Cleaning & Maintenance of Books of Accounts on the occasion of Diwali!

Arjuna (Fictional Character): Krishna, the festival of Diwali is arriving, Housewives (Gruhlaxmi’s) are busy cleaning and decorating our homes. Accordingly, please explain, what should be done of old records of Books of accounts under various Acts, so that cleaning business places w.r.t. of old books of accounts can be done.

Krishna (Fictional Character): Oh that’s commendable! Arjuna, in Diwali we should cast off the old things and welcome the new things. Goddess Laxmi is extremely pleased with the cleanliness and believed to stay longer. While doing business, many tax laws are to be taken care of by the businessmen. Books to be maintained, retention period and compulsion requirements are different under all the different laws i.e. Income Tax law, GST Law, and the Company Laws. Let’s have a look at it.

Arjuna: What are the provisions under the Income Tax Act for maintaining books of accounts?

Krishna: Arjuna, as per Income Tax, books of accounts such as cashbook, Journal, ledgers, etc. should be maintained for a period of 6 years from the end of relevant A.Y.;

1. For specified professions such as Doctors, CA’s, etc., whose gross receipts in the profession exceed Rs. 1,50,000 in all the 3 years immediately preceding the previous years.

2. If the sale/turnover/gross receipts from the business or non-specified profession is more than Rs. 10,00,000 (Rs. 25,00,000 for Individuals & HUF) or, the income from business or profession is more than Rs. 2,50,000 (Rs. 1,20,000 for Individuals & HUF) in any of the 3 preceding years.

Further, books of accounts are not required to be maintained, if the person has shown income on presumptive basis u/s 44 AD @ 8% of turnover or u/s 44AE having transportation business. However, if the assessment in relation to any AY has been reopened under section 147, all the books of accounts which were kept and maintained at the time of reopening of assessment are to be maintained till such assessment is completed.

For example, For AY 2020-21 (FY 2019-20) Books of accounts of the past 6 years is to be preserved i.e. till AY 15-16 (FY 2014-15). The records for previous years to the same can be discarded this Diwali.

Arjuna: Krishna, how long should books of accounts be maintained under GST Law?

Krishna: Arjuna, as per section 36 of the CGST Act, 2017, every registered person has to maintain GST records at the principal place of business for the period not less than a period of 6 years from the last date of filing of the annual return for that year.

In case any proceeding is going on the business entity, books of accounts may be preserved until such proceeding is closed.

Arjuna: Krishna, how long should companies maintain books of accounts under the Companies Act?

Krishna: Arjuna, every company should maintain books of accounts for 8 financial years from the end of the relevant year. Provided that, where an investigation has been ordered in respect of the company, the Central Government may direct that the books of accounts may be kept for a longer period as it may deem fit.

Arjuna: Krishna, what about the books of accounts maintained in computer software? 

Krishna: Arjuna, if books of accounts are maintained in computer software, print out of the same need to be maintained. As per the Income Tax Act, the data stored on a computer or pen drive or CD, etc. is considered to be books of accounts. In short, the law even recognizes the records in electronic form as books of accounts. One must also take care to ensure the safety of data stored. So always check the saved data regularly on external devices. In earlier days, changes were difficult as books of accounts were maintained manually. However now computerized data is easy to change, so beware of it. 

Arjuna: Krishna, What is the importance of books of accounts on the occasion of Diwali, and what one should learn from this?

Krishna: Arjuna, every year on Diwali, people worship money on "Dhanteras," & books of accounts on "Laxmipujan". As per Financial Laws, the new financial year starts from 1st April and ends on 31st March, and books are maintained accordingly. Businessmen are taxpayers, and so, they must take the oath on Diwali to keep their transactions properly recorded for statutory compliances. This will ensure less clutter, as well as ease the process of computation of tax liabilities, and hence, will save the taxpayers from getting burns from firecrackers (notices, assessments, etc.) that the tax department may crack.

Arjuna (Fictional Character): Krishna, the festival of Diwali is arriving, Housewives (Gruhlaxmi’s) are busy cleaning and decorating our homes. Accordingly, please explain, what should be done of old records of Books of accounts under various Act, so that cleaning business places w.r.t. of old books of accounts can be done.

Krishna (Fictional Character): Oh that’s commendable! Arjuna, in Diwali we should cast off the old things and welcome the new things. Goddess Laxmi is extremely pleased with the cleanliness and believed to stay longer. While doing business, many tax laws are to be taken care of by the businessmen. Books to be maintained, retention period and compulsion requirements are different under all the different laws i.e. Income Tax law, GST Law, and the Company Laws. Let’s have a look at it.

Arjuna: What are the provisions under the Income Tax Act for maintaining books of accounts?

Krishna: Arjuna, as per Income Tax, books of accounts such as cashbook, Journal, ledgers, etc. should be maintained for a period of 6 years from the end of relevant A.Y.;

1. For specified professions such as Doctors, CA’s, etc., whose gross receipts in the profession exceed Rs. 1,50,000 in all the 3 years immediately preceding the previous years.

2. If the sale/turnover/gross receipts from the business or non-specified profession is more than Rs. 10,00,000 (Rs. 25,00,000 for Individuals & HUF) or, the income from business or profession is more than Rs. 2,50,000 (Rs. 1,20,000 for Individuals & HUF) in any of the 3 preceding years.

Further, books of accounts are not required to be maintained, if the person has shown income on presumptive basis u/s 44 AD @ 8% of turnover or u/s 44AE having transportation business. However, if the assessment in relation to any AY has been reopened under section 147, all the books of accounts which were kept and maintained at the time of reopening of assessment is to be maintained till such assessment is completed.

For example, For AY 2020-21 (FY 2019-20) Books of accounts of the past 6 years is to be preserved i.e. till AY 15-16 (FY 2014-15). The records for previous years to the same can be discarded this Diwali.

Arjuna: Krishna, how long should books of accounts be maintained under GST Law?

Krishna: Arjuna, as per section 36 of the CGST Act, 2017, every registered person has to maintain GST records at the principal place of business for the period not less than a period of 6 years from the last date of filing of the annual return for that year.

In case any proceeding is going on the business entity, books of accounts may be preserved until such proceeding is closed.

Arjuna: Krishna, how long should companies maintain books of accounts under the Companies Act?

Krishna: Arjuna, every company should maintain books of accounts for 8 financial years from the end of the relevant year. Provided that, where an investigation has been ordered in respect of the company, the Central Government may direct that the books of accounts may be kept for a longer period as it may deem fit.

Arjuna: Krishna, what about the books of accounts maintained in computer software? 

Krishna: Arjuna, if books of accounts are maintained in computer software, print out of the same need to be maintained. As per the Income Tax Act, the data stored on a computer or pen drive or CD, etc. is considered to be books of accounts. In short, the law even recognizes the records in electronic form as books of accounts. One must also take care to ensure the safety of data stored. So always check the saved data regularly on external devices. In earlier days, changes were difficult as books of accounts were maintained manually. However now computerized data is easy to change, so beware of it. 

Arjuna: Krishna, What is the importance of books of accounts on the occasion of Diwali, and what one should learn from this?

Krishna: Arjuna, every year on Diwali, people worship money on "Dhanteras," & books of accounts on "Laxmipujan". As per Financial Laws, the new financial year starts from 1st April and ends on 31st March, and books are maintained accordingly. Businessmen are taxpayers, and so, they must take the oath on Diwali to keep their transactions properly recorded for statutory compliances. This will ensure less clutter, as well as ease the process of computation of tax liabilities, and hence, will save the taxpayers from getting burns from firecrackers (notices, assessments, etc.) that the tax department may crack.