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Maintenance of Books of Accounts

To know the financial position of an organization, Books of Accounts are necessary. From shareholders to customers all the stakeholders can know the true value of the firm through the financial statements. The rules for maintenance of books of accounts are different under different laws.

Books of Accounts includes all the records of an organization such as vouchers, ledger and Journals. Books of Accounts shows the transactions in day to day activities of a business.

Companies Act, 2013

Every Company registered under Companies Act, 2013 must mandatorily maintain books of accounts and other relevant financial statements for every financial year

  • Books of Accounts should be maintained as per the Accounting Standards and Accounting Principles

  • These books should be kept in the registered office of the Company. In case the books are maintained in some other place, filing should be made with Registrar of Companies within 7 days of decision by BOD

  • If the company has any Branch Offices, financial statements should include transactions of Branch Offices as well

  • Every Company should keep the Books of Accounts for a period not less than 8 financial years preceding the current financial year

  • In case the provisions specified under the Act are not followed, the Managing Director, Whole-Time Director, Chief Financial Officer (CFO) or any other person appointed by the BOD to comply with the provisions are liable for punishment.
     

Features of Books of Accounts
 

The company needs to maintain the books of account w.r.t. items specified under Companies Act, 2013 as pee certain conditions

  • The books of accounts should mandatorily display all, purchases and sales of goods, and the assets and liabilities of the company, receipt and payment of money

  • Books of account are required to be kept on an accrual basis and on the double entry system of accounting.

        It must represent a true and fair view of the company’s financial state including its branches.

Place of maintenance of Books of Accounts

As per Section 128(1), every company shall maintain and keep its books of accounts and other relevant books, financial statements, and papers at its registered office. However, the place of keeping any or all of the above mentioned books could change at such other places in the territory of India as decided by the Board of Directors
 

In case the place changes, the company needs to intimate such changes with the ROC within seven days. This must be made in the form of a notice which needs to be in the writing form consisting of the full address of the decided place

Penalty for not complying with the Law

Any officer who is responsible to comply with the provisions specified under the Companies Act, 2013 are liable to punishment if the rules are not complied. The person shall be punishable with imprisonment for a term upto 1 year and fine of amount not less than Rs. 50000 not exceeding Rs. 500,000

Income Tax Act, 1961

Under Income Tax Act, 1961, Books of Accounts are to be maintained if total sales or turnover exceeds Rs. 2,500,000 from a business or profession or if the income from business or profession exceeds Rs. 250,000.

The professions included under the list are

  • Legal

  • Medical

  • Engineering

  • Architectural

  • Accountancy

  • Technical consultancy

  • Interior decoration

  • Authorised Representative (one who charges fees for representing someone before tribunal or any authority)

  • Film artist including all the staffs such as producers, costume designers, technicians etc

  • Company secretary

 

Applicability
 

  • The section 44AA(1) is applicable to all persons, including individual, HUF, firm, company, BOI/AOP etc.

  •  If the above persons, opts for section 44ADA (Presumptive Taxation) , then they are not required to keep and maintain books of accounts

  • Every person covered under 44ADA (4), i.e.who have shown his profits below 50% of gross receipts and whose income does not exceed the maximum amount, then he is not required to maintain books of accounts.

 

Place of Bookkeeping
 

As per sub section (3) of section 44AA, under Rule 6F, the books of accounts should be maintained at the place where he is carrying on the profession or, where the business or profession is carried on in more places than one, at the principal place of such business or profession

 

Where the person keeps and maintains separate books of account in respect of each branch office in which business is carried on, such books of account and documents may be kept and maintained at the respective places at which the profession is carried on.

 

Period for which Books of Accounts are to be maintained

If the threshold limit is exceeded in any 3 preceding years, Books of Accounts are to be maintained upto 6 years

Goods and service tax

Every individual and firm registered under GST Act are required to maintain the financial statements mentioned under the Act. The records to be maintained are not the same as that under other laws.

 

Documents to be maintained are

  • Ledger/ Journals of manufacturing or production

  • Stock records

  • Input Tax Credit availed

  • Output Tax payable

  • Input and Output supply details

 

The Books of Accounts are to be maintained for 6 years from the date of filing Annual return of a respective year