Books of Account: Who Must Keep Them

Many small businesses and professionals keep a bank statement, a bundle of bills and a diary, and assume that is enough. Whether it is depends on two tests in the Act. The first is the kind of work done: certain professions must keep books whatever their size. The second is the size of the income or turnover. Then a further question arises: does the law prescribe particular books, or only “such books” as let the Assessing Officer compute income? Failure carries a fixed penalty of Rs 25,000, and the Tribunal has upheld it against a doctor who kept only a cash book. This guide sets out the tests under both Acts, the books prescribed for professionals, and how long they must be kept.

Which Act governs which year

• Financial year 2025-26 (assessment year 2026-27) and earlier. The obligation is in section 44AA of the Income-tax Act, 1961. The prescribed books are in rule 6F of the Income-tax Rules, 1962. The penalty is in section 271A.
• Tax year 2026-27 onwards. The counterparts are section 62 of the Income-tax Act, 2025, rule 46 of the Income-tax Rules, 2026, and the penalty in section 441.
• Penalties for years before 1 April 2026 may be initiated and imposed under the 1961 Act, under section 536(2)(d) of the 2025 Act, “as if this Act had not been enacted”.

Test one: specified professions, at any size

Section 44AA(1) requires “every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board” to keep “such books of account and other documents as may enable the Assessing Officer to compute his total income”. There is no threshold in the section.

Section 62(1)(a) of the 2025 Act applies the same duty to “any person carrying on specified profession”. Section 62(4) defines the term to include, besides the professions above, “information technology or company secretary”, and any other profession the Board notifies.

Test two: everyone else in business or profession

Section 44AA(2) applies to every other person carrying on business or profession. It requires books in four cases:

1. Income or turnover in the past three years. Income from business or profession exceeded Rs 1,20,000, or total sales, turnover or gross receipts exceeded Rs 10 lakh, “in any one of the three years immediately preceding the previous year”.
2. A new business. For a business or profession newly set up in the year, income is likely to exceed Rs 1,20,000 or turnover Rs 10 lakh.
3. Lower income than a presumptive figure. The assessee claims income lower than the deemed profits under section 44AE, 44BB or 44BBB.
4. The section 44AD lock. Section 44AD(4) applies, and income exceeds the maximum amount not chargeable to tax.

For an individual or HUF, the provisos raise the figures in (1) and (2) to Rs 2,50,000 of income and Rs 25 lakh of turnover.

Section 62(2) of the 2025 Act reproduces these conditions. Clause (a) covers the three preceding years. Clause (b) covers a new business. Clause © covers a claim of income lower than the deemed profits under section 58(2) or under section 61(2), serial numbers 4 and 5. Clause (d) sets the individual and HUF figures of Rs 2,50,000 and Rs 25 lakh. The section 44AD lock case is carried by section 58(8), and a lower claim under any of the three resident presumptive schemes by section 58(3); both point to section 62.

Presumptive schemes and books

A person who declares income under section 44AD or 44ADA is not exempted from section 44AA by those sections. Section 44AE(5), by contrast, says expressly that sections 44AA and 44AB “shall not apply” to the goods carriage business. It also says the receipts and income of that business are excluded in computing their monetary limits. Section 58(10) of the 2025 Act does the same for sections 62 and 63. See the guides on section 44AD, section 44ADA and section 44AE.

Which books: prescribed only for professionals

Section 44AA(3) lets the Board prescribe the books, “having regard to the nature of the business or profession”. It has done so only for the professions in rule 6F of the 1962 Rules. Rule 46 of the 2026 Rules follows the same pattern.

For a trader or manufacturer covered by section 44AA(2), the law specifies the result rather than a list: books that “enable the Assessing Officer to compute his total income”. Rule 46(1) of the 2026 Rules says the same of persons under section 62(1)(b).

Rule 6F of the 1962 Rules (up to AY 2026-27)

Rule 6F(1) covers the legal, medical, engineering, architectural, accountancy, technical consultancy and interior decoration professions, authorised representatives and film artists. Under its proviso, the rule does not apply in a year if the person’s “total gross receipts in the profession do not exceed one lakh fifty thousand rupees in any one of the three years immediately preceding the previous year”. It also does not apply to a newly set-up profession whose receipts are not likely to exceed that amount.

Rule 6F(2) prescribes:

• a cash book;
• a journal, if accounts are kept on the mercantile system;
• a ledger;
• carbon copies of serially numbered bills and receipts issued; and
• original bills and receipts for expenditure or, where none are issued and the expenditure does not exceed fifty rupees, signed payment vouchers.

Vouchers are not needed if the cash book gives adequate particulars.

Rule 6F(3) adds two records for the medical profession: “a daily case register in Form No. 3C”, and an inventory, under broad heads, of drugs, medicines and consumables on the first and last day of the year. The books are to be kept for six years from the end of the relevant assessment year.

Rule 46 of the 2026 Rules (tax year 2026-27 onwards)

Rule 46 carries the same scheme with changes.

• Professions covered. Rule 46(2) names the same professions, including “authorised representative or film artist”. Rule 46(5) defines both terms. An authorised representative is a person who represents another for a fee before a tribunal or authority, other than an employee, a lawyer or an accountant. A film artist is any of thirteen roles, from actor and cameraman to lyricist and dress designer.
• Threshold. Rule 46(3) keeps the Rs 1,50,000 gross receipts threshold over the three preceding years, and the test for a new profession.
• The books. Rule 46(4) lists a cash book, a journal (mercantile system), a ledger, copies of bills or receipts issued “for sums equal to or exceeding two hundred and fifty rupees”, original bills and receipts for expenditure of Rs 250 or more, and signed payment vouchers for expenditure not exceeding Rs 250 where the cash book lacks adequate particulars. The fifty-rupee figure in rule 6F is now Rs 250. In the official text the items in rule 46(4) are joined by “or”, where rule 6F(2) simply listed them.
• Doctors. Rule 46(6) requires a daily case register, now in Form No. 25, and the opening and closing inventory of drugs and consumables.
• Place. Under rule 46(7), books are kept at the place of the profession, at the principal place where there are several, or separately at each place.
• Electronic books. Rule 46(8) requires books kept “in electronic mode” to “remain accessible in India at all times”, with a daily back-up “in servers physically located in India”.
• Retention. Rule 46(9) requires the books to be kept “for a period of seven tax years from the end of the relevant tax year”. Rule 46(10) extends this until completion where an assessment has been reopened under section 279 of the 2025 Act or section 147 of the 1961 Act.

The penalty

Section 271A of the 1961 Act provides that if a person “fails to keep and maintain any such books of account and other documents as required by section 44AA or the rules made thereunder, in respect of any previous year or to retain such books of account and other documents for the period specified in the said rules”, the Assessing Officer, the Joint Commissioner (Appeals) or the Commissioner (Appeals) may direct payment of “a sum of twenty-five thousand rupees”. Under section 273B, no penalty is imposable if the person “proves that there was reasonable cause for the said failure”.

Section 441 of the 2025 Act sets the same Rs 25,000 for failure to keep books “as per section 62 or the rules made thereunder” for any tax year, or to retain them. Section 470 carries the reasonable cause defence for section 441.

In Yogesh Parashram Pangarkar v. ITO (ITAT Pune, 15 March 2022, AY 2013-14), a doctor with professional receipts of Rs 15,39,837 said he kept a cash book and a petty cash book. The Assessing Officer levied Rs 25,000 under section 271A, and the Commissioner (Appeals) confirmed it. The Tribunal set out rule 6F and noted that sub-rule (3) “specifically provides for additional books and documents to be maintained by Medical Professionals”. It found the doctor had not shown that he kept the daily case register or the medicine inventory. No reason was offered for the failure, and the penalty was confirmed. The case shows that, for a prescribed profession, a cash book alone does not meet rule 6F.

Books and audit penalties together

Where no books are kept, the audit under section 44AB cannot follow. In Surajmal Parsuram Todi v. CIT (Gauhati High Court, 6 August 1996, (1996) 222 ITR 691), the assessee had admittedly kept no books for several years, and the Tribunal had upheld a penalty under section 271B for failure to get accounts audited. The High Court held that “when a person commits an offence by not maintaining the books of account as contemplated by Section 44AA the offence is complete. After that there can be no possibility of any offence as contemplated by Section 44AB”. It held the section 271B penalty erroneous, leaving the default to be dealt with under section 271A. The Pune Tribunal applied the decision in Ram Prakash C. Puri v. ACIT (18 April 2000, (2001) 77 ITD 210), deleting a section 271B penalty on a civil contractor who had kept no books and had already been penalised Rs 2,000 under section 271A. The audit consequences are in The Tax Audit.

What to have ready

• The last three years’ income and turnover from business or profession, from the returns filed, to apply section 44AA(2) or section 62(2).
• For a profession, gross receipts for the last three years, to apply the Rs 1,50,000 threshold in rule 6F or rule 46.
• The prescribed set for professionals: cash book, journal (if mercantile), ledger, copies of bills issued, bills and vouchers for expenses, and for doctors the daily case register (Form No. 3C, now Form No. 25) and the drug inventory.
• For accounting software, confirmation that the data and its daily back-up are on servers in India, for tax year 2026-27 onwards (rule 46(8)).
• A retention schedule: six years from the end of the assessment year under rule 6F, and seven tax years from the end of the tax year under rule 46(9).

What can and cannot be changed afterwards

Books record the year as it happened. Where a false entry, or an omission of an entry relevant to computing total income “to evade tax liability”, is found in books maintained by any person, a separate penalty equal to the aggregate amount of the false or omitted entry applies: section 271AAD of the 1961 Act and section 444 of the 2025 Act. A penalty order under section 271A or section 441 can be challenged on appeal; see Appealing to the Commissioner (Appeals) and Penalty Notices.

Summary

1. Fix the Act: section 44AA, rule 6F and section 271A for FY 2025-26 and earlier; section 62, rule 46 and section 441 from tax year 2026-27.
2. A specified profession keeps books at any size; the prescribed list applies once gross receipts exceeded Rs 1,50,000 in any of the three preceding years.
3. Any other business or profession keeps books if income exceeded Rs 1,20,000 or turnover Rs 10 lakh in any of the three preceding years (Rs 2,50,000 and Rs 25 lakh for individuals and HUFs), or in the new-business, lower-than-presumptive and section 44AD-lock cases.
4. For businesses, the law requires books sufficient to compute income; for professions, the listed books, plus the case register and inventory for doctors.
5. Keep electronic books accessible in India with daily Indian back-up (from tax year 2026-27), at the place of profession, for six years from the end of the assessment year (1962 Rules) or seven tax years (2026 Rules).
6. Failure carries a Rs 25,000 penalty, subject to reasonable cause.

The next guide covers the tax audit under section 44AB: who must be audited, by when, and in which form.