For many individuals and Hindu Undivided Families (HUFs), especially those with business or professional income, filing Income Tax Return (ITR-3) is a common requirement. This often brings up a crucial question: is it mandatory to maintain your books of accounts? Let’s break down everything you need to know.
Who Needs to File ITR-3?
ITR-3 is specifically designed for individuals and HUFs earning income from profits and gains of business or profession. This broad category includes:
- Self-employed Professionals: Doctors, lawyers, architects, consultants, freelancers, designers, etc.
- Business Owners: Proprietors, shopkeepers, manufacturers, and service providers.
- Traders: Particularly those dealing in shares, commodities, or derivatives like Futures & Options (F&O).
- Salaried Individuals with Business Income: If you receive a salary but also have substantial income from a side business or profession, ITR-3 is likely your form.
Understanding the Rules: When Are Books of Accounts Mandatory?
The requirement to maintain books of accounts is primarily governed by Section 44AA of the Income Tax Act, 1961, with additional details in Rule 6F. The rules differ based on whether you’re running a “Business” or engaged in a “Profession,” and the magnitude of your income.
For Individuals Carrying on a “Business” (e.g., Traders, Shopkeepers, Manufacturers):
- Mandatory: You must maintain books if your total sales, turnover, or gross receipts from the business exceed ₹1.2 crore in any of the three preceding financial years, OR your income (profit) from business exceeds ₹2,50,000 in any of the three preceding financial years.
- Optional: If your turnover and income are below these thresholds, maintaining formal books is optional. However, you’re still required to keep sufficient records to support your income and expenses.
For Individuals Engaged in a “Profession” (e.g., Doctors, Lawyers, Consultants):
- Mandatory: Books are mandatory if your gross receipts from the profession exceed ₹15 lakh in all of the three preceding financial years, OR your income from the profession exceeds ₹2,50,000 in any of the three preceding financial years.
- For “Specified” Professions (Rule 6F): Professionals in fields like legal, medical, engineering, architectural, accountancy, technical consultancy, or interior decoration have a lower threshold. If your gross receipts exceed ₹1,50,000 in any of the three preceding financial years, you must maintain prescribed books.
Salaried Individuals and F&O Trading: A Special Case
If you’re a salaried individual but also engage in F&O trading, you must file ITR-3, even if you incurred a loss. This is because F&O activity is treated as a “Business” for tax purposes.
- Mandatory Books for F&O: You are compulsorily required to maintain proper books of account for your F&O business if:
- The absolute turnover (sum of all positive and negative trades, without netting off losses) from your F&O trading exceeds ₹1 crore in the financial year, OR
- Your income (profit) from F&O trading exceeds ₹2,50,000 in the financial year.
- Important: Even if you face a loss in F&O, if your absolute turnover crosses the ₹1 crore mark, maintaining books is still mandatory.
- Optional: If your F&O absolute turnover is below ₹1 crore and your profit is below ₹2,50,000, formal book maintenance is technically optional. However, it’s always recommended.
The Benefits of Maintaining Your Books (Even When Optional)
As a Delhi-based income tax expert suggests, having a Personal Income & Expenditure Account and Balance Sheet is invaluable, regardless of whether you’re salaried or have a business. While there might be additional fees, consider it an investment in your financial well-being.
Here’s why:
- Financial Awareness: Get a clear snapshot of your assets, liabilities, income, and expenses.
- Budgeting and Planning: Track your finances to create budgets and plan for future goals like savings, investments, or debt repayment.
- Informed Decision Making: Make better financial choices regarding purchases, loans, or investment opportunities.
- Aid to Loved Ones: In unforeseen circumstances, your family will have crucial insight into your financial affairs.
- Loan Applications: Essential documentation for personal loans, including educational loans for your children.
- VISA Applications: Can significantly streamline the process.
Who Needs a Tax Audit?
Under Section 44AB of the Income Tax Act, a tax audit by a chartered accountant is mandatory for:
- Businesses: If your total sales, turnover, or gross receipts exceed ₹1 crore in a financial year. This threshold increases to ₹10 crore if cash receipts and payments are minimal (not exceeding 5% of total receipts and payments).
- Professionals: If your gross receipts exceed ₹50 lakh.
- Presumptive Taxation: If you opt for presumptive taxation (e.g., under Section 44AD for businesses, 44ADA for professionals) but declare income lower than the presumptive rate, and your total income exceeds the basic exemption limit.
The audit report (Form 3CA/3CB along with Form 3CD) must be submitted before the due date for filing your Income Tax Return.
Key Dates to Remember:
- Non-audit ITRs: The last date to file is September 15 (for the relevant assessment year).
- Audit Cases: If an audit is required, the income tax return must be filed by October 31 (for the relevant assessment year).
Still unsure about your specific requirements for ITR-3 or maintaining books? Consulting a tax professional can provide tailored advice.