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    Section 44AA & 44AB of Income Tax Act, 1961

    Sec 44AA – Maintenance of books of accounts:

     

    Applicability:

     

    This section applies to all the persons i.e. individual, HUF, Company, Partnership firm, AOP/BOI, Local authority, Co-operative society, Trust, AJP.

     

    Importance:

     

    • For assessee’s: Maintaining books of accounts enables to assess income appropriately

     

    • For Tax authorities: Helpful to check whether assessee has complied with all the provisions of the Income-tax Act,1961 (“Act”) & had not evaded the tax.

     

    Classification of income for maintenance of books of accounts:

     

    Provisions relating to the maintenance of Books of accounts can be classified into three categories:

     

    • Provisions for person engaged in Specified profession

     

    • Provisions for person engaged in Non-Specified profession
    • Provisions for person engaged in Business

     

    Provisions for person engaged in Specified profession:

     

    Every person carrying on the following profession are said to be Specified profession:

     

    • Legal

     

    • Medical
    • Engineering
    • Architectural profession
    • Profession of Accountancy
    • Technical consultancy
    • Interior decorators
    • Authorized representative
    • Film artist & others as specified by the board….

     

    Every person carrying on the above specified profession shall keep and maintain the books of accounts and other documents except if gross receipts in the profession doesn’t exceed Rs 1,50,000/- in any of the three years immediately preceding the previous year or in case of newly setup profession gross receipts doesn’t likely to exceed Rs 1,50,000/-

     

     

     

     

     

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    Provisions for person engaged in Non-Specified profession:

     

    These persons need to maintain books of accounts if:

     

    ?Incomefrom profession exceeds one lakh twenty thousand rupees or Gross receipts exceeds ten lakh rupees in any one of the three years immediately preceding the previous year

     

    ?Incaseof profession which is newly set up, Income from profession is likely to exceed one lakh twenty thousand rupees or Gross receipts is likely to exceeds ten lakh rupees during such previous year

     

    What constitutes Books of Accounts in case of Specified Professions?

     

    Rule 6F, of the Act defines books of accounts only for professionals which are as follows:

     

    ?CashBook

     

    ?Journal(If Mercantile system is followed)

    ?Ledgers

    ?Carboncopies of bills (Exception if the amount doesn’t exceed Rs 25/-)

    ?Originalbills in respect of expenditures incurred (Exception if the amount doesn’t exceed Rs 50/- and payment vouchers in respect of the same has been prepared & signed by authorized person)

     

    Note: If Cash books contains the adequate info regarding the expenditure incurred then there is no need for preparation of payment vouchers too.

     

    In case of personcarrying medical profession the following additional books should also be maintained:

     

    ?Adailycase register in Form No. 3C

     

    ?AStockstatement containing opening and closing stock values used in the profession

     

    Place where books of accounts to be maintained:

     

    In case of profession carried in a single place

     

    ?ataplace where the profession is carried on

     

    In case of profession carried in multiple places

     

    ?ataprinciple place where the profession is carried or ?ateachplace where the profession is carried

     

    Period for which Books should be maintained

     

    ?Thesebooks of accounts should be kept and maintained for a period of six years from the end of the relevant assessment year.

    ?Incaseof assessment as per Sec 147 of the Act, all the books of account and other documents which were kept and maintained at the time of reopening of the assessment shall continue to be so kept and maintained till the completion of the assessment.

     

     

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    Sec 44AA & 44AB of Income tax act,1961

     

     

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    Provisions for person engaged in Business

     

    In case of persons engaged in business they shall maintain books of accounts if:

     

    ?Incomefrom business exceeds one lakh twenty thousand rupees or Turnover or Total sales or Gross receipts exceeds ten lakh rupees in any one of the three years immediately preceding the previous year or

     

    ?Incaseof business which is newly set up, Income from business is likely to exceed one lakh twenty thousand rupees or Turnover or Total sales is likely to exceeds ten lakh rupees during such previous year or

     

    ?Incasewhere profits and gains are deemed to be the profits and gains of the assessee under section 44AE or 44BB or 44BBB & the assessee has claimed his income to be lower than the profits and gains so deemed to be profits and gain of his business or

     

    ?Incasewhere profits and gains are deemed to be the profits and gains of the assessee under section 44AD & the assessee has claimed such income to be lower than the profits and gains so deemed to be profits and gain of his business and his income exceeds the maximum amount which is not chargeable to Income-tax during such previous year

     

    Penalty for failure to maintain books:

     

    As per Section 271A of the Act, 1961 if a person fails to maintain or retain books of accounts and other documents then the Assessing officer or the commissioner shall charge a sum by way of penalty of Twenty-five thousand rupees.

     

    Sec 44AB – Audit of books of accounts:

     

    Applicability:

     

    This section applies to all the persons i.e. individual, HUF, Company, Partnership firm, AOP/BOI, Local authority, Co-operative society, Trust, AJP based on the below conditions:

     

     

     

     

    Other conditions

    Nature of activity

    Basis

    Criteria

    (Maximum amount

     

     

     

    not chargeable tax)

     

     

     

     

    Business

    Total sales/Turnover/

    Exceeds 1 crore

    Not applicable

     

    Gross receipts

     

     

     

     

     

     

    Profession

    Gross receipts

    Exceed 25 lakhs

    Not applicable

     

     

     

     

    Business (Sec 44AE/

    Income

    Lower than specified

    Not applicable

    44BB/44BBB

     

    limit

     

     

     

     

     

     

    Business (Sec 44AD)

    Income

    Lower than 8%

    Applicable

     

     

     

     

     

     

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    Sec 44AA & 44AB of Income tax act,1961

     

     

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    Tax audit report:

     

    Every person to whom tax audit is applicable should get his accounts audited by an accountant before the prescribed due date i.e. 30th September in case of Companies & persons liable for Tax audit under Sec 44AB, 30th Nov in case of persons who is required to furnish a report referred to in section 92E.

     

    Such accountant should give the Audit report and other particulars in the forms prescribed.

     

    The form in which tax audit report should be submitted is classified as follows

     

    • Form 3CA: In case of person who is required to get his accounts audited under any other law

     

    • Form 3CB: In case of persons who are not required to submit 3CA

     

    The other particulars are required in Form 3CD

     

    Who can be an accountant (Sec 288 of Act,1961):

     

    A Chartered Accountant defined as per Chartered Accountants Act, 1949 holding valid certificate of practice and except:

     

    In case of Companies:

     

    • A body corporate other than LLP registered under LLP Act, 2008

     

    • An officer or employee of the company
    • A person who is a partner or who is in the employment, of an officer or employee of the company

     

    • A person who, or his relative or partner
      • Is holding any security/interest in the company or its subsidiary or of its holding or associate company or subsidiary of such holding company

     

    Provided that the relative may hold security or interest in the assessee of the face value not exceeding one lakh rupees

     

    • Is indebted to the company or its subsidiary or is holding or associate company or subsidiary of such holding company, in excess of five lakh rupees

     

    • Has given guarantee or provide any security in connection with the indebtness of any third person to the company or its subsidiary or its holding or its associate or subsidiary of such holding company for value in excess of one lakh rupees

     

    • A person who has direct or indirect business relationship with the company or its subsidiary or is holding or associate or subsidiary of such holding or associate company

     

    • A person who is in the employment as director or whose relative is a director or Key managerial person

     

    • Person who has been convicted for offence by court and a period of 10 years has not been elapsed from such date of conviction

     

    • Any person whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialized services

     

    • Person holding appointment as auditor for more than 20 companies

     

     

     

     

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    Sec 44AA & 44AB of Income tax act,1961

     

     

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    In case of persons other than Companies:

     

    • The assessee himself or in case of the assessee, being a firm or association of persons or Hindu undivided family, any partner of the firm, or member of the association or the family
    • Relative of the assessee or the firm
    • Employee or officer of the assessee
    • An individual who is a partner, or who is in the employment, of an officer or employee of the assessee

     

    • Person having business relationship directly or indirectly with the assessee
    • Person who has been convicted for offence by court and a period of 10 years has not been elapsed from such date of conviction

     

    • An individual who, or his relative or partner:
      • Is holding any security of, or interest in, the assessee

    Provided that the relative may hold security or interest in the assessee of the face value not exceeding one lakh rupees;

     

    • Is indebted to the assessee

    Provided that the relative may be indebted to the assessee for an amount not exceeding one lakh rupees;

     

    • Has given a guarantee or provided any security in connection with the indebtedness of any third person to the assessee

     

    Provided that the relative may give guarantee or provide any security in connection with the indebtedness of any third person to the assessee for an amount not exceeding one lakh rupees.

     

    Requirement of audit under any other law:

     

    If a person is required to get his accounts audited under any other law, then audit under this section is said to be complied with if:

     

    • Such person gets his accounts audited and

     

    • Such audit has been completed before the due date (i.e. due date for Tax audit) and
    • Furnishes the audit report required under the other law before the due date and
    • Furnishes the audit report in Form 3CA additionally

     

    Penalty for failure to comply with Sec 44AB:

     

    As per Sec 271B, if any person fails to comply with the provisions of the Section 44AB then penalty will be levied by the Assessing officer which will be minimum of the following amounts:

     

    • 5% of the Total sales or Gross receipt or Turnover as the case may be or

     

    • Rs 1,50,000/-

     

     

    “Talents take you to higher position, but good character helps you to maintain the higher position.”

     

    - Bill Gates

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