Profits or Gains of
|
Assessee Carries on | Conditions | Books to be maintained |
|---|---|---|
| Business |
| Books of account and other documents to enable the Assessing officer to compute the total income in accordance with the provisions of the Income Tax Act, 1961.
|
Profession of
| Gross Receipt greater than Rs.1.50 Lakhs |
|
| Gross Receipt less than Rs.1.50 Lakhs | Books of account and other documents to enable the Assessing officer to compute the total income in accordance with the provisions of the Income Tax Act, 1961.
| |
| Medical Profession | Irrespective of his Gross Receipt | Besides the above referred books,
|
| Other Profession
|
| Books of account and other documents to enable the Assessing officer to compute the total income in accordance with the provisions of the Income Tax Act, 1961.
|
How long we need to retain the books of Accounts?
The normal period of retaining or holding books of accounts is 6 years.
In case of the Assessment is pending under section 147 books of accounts needs to be retained till the time of completion of assessment.
Is there any penalty for not maintaining the books of Accounts?
Yes. The Assessing Officer of Commissioner of Income-tax (Appeals) may direct that such person (not keeping or maintaining or retaining the books) shall pay a penalty of Rs.25,000.
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Accounting System and Valuation of Inventories
What are the acceptable Accounting systems for maintaining the Books of Accounts?
The Business Income or Profits and Gains of Profession shall be computed in accordance with, either
Cash System or
Mercantile System
of accounting regularly employed by the assessee.
An assessee is prohibited from following hybrid system of accounting with effect from assessment year 1997-1998.
Accounting Standards for Mercantile System: -
The Central Government would notify from time to time the accounting standards to be followed by any class of assessees or in respect of any class of income.
The following two accounting standards have been notified by the Central Government so far in respect of any assessee following Mercantile system of accounting: -
Accounting Standard I relating to disclosure of accounting policies
Accounting Standard II relating to disclosure of Prior Period and Extraordinary Items and Changes in Accounting Policies
How to value the Inventories?
Inventories are to be valued at Lower of Cost or Net Realisable Value.
Both the opening and closing stocks are to be valued on the same basis.
Cost can be determined either under `Total cost' or `Direct cost' method.
How to determine the cost of acquisition of an asset received under certain modes and sold as stock-in-trade in the hands of Person selling the asset?
Determination of cost of acquisition of business asset: -
S.No | Asset Sold By | Mode of Acquisition | Cost of acquisition(Aggregate of the following) |
|---|---|---|---|
| 1 | Amalgamated Company | Under a scheme of Amalgamation |
|
| 2 | Donee
| As a Gift
|
|
| 3
| Person who received the asset from HUF
| Under a Total or Partial Partition |
|
| 4
| Person who received the asset | Under a Will |
|
| 5
| Person who received the asset
| Under an irrevocable trust
|
|
How to valuate the Purchase and Sale of Goods and Inventory?
The valuation of purchase and sale of goods and inventory for the purposes of determining the Business Income chargeable shall be in accordance with the method of accounting regularly employed by the assessee
Any tax, duty, cess or fee actually paid or incurred by the assessee to bring the goods shall be included for Valuation.
For this purpose, the tax, duty, cess or fee under any law in force, shall include all such payments, although a right may arise as a consequence to such payment.
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Audit of Profits or Gains of Profession or Business Income
Is Audit of Books of Accounts Compulsory?
It is compulsory to get the Books of Accounts Audited in the following cases: -
a. Person Carrying on Business
Turnover/Gross receipts is greater than Rs. 40 lakhs, or
Income offered is less than the presumptive income
- b. Person Carrying on Profession
-
Gross receipts is greater than Rs. 10 lakhs.
Is there any specified format for preparing the Audit Report for Income from Profession or Business Income?
The Form of Audit Report is as under: -
Form 3CA : If the accounts are audited under any other law.
Form 3CB : In any other case.
Form 3CD : For submitting a statement of particulars.
What is the due date for Furnishing the Audit Report?
October 31 of the Assessment Year.
Is there any penalty for not Furnishing the Audit Report?
Failure to get books audited or to furnish report within due date attracts penalty u/s 271B.
Least of the following will be the penalty.
1/2 % of Turnover/Gross Receipts
Rs.1,00,000/-
What are the other Audits for Profits or Gains of Profession or Business Income
The various sections under which audit has to be carried out under the head "Profits and Gains of Business or Profession" are: -
S.No | Section Reference | Purpose |
|---|---|---|
| 1 | 33AB | Tea Development Account
|
| 2
| 33ABA | Site Restoration Fund |
| 3
| 35AC | Expenditure on Eligible Projects. |
| 4
| 35D | Amortisation of certain Preliminary Expenses. |
| 5
| 35E | Deduction for expenditure on prospecting, etc., for certain minerals. |
| 6
| 45DA
| Royalties, etc. in the hands of Non-residents |
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