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Cleansing of books of accounts and worshipping them on the occasion of Diwali

Tax Payer: Sir, the festival of Diwali is coming. Housewives (Grilahakshmi) are busy cleaning and decorating houses. Traders are also busy in the market. Accordingly, please clarify what to do with old accounting records under various laws, so that places of business can be cleaned up.

Tax Professionals: Oh great!  On Diwali, we should let go of the old and welcome the new. Also, Goddess Lakshmi is very pleased with the cleanliness and can stay longer. See, many tax laws apply in business. Every law lays down provisions for keeping books of account and related records. Therefore old books should be discarded as per the provisions of the law.

Tax Payer: What are the provisions under the Income Tax Act for keeping books of account?

Tax Professionals: See, also under income tax, books of accounts such as cash books, journals, ledgers, etc. To be maintained for a period of 6 years from the end of the relevant AY in the following cases:

a) Taxpayers engaged in notified professions like legal, medical, engineering, architecture, accounting, etc.

 b) In case of a person/ HUF engaged in business or other business, if the income is Rs. 2, 50,000 or if the total sales/turnover/gross receipts exceed 25,00,000 in any one of the 3 years preceding the accounting year.

c) In case of taxpayers other than individual/ HUF engaged in business or other business, if income exceeds Rs. 1,20,000 or gross sales/turnover/gross receipts exceeding 10 lakhs in any one of the immediately preceding 3 years accounting year.

Further, if the person has shown income on a presumptive basis under 44 AD @ 8%/6% of turnover or has transport business under 44AE or 44 ADA @ then no need to maintain books of account. 50% of the total receipts of the business. If the books of accounts and other documents are not maintained as required, the Income Tax Department may charge Rs. 25,000/- may impose a fine. In addition, if the books of accounts are not properly maintained, the department may calculate the income on an estimated basis

Tax Payer: how long should books of accounts be kept as per GST law?

Tax Professionals: Every registered person must maintain GST records at the principal place of business for 6 years from the date of filing of annual return for that year. If a person fails to maintain such books of account, he shall be liable to pay a fine of ten thousand rupees or an equivalent amount of defaulted tax, whichever is higher.

Tax Payer: How long are companies required to keep books of accounts under the Companies Act?

Tax Professionals: Every company should maintain books of account for 8 years from the end of the relevant year. If the managing director, whole-time director or any other person in charge, fails to maintain proper books of account of the company as required, he shall be liable to imprisonment for a term which may extend to one year or to a fine. Shall not be less than fifty thousand rupees,but may extend to five lakh rupees or both.

Tax Payer: what about the books of accounts kept in the computer software?

Tax Professionals: Even though the books of account are kept in computer software, they have to be printed out. As per income tax law, data stored on a computer or pen drive or CD etc. is also considered a book of accounts. Officers can verify these devices. So always check the data saved on external devices regularly. In the olden days, accounting books were maintained manually, making it difficult to make changes. However, it is easy to change computerized data now, so be careful.

Tax Payer: What is the significance of books of accounts on the occasion of Diwali and what should be learned from them?

Tax Professionals: Every Diwali people worship money on Dhantrayodashi and calculations on Lakshmi Puja. As per financial law, the new financial year starts on 1st April and ends on 31st March and books are kept accordingly. According to Hindu tradition, the New Year begins with Padwa. Goddess Lakshmi (money) is vital, to acquiring good thoughts, good behaviour, truthfulness etc., as she is important in financial transactions.

Regards

Santosh Patil

Founder

ICA & MBA

9769201316

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