maintained -
- Cash flow statement
- Records of sales and purchases,
- Records of assets and liabilities
- Items of cost
- Deeds, vouchers, writing, documents, minutes, and registers whether in physical or electronic mode
Company Act also issued Books of accounts including vouchers and receipts are required to be maintained under different statutory laws – Income Tax Act, Companies Act 2013 and GST Act. Books to be maintained, retention period and compulsion requirements are different under all the 3 laws.
The following Accounting Standards (AS) are applicable to all companies :- AS-1 for disclosure of accounting policies; the AS-2 for valuation of inventory; the AS-3 for cash flow; the AS-4 for contingencies and events occurring after balance sheet date; AS-5 for net profit or loss for the period; AS-6 for depreciation; the AS-7 for construction contracts; the AS-9 for revenue recognition; the AS-10 for accounting of fixed assets; the AS-11 for the effects of change in forex rates; the AS-12 for government grants; the AS-13 for investments; the AS-14 for amalgamations; the AS-16 for borrowing costs; the AS-17 for segment reporting; the AS-18 for related party transactions; the AS-22 for income taxes; the AS-24 for discontinuing operations and the AS-26 for intangible assets.
In case a company has to prepare consolidated financial statements, the following accounting standards would have to be followed; the AS-21 for consolidated financial statements, the AS-23 for investment in associate companies; the AS-27 for reporting of interest in joint ventures and the AS-25 for interim financial reporting.
Under Income Tax Act:-
If the sale/turnover/gross receipts from the business or profession is more than Rs. 25,00,000 or the income from business or profession is more than Rs. 2,50,000 in any of the 3 preceding years, then books of accounts will be compulsorily maintained.
Following professions are covered under this provision –
- Technical consultancy
- Interior decoration
- Authorised Representative (one who charges fees for representing someone before tribunal or any authority)
- Film artist (producer, editor, actor, director, music director, art director, dance director, cameraman, singer, lyricist, story writer, screenplay or dialogue writer and costume designers.
- Company secretary
Thus, if the above-mentioned professions have an income of more than Rs. 2,50,000 in any of the 3 preceding years, they need to maintain books of accounts. In case of a new profession also, if the income is expected to be more than Rs. 2,50,000, the professionals should maintain books.
Books of accounts as per Rule 6F
- Cash Book
- Copies of bills or receipts
Daily cash register with details of patients, services rendered, fees received and date of receipt (persons carrying on medical profession)
Details of stock of drugs, medicines, and other consumables used (persons carrying on medical profession)
If the income isn’t more than Rs. 2,50,000 in any of the 3 preceding years or not expected to be more than Rs. 2,50,000 in case of a new profession, then also books should be maintained. However, books, in this case, haven’t been specified – so any books can be maintained but it should be such that ATO can calculate the income.
For how long should the books be maintained?
Books should be maintained for a period of 6 years from the end of the relevant year.
Accounting or Books of Accounts GST Act:-
Every registered person has to maintain GST records at the principal place of business.
- Records to be maintained
- Production or manufacture of goods
- Inward and outward supply of goods or services or both
- Stock of goods
- Input tax credit availed
- Output tax payable and paid and
- Other particulars as may be prescribed
For how long should the records be maintained?
Books and records should be maintained for 6 years from the last date of filing of the annual return (31st December) for that year.
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