Knowledge Base - Income from Business and Profession
The Act does not prescribe any specific books of account for business. However you are expected to maintain your accounts in such a fashion that the net profit of the business can reasonably and easily be arrived at by the department. For companies the books of account are prescribed under the Companies Act.
Yes. The following books and documents are to be maintained mandatory:
- Cash book
- Journal in case of mercantile system of accounting
- Ledger
- Carbon copies or counter foils of all bills issued, being serially numbered
- Original copies of all expenditure bills. Signed vouchers where bills not available for less than Rs.50.
Any business or profession that has an annual turnover/gross receipts exceeding rupees ten lakh and net profit of rupees one lakh twenty thousand, must maintain such books of account and documents from which its income can be reasonably ascertained by the department.
This depends upon your ability and need. You may even prefer to use the accounting software available in the market. However, you should remember that in case of turnover exceeding rupees forty lakh per annum in a business and gross receipts exceeding rupees ten lakh per annum in a profession, a professional charted accountant must audit your accounts. [Section 44AB]
Auditing means checking the correctness and genuineness of your accounts and verifying whether accounting principles and standards have been properly followed in conduct of your business and preparation of accounts. Under Income Tax Act, this verification will have to be carried out by an independent Chartered Accountant.
There can be no excuse for not maintaining the bill books. However, if you are a smalltime retail trader with your annual turnover less than Rs.40 lakh, then you are permitted to declare your income on presumption at 5% of your actual sales. [U/s 44AF]. In that event no books of account need be maintained.
Revenue expenditures are those that are routine, recurring, and periodical with no enduring value beyond the financial year in which they are incurred. On the contrary capital expenditures are those that are spent on assets from which income is generated. These are normally enduring in nature.
If your commission earning is more than rupees sixty thousand a year, then you will have to maintain books of account and proof of expenditure. No claim for the premia payment will be allowed if the customer has claimed the same as his own expenditure.
