The Hindu Business Line : Dos and don'ts in book-keeping

Other than personal expenses, any payment in excess of Rs 20,000 has to be made by way of crossed cheque or DD only. In case of violation of this provision, 20 per cent of such payment will be disallowed as expenditure and the amount will be added to the taxable income and taxed accordingly.

Similarly, no loan or deposit of Rs 20,000 and above, can be accepted or repaid in cash.

There are severe penalties, which may go up to five times the amount of transaction, in case of violation of this provision.

Proper maintenance of accounts

Many assessees believe that it is the duty and responsibility of the auditor to take care of their accounts and transactions. But it must be noted that in case of any search and or survey, the role of the auditor is nothing but that of a spectator.

The auditor does mostly a post-mortem job, analysing the transactions only after the end-year.

Many assessees do not bother to note down the details of the cheques/ cash deposits in the bank accounts, and they fail to note down the details of the cheques issued or cash drawn.

While those assesses who are having a regular business and who are maintaining books of account depend upon an accountant or a clerk, the individual assessees, in majority of the cases, do not maintain proper record of their financial transactions.

For a better understanding of their own finances and also in their own interest the following tips may be followed:

Dos

Maintain a book or dairy and note down all the financial transactions on day-to-day basis;

Keep the counter-foils of cash/cheques deposited in bank and note down details on the reverse;

Keep a record of all cheques issued and the details of payee and purpose, whether it is crossed or not;

Limit the operation to few bank accounts;

Maintain separate accounts for spouse and do not mix transactions by opening joint accounts.

Open a file folder and file all the papers, insurance receipts, challans, and so on;

Maintain a calendar checklist for payment of insurance premia, advance taxes, TDS certificates, house taxes, loan repayments, and so on;

Prepare a payment voucher and take signature from the employees towards salaries paid, travelling and conveyance expenses, and so on;

Take periodical statements from bank and reconcile the figures. If you are a high-profile government official, some others may deposit cash into your account and you may be caught unaware or your account may show transfer of funds without your proper authorisation;

Take an inventory of all movable and immovable assets and list them in the order of their acquisition and note down the sources of such investment and then keep updating the status every year;

Take the advice of a professional in case of any doubt well before entering into a transaction and involve the spouse for assistance. It is advisable to keep the other partner informed about all your financial commitments and transactions.

Don'ts

Do not enter into any cash transactions with friends and relatives, including with spouse.

Generally people deposit cash in accounts which do not belong to them. In common parlance it is known as hand loans. Such transactions could land you in trouble;

Do not mix up transactions by maintaining joint account with wife, brother, son, mother, and so on. Though such system is not against any provisions of the Income Tax Act, yet for the sake of simplicity and transparency, it is better to maintain separate accounts and effect transfer of funds by means of crossed cheques in case of necessity;

Do not keep any papers, documents, blank/signed pro-notes even if they do not belong to you in your custody;

Do not make investments in the names of spouse, minor children without seeking proper advice from your tax consultant. There is a wrong notion that by investing in others' names, one can avoid tax compliance.

Tax planning

While the salaried class is protected by provident fund contributions, pensions, gratuity, and so on, the professional group is facing a financial risk in the event of any untoward happenings.

There are many ways in which they can protect themselves and their families in such an event:

Opening of a PPF account not only gives the assessee 8 per cent return per annum (since reduced from 9 per cent), the contributions up to Rs 60,000 per annum will entitle rebate under the I-T Act;

Subscribe for a Mediclaim Policy for self and family;

Insure both for life and accidental policies;

Subscribe for any good pension scheme; or

Plan to buy a house for self-occupation by taking a loan from any housing finance company or bank.

New provisions

If you or your spouse is covered by any of the 1/6 transactions and if you are not in a tax bracket, Form 2C must be filed before March 31.

In the Finance Bill, 2003, a new Section 285 BA has been introduced by which all the persons who are entering into certain prescribed financial transactions with any person will be required to submit a form to the I-T authorities.

Though the details of the form and the contents have not yet been prescribed, it is clear that the Government is trying to make more and more transactions transparent.

Assessees should realise the importance of maintenance of accounts. In case the volume of transactions is high, it is always better to take the services of a part-time accountant, who will maintain the records at your premises.

If you have enough time, buy a computer and record all the transactions yourself. Else, simple issues would get complicated.

(Concluded)

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