Why Bookkeeping Compliance Matters for Every Business

03 Jan 2025
digibuk@admin

Understanding Legal Provisions for Maintaining Books of Accounts

Maintaining proper books of accounts is not just a good business practice but a legal requirement under various statutes in India. From the Income Tax Act to the GST Act, compliance with these provisions is critical for ensuring smooth operations and avoiding penalties. Here’s a detailed look into the legal framework governing bookkeeping and its significance for businesses and professionals.

 

 

1. Income Tax Act

Under the Income Tax Act, maintaining books of accounts is mandatory if certain thresholds are exceeded. These requirements vary depending on the type of business or profession:

Category

Applicability

Category I (Legal, medical, engineering, accountancy, technical consultancy, interior decoration, authorized representatives, or film artists)

Gross receipts exceed Rs. 1,50,000/- in all 3 years preceding the previous year.

Category II (Other professions or businesses except individuals and HUFs)

- Income from business/profession exceeds Rs. 1,20,000/- OR

- Total sales, turnover, or gross receipts exceed Rs. 10,00,000/- in any of the 3 years preceding the previous year.

Category III (Other professions or businesses carried out by individuals and HUFs)

- Income from business/profession exceeds Rs. 2,50,000/- OR

- Total sales, turnover, or gross receipts exceed Rs. 25,00,000/- in any of the 3 years preceding the previous year.

(Refer to Section 44AA and Rule 6F of the Income Tax Act for details.)

 

Additional Provisions:

  • For new businesses, if the above thresholds are likely to be exceeded, maintaining books of accounts is mandatory.
  • Books must be maintained if profits under presumptive taxation schemes (Sections 44AE, 44BB, or 44BBB) are reported as lower than deemed profits.
  • Under Section 44AD, if income exceeds the maximum exemption limit and presumptive taxation isn’t availed, bookkeeping is required.

2. Companies Act

Section 128 of the Companies Act, 2013 mandates every company to maintain proper books of accounts at its registered office. These records must:

  • Present a true and fair view of the company's financial position.
  • Cover both the registered office and branch transactions, if any.
  • Follow the accrual basis and the double-entry system of accounting.

3. GST Act

Under Section 35 of the CGST Act, 2017, registered individuals are required to maintain accurate records at their principal place of business, as mentioned in the registration certificate. These include:

  • Production or manufacture of goods.
  • Inward and outward supply of goods or services.
  • Stock of goods.
  • Input tax credit (ITC) availed.
  • Output tax payable and paid.

Additional Records to Maintain:

  • Imports and exports of goods/services.
  • Supplies attracting reverse charge.
  • Supporting documents like invoices, delivery challans, credit/debit notes, payment vouchers, and e-way bills.

4. LLP Act

According to Section 34 of the LLP Act, Limited Liability Partnerships must:

  • Maintain books of accounts on a cash basis or accrual basis.
  • Follow the double-entry system of accounting.
  • Keep records at the registered office for the required duration.

Summary: Why Maintaining Books of Accounts Matters

Various laws explicitly mandate maintaining books of accounts, but beyond compliance, accurate bookkeeping offers several benefits:

  • Effective Financial Management: Helps track and control finances efficiently.
  • Performance Clarity: Provides insights into financial performance and sets a roadmap for growth.
  • Informed Decision-Making: Ensures business decisions are based on accurate data.
  • Tax Planning and Compliance: Simplifies tax planning, filing, and adherence to regulations.

Related Post

6 Proven Strategies to Secure Your Family's Financial Future

Maintaining proper books of accounts is not just a good business practice but a legal requirement under various statutes in India. From the Income Tax Act to the GST Act, compliance with these provisi

read more
Tale of Retail Stores: The Generational Success of "Dukan"

Maintaining proper books of accounts is not just a good business practice but a legal requirement under various statutes in India. From the Income Tax Act to the GST Act, compliance with these provisi

read more
The Essentials of Bookkeeping: A Guide for Every Business

Maintaining proper books of accounts is not just a good business practice but a legal requirement under various statutes in India. From the Income Tax Act to the GST Act, compliance with these provisi

read more