Introduction:
The Indian Income Tax Act, 1961 is a comprehensive legislation that governs the taxation of income in India. One of the important provisions of the Act is Section 145A, which deals with the method of accounting for certain assesses. In this blog post, we will discuss the provisions of Section 145A in detail.
Overview of Section 145A:
Section 145A was introduced in the Income Tax Act, 1961 through the Finance Act, 2012. The section mandates that certain assessees, primarily those engaged in business or profession, must maintain books of accounts in accordance with the Accounting Standards specified by the Institute of Chartered Accountants of India (ICAI).
Applicability of Section 145A:
Section 145A is applicable to the following assessees:
- Any person carrying on business or profession whose income is computed under the head “Profits and Gains of Business or Profession” and who is required to maintain books of accounts under the Income Tax Act.
- Any person who is required to get his accounts audited under Section 44AB of the Income Tax Act.
- Any person who is required to furnish a report under Section 92E of the Income Tax Act.
Accounting Standards:
The Accounting Standards specified by the ICAI are a set of principles and rules that govern the preparation and presentation of financial statements. The Standards ensure that the financial statements are consistent, transparent, and reliable. The ICAI has issued 41 Accounting Standards till date.
Consequences of non-compliance:
If an assessee fails to maintain books of accounts in accordance with the Accounting Standards specified by the ICAI, the Assessing Officer may re-compute the income of the assessee by making necessary adjustments. The Assessing Officer may also levy penalties and interest for non-compliance.
Benefits of complying with Section 145A:
Apart from avoiding penalties and interest, complying with the provisions of Section 145A has several other benefits for the assessee. Firstly, it helps in maintaining accurate and reliable financial records, which can be useful for making business decisions and securing loans from financial institutions. Secondly, it helps in avoiding disputes with the tax authorities as the financial statements are consistent and transparent. Lastly, it can also help in reducing the time and resources spent in responding to queries from the tax authorities.
Accounting Standards applicable under Section 145A:
The Accounting Standards applicable under Section 145A are specified by the ICAI. As of September 2021, there are 41 Accounting Standards issued by the ICAI. These standards cover various aspects of financial reporting such as revenue recognition, inventory valuation, and depreciation accounting. Compliance with these standards ensures that the financial statements of the assessee are prepared in accordance with generally accepted accounting principles.
Non-applicability of Section 145A:
Section 145A is not applicable to certain assessees such as individuals, Hindu Undivided Families (HUFs), and partnership firms who are not required to get their accounts audited under Section 44AB of the Income Tax Act. However, even if an assessee is not mandatorily required to comply with Section 145A, it is advisable to maintain books of accounts in accordance with the Accounting Standards specified by the ICAI to ensure accurate financial reporting and avoid disputes with the tax authorities.
Role of Chartered Accountants in complying with Section 145A:
Chartered Accountants (CAs) play a crucial role in ensuring compliance with Section 145A. As per the provisions of the Income Tax Act, an assessee who is required to maintain books of accounts under the Act must get his accounts audited by a Chartered Accountant. The Chartered Accountant is responsible for ensuring that the books of accounts are maintained in accordance with the Accounting Standards specified by the ICAI. They also ensure that the financial statements are accurate, reliable, and comply with the provisions of the Income Tax Act.
Challenges in complying with Section 145A:
Complying with the provisions of Section 145A can be challenging for some assessees, especially those who are not familiar with the Accounting Standards specified by the ICAI. Maintaining books of accounts in accordance with these Standards can be time-consuming and resource-intensive. It can also be challenging to keep up with the changes in the Accounting Standards, as the ICAI keeps updating them from time to time.
Conclusion:
Section 145A of the Income Tax Act, 1961 is an important provision that mandates certain assessees to maintain books of accounts in accordance with the Accounting Standards specified by the ICAI. Compliance with this section ensures accurate financial reporting, transparency, and reliability of financial statements. Chartered Accountants play a crucial role in ensuring compliance with Section 145A. While complying with the provisions of Section 145A can be challenging, it is important for the assessees to comply with the provisions of Section 145A to avoid any unnecessary litigation with the tax authorities.
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Frequently Asked Questions (FAQ’s)
- What is Section 145A of the Income Tax Act, 1961?
Section 145A mandates certain assessees to maintain books of accounts in accordance with the Accounting Standards specified by the ICAI.
2. Who is required to comply with Section 145A?
Assessees who are required to get their accounts audited under Section 44AB of the Income Tax Act, 1961 are required to comply with Section 145A.
3. What are the Accounting Standards specified by the ICAI under Section 145A?
As of September 2021, there are 41 Accounting Standards specified by the ICAI under Section 145A.
4. What is the role of Chartered Accountants in complying with Section 145A?
Chartered Accountants play a crucial role in ensuring compliance with Section 145A. They are responsible for ensuring that the books of accounts are maintained in accordance with the Accounting Standards specified by the ICAI.
5. What are the benefits of complying with Section 145A?
Complying with Section 145A ensures accurate financial reporting, transparency, and reliability of financial statements. It also helps in avoiding disputes with the tax authorities and can reduce the time and resources spent in responding to queries from the tax authorities.
6. What happens if an assessee does not comply with Section 145A?
Non-compliance with the provisions of Section 145A can result in penalties and interest.
7. Is Section 145A applicable to individuals and Hindu Undivided Families (HUFs)?
No, Section 145A is not applicable to individuals and HUFs who are not required to get their accounts audited under Section 44AB of the Income Tax Act, 1961.
8. What are the challenges in complying with Section 145A?
Complying with the provisions of Section 145A can be challenging for some assessees, especially those who are not familiar with the Accounting Standards specified by the ICAI.
9. Can an assessee comply with Accounting Standards other than those specified by the ICAI?
No, an assessee is required to comply with the Accounting Standards specified by the ICAI under Section 145A.
10. Can an assessee change the Accounting Standards specified by the ICAI?
No, an assessee cannot change the Accounting Standards specified by the ICAI under Section 145A.
