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K. L. Narasimham

MAINTENANCE of accounts on a year-to-year basis has become essential not only for businessmen and professionals but also for the individuals in view of the several advantages. Let us first get to know the requirements of the Income-Tax (I-T) Act and the Rules regarding the maintenance and upkeep of the books of account.

For professionals

Sub-section (1) of Section 44 AA of the I-T Act provides that every person who is carrying on legal, medical, engineering or architectural profession, or the profession of accountancy, technical consultancy, interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the assessing officer (AO) to compute his total income in accordance with the provisions of the Act.

For business persons

Sub-section (2) provides that every person carrying on business or any profession (not being a profession referred to in sub-section (1)) shall also maintain books of accounts if; his income from business or profession exceeds Rs 1.20 lakh; his total sales, gross receipts or turnover, as the case may be, exceeds Rs 10 lakh in any of the three years immediately preceding the previous year; or where the business or profession is newly set up in any previous year, if his income from business or profession is likely to exceed Rs 1 lakh or his gross turnover/receipts, as the case may be, are likely to exceed Rs 10 lakh during such previous year.

Further, Rules 6 F of the I-T Rules specifies the types of books required to be maintained by certain professionals. They include: a) cash-cum-bank book; b) journal (if the accounts are maintained according to mercantile system of accounting); c) a ledger; d) carbon copies of bills (invoices) and or receipts, which should be serially numbered (this clause is not applicable if the bill or receipt is for Rs 25 or less); and e) original bills of purchases and receipts in respect of expenditure incurred, or where such expenditure does not exceed Rs 50, payment vouchers prepared and signed by the person.

However, the Rule 6F shall not apply to persons in relation to the previous year if his total gross receipts from profession do not exceed Rs 1.50 lakh in any one of the three years immediately preceding the previous year.

A person carrying on any medical profession shall, in addition to these books of account, maintain and keep the following: a daily case register in Form 3 C; and stock record or inventory register as first and last day of the previous year, of the stock of drugs and medicines and other consumable accessories used for his/her profession.

Such of these books shall be kept and maintained at the place where he is carrying on the profession or where the profession is carried on at places more than one, at the principal place of profession. He can also maintain separate books of account at each such place of profession. These books should be preserved by the assessee for six years from the end of relevant assessment year, which means that the books pertaining to the financial year ending March 31, 2003, shall be kept till March 31, 2010.

Failure to maintain the prescribed books of account is punishable with a fine of Rs 25,000 under Section 271A.

Thus, all professionals whose gross receipts are more than Rs 1.50 lakh per annum are compulsorily required to maintain books of account on a year-to-year basis.

All other business persons (irrespective of the status) and other professionals are required to maintain books of account subject to the limits stated in (b) and (c). The maintenance of the books of account should be such that enables the assessing officer (AO) to compute the taxable income in accordance with the provisions of the I-T Act.

There are certain important provisions in the I-T Act which should be followed by the assesses:

PAN: Obtaining permanent account number (PAN) is compulsory. Application should be made in Form 49 A

Method of accounting: Depending on the nature of business or profession, the assessee is required to maintain the books of account either on mercantile or cash basis.

The difference being that in the mercantile basis of accounting, all income and expenditure is recognised for a particular year, irrespective of whether the amount is realised or not; and in the cash basis of accounting, the income and expenditure is accounted for on the basis of actual receipt during that particular year.

The assessee is required to follow the same method of accounting every year.

Audit of accounts: Under Section 44 AB of the I-T Act, if the gross receipts, sales, turnover or income, as the case may be, exceeds Rs 40 lakh in the case of all assessees engaged in business, and Rs 10 lakh in the case of persons engaged in profession, such assessee shall get his accounts duly audited by a chartered accountant and the report, together with the prescribed particulars, shall be submitted with the IT return for the relevant previous year before the due date.

Failure to get the accounts will invite penalty of an amount equivalent to 1 per cent of the gross receipts or Rs 1 lakh, whichever is lower.

TAN: In the case of all assessees, who are required to get their accounted audited, as stated above, obtaining a tax deduction account number (TAN) is compulsory. Since these assessees have to deduct income-tax at source from certain payments they make, a thorough understanding of the provisions is essential.

There are penal provisions for non-deduction, short deduction and for delay in remitting the same to the government account.

Hence, many individual professionals — doctors, engineers, whose gross receipts during any previous year are in excess of Rs 10 lakh, they are advised to approach their auditor/tax consultant and follow the procedures.

(To be concluded)

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