Introduction
Section 44AA of the Income Tax Act, 1961 is one of the most important provisions for small business owners in India. This section lays down the rules for maintenance of books of accounts and other records for taxpayers who are engaged in certain professions and businesses. In this blog, we will discuss the provisions of section 44AA of the Income Tax Act, 1961 for Assessment Year 2017-18.
Applicability of Section 44AA
Section 44AA applies to all taxpayers who are engaged in certain professions and businesses. These professions and businesses include legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, film artist, and certain other specified professions. The section also applies to taxpayers who are engaged in any business or profession other than those specified, but whose gross receipts or total sales or turnover exceed Rs. 1,20,000 in the previous year.
Maintenance of Books of Accounts
Under section 44AA, taxpayers who are covered by the provisions of this section are required to maintain books of accounts and other records. The books of accounts should contain information about all the transactions of the business or profession, including sales, purchases, expenses, assets, liabilities, etc. The books of accounts should also contain a statement of inventory at the end of the previous year, if applicable. The books of accounts should be kept in a manner that enables the taxpayer to compute his taxable income accurately.
Presumptive Taxation Scheme
If the gross receipts or total sales or turnover of a taxpayer who is engaged in any business other than specified professions do not exceed Rs. 2,00,000 in the previous year, he may opt for the presumptive taxation scheme under section 44AD of the Income Tax Act, 1961. Under this scheme, the taxpayer is deemed to have earned a certain percentage of his gross receipts or total sales or turnover as his taxable income. In such a case, the taxpayer is not required to maintain books of accounts and other records under section 44AA.
Consequences of Non-Compliance
If a taxpayer who is covered by the provisions of section 44AA fails to maintain books of accounts and other records as required by this section, he may be liable to pay a penalty. The penalty may be imposed by the assessing officer, and it may be up to Rs. 25,000.
Further details and explanations of Section 44AA of Income Tax Act 1961 for Assessment Year 2017-18 are discussed below:
Maintaining Books of Accounts
Section 44AA mandates that the books of accounts must be maintained at the principal place of business or profession. The books of accounts must be maintained for a minimum of 6 years from the end of the relevant assessment year. The books of accounts must be kept in a safe place and must be produced before the assessing officer if required.
Specified Professions
The following professions are specifically mentioned in Section 44AA of the Income Tax Act, 1961:
- Legal
- Medical
- Engineering
- Architectural
- Accountancy
- Technical consultancy
- Interior decoration
- Film artist
- Certain other specified professions
If a taxpayer is engaged in any of the above-mentioned professions, he must maintain books of accounts and other records as per the provisions of Section 44AA.
Business Turnover
If a taxpayer is engaged in a business other than the specified professions, and his gross receipts or total sales or turnover exceeds Rs. 1,20,000 in the previous year, he is required to maintain books of accounts and other records as per the provisions of Section 44AA.
However, if the gross receipts or total sales or turnover of the taxpayer do not exceed Rs. 2,00,000 in the previous year, he may opt for the presumptive taxation scheme under Section 44AD of the Income Tax Act, 1961. Under this scheme, the taxpayer is deemed to have earned a certain percentage of his gross receipts or total sales or turnover as his taxable income. In such a case, the taxpayer is not required to maintain books of accounts and other records under Section 44AA.
Penalty for Non-Compliance
If a taxpayer who is required to maintain books of accounts and other records as per Section 44AA fails to do so, he may be liable to pay a penalty. The penalty may be imposed by the assessing officer, and it may be up to Rs. 25,000.
Presumptive Taxation Scheme
If a taxpayer is eligible to opt for the presumptive taxation scheme under Section 44AD, he is not required to maintain books of accounts and other records under Section 44AA. Under the presumptive taxation scheme, the taxpayer is deemed to have earned a certain percentage of his gross receipts or total sales or turnover as his taxable income. The percentage varies depending on the nature of the business. For instance, for businesses other than those specified in Section 44AA, the deemed profit percentage is 8% of the gross receipts or total sales or turnover.
However, if the taxpayer chooses to opt for the presumptive taxation scheme, he must declare his income at the deemed profit percentage and cannot claim any deduction for expenses incurred in relation to the business or profession.
Books of Accounts to be Maintained
The books of accounts to be maintained by the taxpayer under Section 44AA should contain details of all the transactions of the business or profession. These details include sales, purchases, expenses, assets, liabilities, etc. The books of accounts should also include a statement of inventory at the end of the previous year, if applicable.
The books of accounts should be maintained in a manner that enables the taxpayer to compute his taxable income accurately. The books of accounts must be kept in a safe place and produced before the assessing officer if required.
Conclusion
In conclusion, section 44AA of the Income Tax Act, 1961 is an important provision for small business owners in India. It lays down the rules for maintenance of books of accounts and other records for taxpayers who are engaged in certain professions and businesses. Taxpayers who are covered by this section should ensure that they comply with the provisions of this section to avoid penalties and other consequences.
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Frequently Asked Questions (FAQs)
Who is required to maintain books of accounts and other records under Section 44AA?
Taxpayers engaged in specified professions and businesses with gross receipts or total sales or turnover exceeding Rs. 1,20,000 in the previous year are required to maintain books of accounts and other records under Section 44AA.
What are the specified professions covered under Section 44AA?
The specified professions covered under Section 44AA include legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, film artist, and certain other specified professions.
How long should the books of accounts be maintained under Section 44AA?
The books of accounts should be maintained for a minimum of six years from the end of the relevant assessment year.
Where should the books of accounts be maintained under Section 44AA?
The books of accounts must be maintained at the principal place of business or profession.
Can a taxpayer opt for the presumptive taxation scheme under Section 44AD instead of maintaining books of accounts under Section 44AA?
Yes, if the gross receipts or total sales or turnover of the taxpayer do not exceed Rs. 2,00,000 in the previous year, he may opt for the presumptive taxation scheme under Section 44AD.
What is the penalty for non-compliance with Section 44AA?
A penalty of up to Rs. 25,000 may be imposed by the assessing officer for non-compliance with Section 44AA.
What are the consequences of not maintaining books of accounts under Section 44AA?
Non-maintenance of books of accounts under Section 44AA may result in penalties and other legal consequences, including disallowance of deductions and disqualification from certain government tenders.
Are small taxpayers exempt from maintaining books of accounts under Section 44AA?
Yes, small taxpayers engaged in specified professions or businesses with gross receipts or total sales or turnover not exceeding Rs. 1,20,000 in the previous year are exempt from the requirement of maintaining books of accounts under Section 44AA.
Can a taxpayer maintain electronic records instead of physical books of accounts under Section 44AA?
Yes, a taxpayer may maintain electronic records instead of physical books of accounts, provided he complies with the rules and regulations for maintaining electronic records.
Is the maintenance of books of accounts mandatory for individuals earning income from other sources like salary, interest, etc.?
No, individuals earning income from other sources like salary, interest, etc. are not required to maintain books of accounts under Section 44AA.
