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Arjuna (Fictional Character): Krishna, the festival of Diwali is arriving. Housewives (Gruhlaxmi) are busy in cleaning and decorating homes. Businessmen are also busy in the market. Accordingly, please explain, what should be done of old records of Books of accounts under various Act, so that cleaning of business places can be done.

Krishna (Fictional Character): Oh Great! Arjuna, in Diwali we should discard the old things and welcome the new things. Also, Goddess Laxmi is extremely pleased with the cleanliness and may stay for a longer time. See Arjuna, in business, many tax laws are applicable. Every law prescribes provisions for maintaining books of accounts and relevant records. So, one should discard old books as per provisions of law.

Arjuna(Fictional Character): What are the provisions under Income Tax Act for maintaining books of accounts?

Krishna(Fictional Character): See Arjuna, as per Income Tax also, books of accounts such as cash book, Journal, ledgers, etc. should be maintained for a period of 6 years from the end of the relevant AY in the following cases:

Cleaning of Books of Accounts and their Worship on the occasion of Diwali

a) Taxpayers engaged in notified profession such as legal, medical, engineering, architecture, accountancy, etc.

b) In case of Individual/ HUF engaged in business or other profession, if the income exceeds Rs.2,50,000 or total sales/ turnover/ gross receipts exceed Rs.25,00,000 in any one of the 3 years immediately preceding the accounting years.

c) In case of taxpayers other than individual/ HUF engaged in business or other profession, if the income exceeds Rs.1,20,000 or the total sales/ turnover/ gross receipts exceed Rs.10 Lacs in any one of the 3 years immediately preceding the accounting year.

Further, books of accounts are not required to be kept, if the person has shown income on presumptive basis u/s 44 AD @ 8%/6% of turnover or u/s 44AE having transportation business or u/s 44 ADA @ 50% of gross receipts from profession. If the books of accounts and other documents are not maintained as required, then income tax department may impose penalty of Rs.25,000/-. In addition, if books of accounts are not properly maintained department may compute income on estimated basis.

Arjuna (Fictional Character): Krishna, how long should books of accounts be maintained under GST Law?

Krishna (Fictional Character): Arjuna, every registered person has to maintain GST records at the principal place of business for the period of 6 years from the last date of filing of the annual return for that year.

If in case one fails to maintain such books of accounts, then he shall be liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax evaded whichever is higher.


Arjuna (Fictional Character): Krishna, how long should companies maintain books of accounts under Companies Act?

Krishna (Fictional Character): Arjuna, every company should maintain books of accounts for 8 years from the end of relevant year. If Managing Director, whole-time director or any other person in charge, fails to maintain the proper books of account of the company as required then they shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees, but which may extend to five lakh rupees or both.

Arjuna (Fictional Character): Krishna, what about the books of accounts maintained in computer software? 


Krishna (Fictional Character): Arjuna, even if books of accounts are maintained in computer software, print out of the same need to be maintained. As per Income Tax Act the data stored on computer or pen drive or CD etc. is also considered as books of accounts. Officers can verify these devices. So always check the saved data regularly on external devices. In old days, changes were difficult as books of accounts were maintained manually. However now computerized data is easy to change, so beware of it.  

Arjuna (Fictional Character): Krishna, what is importance of books of accounts on the occasion of Diwali and what one should learn from this?

Krishna (Fictional Character): Arjuna, in every Diwali, people worship money on "Dhanteras" and books of accounts on "Laxmipujan". As per Financial Laws new financial year starts from 1st April and ends on 31st March and books are maintained accordingly. As per Hindu Tradition, New Year starts at the time of "Padva. Goddess Laxmi (money) is vibrant, for earning good thoughts, good behavior, truthfulness, etc., as it is important in financial transactions.

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Category Income Tax, Other Articles by - CA Umesh Sharma