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BOOK KEEPING OR ACCOUNTING
Book Keeping or Accounting
Book keeping or accounting is the process of recording day to day financial transactions relating to your business or profession. Transactions includes sales, purchases, payments and receipts by taxpayer or assessee.
Book keeping is necessary for all business entities regardless of small, medium or large. The basic purpose of book keeping is to generate financial reports for your business or profession.
Types of Book Keeping
| (A) | Single Entry System: A financial transaction is recorded only once in single entry system. Therefore, there is no opposite account created under this method. When a transaction is identified, it is recorded in only single side of business books. Hence, it is called single entry system or one-sided entry system. Single entry system does not need any journal or ledger entry for any transaction. This system does not comply with Generally Accepted Accounting Principles (GAAP). As a result, this record keeping system does not help in the decision-making process. |
| (B) | Double Entry System: In this type of bookkeeping, every financial transaction is recorded at least in two accounts under double entry bookkeeping system. For this reason, this bookkeeping system is worldwide recognized. It also complies with (GAAP).The double entry system allows the accounting equation to maintain an equal balance in asset and liability. |
Mandatory Maintenance of Books of Account by Certain Persons Under Income Tax Act, 1961
| Section | Category Of Person | Threshold For Maintaining Books Of Account | |||
| 44AA | Specified Profession | Total gross receipts should be more than Rs 1,50,000 in any of the 3 immediately Preceding years. For Newly started Profession: Total Gross receipts should be more than Rs 1,50,000 in the year of started. |
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| Other Persons (except Individual and HUF) carrying on business/profession (other than specified profession) | Total Income should be more than Rs 1,20,000 Or Total Sales Turnover/ Total Gross Receipt should be more than Rs 10,00,000 in any of the 3 immediately preceding financial years. For newly started business or profession, the above threshold limits is to be seen in the year of its has been started. |
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| Individual and HUF carrying on business/ Profession | Total Income should be more than Rs 2,50,000 Or Total Sales Turnover/Gross Receipts should be more than Rs 25,00,000 In any one of the 3 immediately preceding years. For newly set up business or profession by Individual and HUF, the above thresholds is to be seen in the year of set up. |
Meaning of Specified Person as per Section 44AA of Income Tax Act, 1961
As per Section 44AA, any person carrying on any of the following Professions is required to maintain books of accounts:
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LEGAL |
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MEDICAL |
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ENGINEERING |
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ARCHITECTURAL |
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ACCOUNTANCY |
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TECHNICAL CONSULTANCY |
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INTERIOR DECORATION |
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Any other profession that may be notified by CBDT in future |