What is 44AA Section?
44AA Section specifies who must keep books of accounts for income tax purposes. Businesses and professions must keep books of accounts for income tax purposes. 44AA specifies the specific conditions for various transactions.
Who is obliged by section 44AA of the Income Tax Act to keep books of accounts?
According to the terms of 44AA of the Income Tax Act, any person engaged in the following profession is required to keep books of accounts:
Legal Medical Engineering, Architectural Accountancy, Interior decoration Technical consultancy, Film Artist, Authorized representative, Company Secretary, a producer, editor, actor, music director, dance director, art director, cameraman, singer, lyricist, story writer, screenplay, costume designer, or dialogue writer is considered a film artist.
A person who for a fee, represents another person before a tribunal or any authority established by law. It does not include an employee of the person so represented or a person engaged in the practise of accounting.
If the gross receipts for a person carrying on a profession exceed Rs. 1,50,000 in the three prior years, you must keep books of accounts. The same is true for a newly created profession with gross receipts estimated to exceed Rs. 1,50,000.
If the gross receipts of the above-mentioned professions do not exceed Rs. 1,50,000 in any of the three prior years, the professional is exempt from keeping books of accounts under the 44AA section.
Where Should These Account Books Be Kept?
These books of accounts should be kept at the Head Office or the location where the profession is practiced. If the profession is performed in more than one location, the books must be kept in the primary location of the profession.SRV Associates is your one-stop destination to understand and stay updated with the latest. Get a comprehensive look at how the new changes will affect your business with SRV Associates
For how long should the books and accounts be kept?
The books must be kept for six years after the conclusion of the relevant assessment year. When an assessment under section 147 is reopened for any previous year, all books of accounts that were kept and maintained at the time of the reopening must be kept and maintained until the assessment is completed.
What is the penalty for failing to keep records as required by Section 44AA?
Failure to keep records might result in a fine of up to Rs. 25,000. In the case of overseas transactions, the penalty would be 2% of the total value of the transactions.
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Are taxpayers who choose to pay tax on presumed income have to keep books of accounts under Section 44AA?
Section 44AA requires the following books of accounts to be kept:
● A cash book is a daily log of all cash receipts, payments, and balances.
● Journal, if using Mercantile Accounting format
● Carbon copies of bills and receipts with serial numbers issued by the assessee are kept in a ledger. This is only applicable if the transaction involves more than Rs. 25,000. Original bills and receipts for the assessee’s expenses. If no bills or receipts are available and the cost is less than Rs. 50,000, the individual can make payment vouchers or enter the transaction information into the cash book.
● Medical professionals must also keep a daily case log in Form 3C, as well as an Inventory Book of their medicines, drugs, injections, tools, and other consumables.
● All essential account books and papers must be kept at the place of business, or at the main office of the business if there are multiple branches, or at each branch office of the business. These records must be preserved for a period of six years after the conclusion of the relevant evaluation year. The major reason for keeping these records is to verify that you are not involved in tax fraud or evasion, and if your case comes under investigation for income tax, the Assessing Officer can check them.
Penalty for failing to keep accounting records in accordance with Section 44AA
If the taxpayer fails to keep accounting records as required by Section , a penalty under
Section 271A will be imposed. Under this provision, the maximum chargeable penalty is Rs. 25,000. However, the penalty may not be imposed if the taxpayer can demonstrate beyond a reasonable doubt that the failure to preserve the required accounting records was due to a reasonable cause.
What exactly is presumptive taxation?
Your income is deemed to be 50% of gross receipts under this taxation regime. You are not required to record your actual profit for income tax purposes. However, you can only apply for this scheme if your yearly income is less than Rs. 50 lakhs. There is no need for a tax audit unless your total income exceeds Rs. 2.5 lakhs or you claim income that is less than 50% of your gross revenues.
Advantages of the Presumptive Tax Scheme:
● No record-keeping requirements
● There is no cost for Chartered Accountant fees for tax audits.
● It is not necessary to pay taxes in instalments in advance.
● Aside from not having to keep any accounting records, another advantage of paying ‘Presumptive Tax’ is that the penalty under Section 271B of the Income Tax Act, 1961 does not apply to you. This can help you save up to INR 20,000 in fees paid to a Chartered Accountant or an auditor.
Income Tax Section 44AA Exceptions the Tax Act
● When your current profession’s income is less than Rs. 1,20,000 or your turnover/total sales are less than Rs. 10,000,000.
● The same is true for a freshly founded business with a gross turnover/sales of less than Rs. 10,000,000.
● Taxpayers who have shifted from presumptive taxation to regular taxation under sections 44AD and 44ADA (his/her income must also be less than the basic exemption level)
● Account books are not required for professional firms such as goods carriage under Section 44AE.