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 old things and welcome 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: What are the provisions under the Income Tax Act for maintaining books of accounts?
Krishna: See Arjuna, as per Income Tax also, books of accounts such as cashbook, Journal, ledgers, etc should be maintained for a period of 6 years.
a) If the sale/turnover/gross receipts from the business or profession is more than Rs. 25,00,000 or
b) the income from business or profession is more than Rs. 2,50,000 in any of the 3 preceding years
Further, books of accounts are not required to be kept, if the person has shown income on presumptive basis u/s 44 AD @ 8% of turnover or u/s 44AE having transportation business. If the books of accounts and other documents are not maintained as required, then the income tax department may impose a penalty of Rs.25,000/-. Further, if books of accounts are not properly maintained department may compute income on an estimated basis.
Arjuna: Krishna, how long should books of accounts be maintained under GST Law?
Krishna: Arjuna, Every registered person has to maintain GST records at the principal place of business for the period not less than a 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.
Arjuna: Krishna, how long should companies maintain books of accounts under the Companies Act?
Krishna: Arjuna, every company should maintain books of accounts for 8 years from the end of the relevant year. If Managing Director, whole-time director or any other person in charge, 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: Krishna, how long should books be maintained under VAT and Service Tax?
Krishna: Arjuna, As per the provision of VAT, books of accounts are to be maintained for the period of 8 years from the relevant date. While records are to be maintained for 5 years under Service Tax. As VAT and Service Tax are old laws, books of accounts for them can be discarded. But, if one has appeal and assessment are pending or issues relating to Trans-credit, then one has to maintain books of accounts accordingly.
Arjuna: Krishna, what about the books of accounts maintained in computer software?
Krishna: Arjuna, even if books of accounts are maintained in computer software, print out of the same need to be maintained. As per the Income Tax Act the data stored on computer or pen drive or CD etc. are also considered as books of accounts. Officers can verify these devices. So always check the saved data regularly on external devices. In the 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: Krishna, What is the importance of books of accounts on the occasion of Diwali and what one should learn from this?
Krishna: Arjuna, In every Diwali, people worship money on 'Dhanteras,' books of accounts on 'Laxmipujan' also. 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' this New Year is 'Vikram Samvat 2076.' Goddess Laxmi (money) is vibrant, for earning it good thoughts, good behavior, truthfulness, etc., is important in financial transactions.