Does My Small Business Have to Maintain Books of Accounts Under the New Income Tax Act, 2025?

Short answer: Yes, most likely. Under the new Income-tax Act, 2025 (in force from 1 April 2026), Section 62 requires you to keep and maintain books of account once your business or profession crosses fairly modest income or turnover limits. If you are in a "specified profession" (such as accountancy, legal, medical, engineering or IT), the requirement applies from day one, with no threshold at all.

Below is a plain-language walk-through for small businesses and professionals in Kerala, based on the text of Section 62 of the Income-tax Act, 2025.

Who has to maintain books under Section 62?

Section 62 splits taxpayers into two groups. The first is anyone carrying on a specified profession. For this group, there is no income or turnover cut-off, the obligation to maintain books is automatic. The Act lists these professions as legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, information technology and company secretary (plus any other profession the CBDT may notify).

The second group is everyone else, any other business or non-specified profession. Here, you must maintain books only if you cross the thresholds in Section 62(2).

What are the turnover and income thresholds?

For a business or non-specified profession, books must be maintained where, in any one of the three years immediately preceding the tax year, either the income from the business or profession exceeds Rs 1,20,000, or the total sales, turnover or gross receipts exceed Rs 10 lakh. For a newly set-up business or profession, the same test applies to the likely income or turnover of the first year.

There is an important relaxation for individuals and Hindu Undivided Families (HUFs). For them, the limits are raised: books are required only where income exceeds Rs 2,50,000 and turnover or gross receipts exceed Rs 25 lakh. So a small proprietor in Kerala running, say, a modest trading or service business as an individual gets a higher entry point than a company or firm doing the same activity.

What counts as "books of account"?

The Act treats books of account broadly, it covers ledgers, day-books, cash books and other account books, whether kept in physical written form or maintained electronically. Section 62(3) empowers the CBDT to prescribe, through the Rules, exactly which books and documents (including inventories where relevant) must be kept, the particulars they should contain, the form and place of keeping them, and the period for which they must be retained. In practice this means the detailed list and the retention period are governed by the Income-tax Rules, so it is worth confirming the current prescribed requirements for your category before finalising your record-keeping.

How is this different from a tax audit?

Maintaining books (Section 62) and getting them audited (Section 63) are two separate obligations. Section 62 is about keeping proper records. Section 63 deals with tax audit, which kicks in at much higher turnover levels and requires a Chartered Accountant's report. You can be required to maintain books under Section 62 without necessarily being liable to a tax audit, so do not assume that "no audit" means "no books".

Why this matters for a Kerala SME

The thresholds are low enough that a large share of Kerala's shops, service providers, consultants and small firms fall within Section 62. Good books are not just a compliance formality: they are the basis for computing your correct income, claiming genuine expenses, supporting GST returns, and staying ready for any scrutiny. Because the new Act expressly recognises electronic records, moving from loose registers to proper accounting software is a sensible step, both for compliance and for cleaner month-end numbers.

FAQs

Q1. I am a freelance IT consultant in Kochi earning below Rs 10 lakh. Do I still need books?

Yes. IT and technical consultancy fall under "specified profession", so the obligation applies regardless of how low your income or turnover is.

Q2. My small trading proprietorship has a turnover of Rs 18 lakh. Am I covered?

As an individual, both limits must be crossed, income above Rs 2,50,000 and turnover above Rs 25 lakh. At Rs 18 lakh turnover you would generally be below the turnover limit, but check your income figure and the preceding three years before concluding.

Q3. Can I keep everything on the computer instead of physical registers?

Yes. The Act recognises books maintained electronically, provided they meet the form and particulars prescribed under the Rules.

Q4. Does maintaining books mean I automatically need a tax audit?

No. Book-keeping under Section 62 and tax audit under Section 63 are separate, with the audit applying only above higher turnover limits.

Disclaimer: This article is for general educational purposes based on the text of Section 62 of the Income-tax Act, 2025, and is not a substitute for professional advice on your specific facts. Verify current thresholds and prescribed Rules before acting.