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Is Section 44AA Applicable to Partnership Firms In India?

Maintenance of a book of accounts is important. This book of accounts has all the details of earnings and expenditure. Section 44AA of the Income Tax Act talks about the maintenance of books of accounts.

Section 44 AA of Income Tax Act mentioned the details of all those who have to maintain the book of accounts. All businesses who have gross receipt of Rs. 1,50,000 or more in the last 3 years of their business, need to maintain a book of accounts. The same is also applicable to the newly set business that has a gross income of Rs. 1,50,000.

Professionals where Section 44AA is applicable and need to maintain the book of accounts:

As per Rule 6F, the following professions and individuals need to maintain a book of accounts:

  • Medical
  • Engineering
  • Legal
  • Accountancy
  • Architectural
  • Technical Consultancy
  • Interior decorators
  • The authorized representative representing another individual for a fee before the tribunal.  
  • Film artists like editor, director, producer, music director, story writer, dialogue writer, lyricists, costume designers, etc.

Even a freelancer who has a gross receipt amounting greater than Rs. 1,50,000 or more needs to maintain a book of accounts.

If you are falling in any of the above-mentioned categories and have not earned Rs. 1,50,000 or more in the last 3 years or in any year of the last 3 years, then you don’t need to maintain the book of accounts as per Section 44 AA.

In simple words, section 44AA of Income Tax Act, 1961 is for maintaining the book of accounts and is applicable to every person inclusive of the partnership firm.

In addition to the above-mentioned professions, the following individuals or businesses have to maintain the book of accounts:

  1. An individual who is working in a specified or non-specified professional or business.
  2. Anyone who is in profession or business and earns more than Rs. 1.2 lakhs
  3. In case the total turnover of business or profession is more than Rs. 10 lakhs in the preceding 3 years.
  4. If an individual or business fall in the category of Section 44AD, 44AE or 44AF
  5. Even if you have started a new business, and is expected to earn more than Rs. 1.2 lakh, then one needs to maintain the book of accounts. 

What accounts have to be maintained as per Section 44 AA?

The following book of accounts have to be maintained as per Section 44AA:

  1. Cash Book
  2. Journal in case of Mercantile Accounting Format
  3. Ledger
  4. A copy of all the bills, receipt with the serial numbers. This is applicable when the amount of transactions is more than Rs. 25,000.
  5. Original Bills and receipt of expenditure which is below Rs. 50,000.
  6. Those in medical professional status must maintain a cash register in Form 3C.

Taxpayer

Profit/Loss

Applicable taxing section

Whether they need to maintain a book of accounts as per 44AA

Business

Income is more than Rs 1,20,000

Profit

Normal taxation

Yes

If a Business has sales or turnover more than Rs 25 Lakh

Profit/Loss

Normal taxation

Yes

If a Business has sales or turnover less than or equal to  Rs 25 Lakh

Profit/Loss

Normal Provisions

No

Business

Turnover less than or equal to   Rs. 2 Crore

Profit

Presumptive taxation – Section 44AD

No

Business

Turnover less than or equal to Rs. 2 Crore

Loss

Presumptive taxation – Section 44AD

No

Business

Turnover less than or equal to  Rs. 2 Crore

Profit/Loss

Normal provisions

Yes

Profession

Gross receipts is less than or equal to 50 Lakh

Profit/Loss

Presumptive taxation – Section 44ADA

No

Profession

Gross receipts less than or equal to Rs. 50 Lakh

Profit/Loss

Normal provisions

Yes

 FAQs:

1. Do I need to maintain any record or proof of earning?

As per the Income Tax Act, one has to maintain proof of earning and the records. In case no such record is recommended for your profession, you must have reasonable records to support your income in case required.

2. If the person goes for the presumptive taxation scheme under Section 44AD, then does that person have Section 44AA applicability and needs to maintain a book of accounts as per section 44AA? 

Section 44AA mentions the provision related to the maintenance of books of accounts by a person engaged in business. If the person is opting for presumptive taxation, then the provision of Section 44AA is not applicable to the same.

3. How much penalty does one have to pay in case one fails to maintain the book of records as per Section 44AA?

In case of failure to maintain a book of accounts as per Section 44AA, then as per Section   271 A,  a penalty is levied on the taxpayer. This penalty can amount to Rs. 25,000. But, in case the taxpayer has a valid reason for the failure of non-maintenance of accounting records, then penalty may not be levied.


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