Section 44AA of Income Tax Act: Income Tax on Professionals

Professionals in India are taxed under specific provisions of the income tax law. Section 44AA requires such professionals to maintain accounts if their gross receipts exceed a certain threshold.

Table of Contents

See also: Provisions under Section 44AE of Income Tax Act that you must know

What is Section 44AA?

Section 44AA of the Income Tax Act deals with the compulsory maintenance of accounts by professionals who earn above a specific limit. This enables the assessing officers (AO) to scrutinise the income records of such professionals.

Who must maintain account books under Section 44AA?

The following professionals must maintain accounts under Section 44AA:

Medical practitioners
Engineers
Accountants
Lawyers
Architects
Technical consultants
Interior designers
Film artists, including producers, editors, actors, directors, music directors, art directors, dance directors, cameramen, singers, lyricists, story writers, screenplay writers, dialogue writers, costume designers, etc.
Company secretaries
Authorised representatives*
People involved in specific as well as non-specific professions and businesses
People involved in professions or business who earn more than Rs. 1.2 lakh
Total turnover/gross receipts of the business or profession are more than Rs. 10 lakh in any of the previous three years
Individuals covered under Section 44AD, 44AE or 44AF who under-reported their income
If a new business is expected to earn over Rs.2 lakh or if its sales are expected to cross Rs. 10 lakh

The Central Board of Direct Taxes (CBDT) has the power to include anyone in this list who must maintain their books under Section 44AA.

Who must maintain books under Section 44AA?

Profession/business	Taxpayer category	Income threshold
Profession/business	Taxpayer category	Income	Gross turnover or receipts
Specific professionals	All	Mandatory unless the taxpayer has opted for presumptive taxation under Section 44AD	Mandatory unless the taxpayer has opted for presumptive taxation under Section 44AD
Non-specific professionals	Individuals and Hindu Undivided families (HUF)	More than Rs. 2.50 lakh in any of the 3 years preceding the previous year	More than Rs. 25 lakh in any of the 3 years preceding the previous year
Non-specific professionals	Others	More than Rs. 1.2 lakh in any of the 3 years preceding the previous year	More than Rs. 10 lakh in any of the 3 years preceding the previous year

What records must be maintained under section 44AA?

The following records must be maintained by taxpayers under Section 44AA:

Cash book
Journal
Ledger
Copies of invoices raised on clients
Invoices for expenditures claimed
Daily case register
Photocopies of bills or receipts issued for more than Rs. 25
Original bills of expenditure incurred for more than Rs. 50
Inventory details

For how long do you have to maintain these books?

All these records must be available at the workplace at all times. Each year’s books must be kept for six years from the end of that year under Rule 6F. However, new businesses or professionals need not maintain accounts if their income/turnover/receipt for the current year is not likely to exceed the threshold limit.

Must-know facts

Who is an authorised representative?

An authorised representative is any person who represents another person for a fee. Authorised representatives do not include employees or accountants.

Penalty for not maintaining records under Section 44AA

The AO can impose a penalty under Section 271A of the Income Tax Act, 1961, for not maintaining the accounts. Failure to maintain these records or retain them for six years from the end of the relevant assessment year can result in a penalty of Rs. 25,000. Non-maintenance of records would mean that the income tax department would launch a probe under Section 127 and continue to monitor the books for the next 6 years or until the assessment is complete.

FAQs

What is the purpose of Section 44AA of the income tax law?

The purpose of Section 44AA of the income tax law is to enable the assessing officer to compute a taxpayer’s total income following the IT Act, 1961.

Do all doctors have to maintain books under Section 44AA?

No. Medical professionals with gross receipts up to Rs. 50 lakh and opting for presumptive taxation at 50% or more of gross receipts are not required to maintain such accounts.

How are Sections 44AA and 271A of the Income Tax Act related?

Section 44AA requires professionals and businesses to maintain accounts. Section 271A outlines the consequences of not maintaining the accounts.

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Sunita Mishra

An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.

In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
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