My client runs a small business, not a notified profession. At what point is he obliged to keep books at all, and what are the current figures?
For a business or a non-specified profession, books must be kept if income from the business or profession exceeds Rs 1,20,000 OR total sales, turnover or gross receipts exceed Rs 10,00,000 in any one of the three years immediately preceding the previous year. For an individual or a Hindu undivided family two provisos raise those figures to Rs 2,50,000 and Rs 25,00,000 respectively.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text as published by the Income Tax Department) on 2018-04-01, reported as Income-tax Act 1961, s.44AA, sub-sections (1) to (4), as published on the Income Tax Department's section page for s.44AA. It bears on section 44AA, section 271A, section 44AD, section 44AE, section 44AB of the Income Tax Act 1961, in Presumptive Taxation & Audit and How Tax Law Is Read matters.
This is the provision behind the s.271A penalty, and it is the provision on which the whole s.271A/s.271B argument turns — a s.271B penalty cannot stand where there were no books to audit, and whether there ought to have been books at all is answered here. Three features are easy to get wrong. First, the two tests in clause (i) are alternatives joined by 'or', so a loss-making business with turnover above the limit is still obliged to keep books. Second, the look-back is to any ONE of the three years immediately preceding the previous year, not to the previous year itself — a business that has fallen away this year may still be caught by a good year two years back. Third, the higher figures are not general: they apply only to an individual or a Hindu undivided family, so a firm, an AOP or a company stays at Rs 1,20,000 and Rs 10,00,000. Clauses (iii) and (iv) then bring in the presumptive cases independently of any monetary test: a person who claims income lower than the deemed profits under s.44AE, s.44BB or s.44BBB, and a person to whom s.44AD(4) applies whose income exceeds the maximum amount not chargeable to tax, must keep books whatever their turnover.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Sub-section (1) requires every person carrying on a legal, medical, engineering or architectural profession, or the profession of accountancy, technical consultancy or interior decoration, or any other profession notified by the Board in the Official Gazette, to keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income under the Act; no monetary threshold applies. Sub-section (2) applies to every person carrying on a business or a profession not referred to in sub-section (1), and obliges him to keep such books and documents where — clause (i) — his income from the business or profession exceeds one lakh twenty thousand rupees or his total sales, turnover or gross receipts exceed ten lakh rupees in any one of the three years immediately preceding the previous year; or — clause (ii) — where the business or profession is newly set up in any previous year, his income is likely to exceed one lakh twenty thousand rupees or his sales, turnover or gross receipts are likely to exceed ten lakh rupees during that previous year; or — clause (iii) — where profits from the business are deemed to be his profits under s.44AE, s.44BB or s.44BBB and he has claimed his income to be lower than those deemed profits during that previous year; or — clause (iv) — where the provisions of sub-section (4) of s.44AD apply in his case and his income exceeds the maximum amount not chargeable to income-tax in any previous year. A first proviso substitutes 'two lakh fifty thousand rupees' for 'one lakh twenty thousand rupees' in clauses (i) and (ii) in the case of an individual or a Hindu undivided family; a second proviso substitutes 'twenty-five lakh rupees' for 'ten lakh rupees' in those clauses for the same class of persons. Sub-section (3) empowers the Board to prescribe by rules the books, documents and particulars to be kept and the form, manner and place of keeping them; sub-section (4) empowers the Board to prescribe by rules the period for which they must be retained.
Not applicable — statutory provision. The operative rules are that the two limbs of clause (i) are alternatives, that the look-back is to any one of the three years immediately preceding the previous year, that the raised figures of Rs 2,50,000 and Rs 25,00,000 are confined by the two provisos to an individual or a Hindu undivided family, and that clauses (iii) and (iv) impose the obligation on the stated presumptive assessees without reference to any turnover threshold.
Not applicable — statutory provision, and no decision construing s.44AA(2) is recorded. What follows is this library's reading of the statutory words and is not authority; no court has held it. The structure carries the points: clause (i) joins the income test and the receipts test with 'or', so either alone suffices; the words 'in any one of the three years immediately preceding the previous year' fix the look-back period and exclude the previous year itself from that test; each proviso opens 'in the case of a person being an individual or a Hindu undivided family' and is expressed to affect 'the provisions of clause (i) and clause (ii)' only, so the raised figures reach neither clause (iii) nor clause (iv) nor any other assessee; and clauses (iii) and (iv) are framed on the act of claiming a lower income, or on s.44AD(4) applying, rather than on any monetary limit.
Provided that in the case of a person being an individual or a Hindu undivided family, the provisions of clause (i) and clause (ii) shall have effect, as if for the words "one lakh twenty thousand rupees", the words "two lakh fifty thousand rupees" had been substituted:
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Handle my notice → Ask a CA on WhatsAppFor a business or a non-specified profession, books must be kept if income from the business or profession exceeds Rs 1,20,000 OR total sales, turnover or gross receipts exceed Rs 10,00,000 in any one of the three years immediately preceding the previous year. For an individual or a Hindu undivided family two provisos raise those figures to Rs 2,50,000 and Rs 25,00,000 respectively. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text as published by the Income Tax Department) and bears on section 44AA, section 271A, section 44AD, section 44AE, section 44AB of the Income Tax Act 1961. It is reported as Income-tax Act 1961, s.44AA, sub-sections (1) to (4), as published on the Income Tax Department's section page for s.44AA. This is the provision behind the s.271A penalty, and it is the provision on which the whole s.271A/s.271B argument turns — a s.271B penalty cannot stand where there were no books to audit, and whether there ought to have been books at all is answered here. Three features are easy to get wrong. First, the two tests in clause (i) are alternatives joined by 'or', so a loss-making business with turnover above the limit is still obliged to keep books. Second, the look-back is to any ONE of the three years immediately preceding the previous year, not to the previous year itself — a business that has fallen away this year may still be caught by a good year two years back. Third, the higher figures are not general: they apply only to an individual or a Hindu undivided family, so a firm, an AOP or a company stays at Rs 1,20,000 and Rs 10,00,000. Clauses (iii) and (iv) then bring in the presumptive cases independently of any monetary test: a person who claims income lower than the deemed profits under s.44AE, s.44BB or s.44BBB, and a person to whom s.44AD(4) applies whose income exceeds the maximum amount not chargeable to tax, must keep books whatever their turnover. If it applies to you, the first step is this: Before advising that no books were required, run both limbs of clause (i) for each of the three years immediately preceding the previous year, not merely for the year under assessment.
Sub-section (1) requires every person carrying on a legal, medical, engineering or architectural profession, or the profession of accountancy, technical consultancy or interior decoration, or any other profession notified by the Board in the Official Gazette, to keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income under the Act; no monetary threshold applies. Sub-section (2) applies to every person carrying on a business or a profession not referred to in sub-section (1), and obliges him to keep such books and documents where — clause (i) — his income from the business or profession exceeds one lakh twenty thousand rupees or his total sales, turnover or gross receipts exceed ten lakh rupees in any one of the three years immediately preceding the previous year; or — clause (ii) — where the business or profession is newly set up in any previous year, his income is likely to exceed one lakh twenty thousand rupees or his sales, turnover or gross receipts are likely to exceed ten lakh rupees during that previous year; or — clause (iii) — where profits from the business are deemed to be his profits under s.44AE, s.44BB or s.44BBB and he has claimed his income to be lower than those deemed profits during that previous year; or — clause (iv) — where the provisions of sub-section (4) of s.44AD apply in his case and his income exceeds the maximum amount not chargeable to income-tax in any previous year. A first proviso substitutes 'two lakh fifty thousand rupees' for 'one lakh twenty thousand rupees' in clauses (i) and (ii) in the case of an individual or a Hindu undivided family; a second proviso substitutes 'twenty-five lakh rupees' for 'ten lakh rupees' in those clauses for the same class of persons. Sub-section (3) empowers the Board to prescribe by rules the books, documents and particulars to be kept and the form, manner and place of keeping them; sub-section (4) empowers the Board to prescribe by rules the period for which they must be retained. The matter was decided on 2018-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text as published by the Income Tax Department). On those facts the CBDT Circulars & Instructions held as follows. Not applicable — statutory provision. The operative rules are that the two limbs of clause (i) are alternatives, that the look-back is to any one of the three years immediately preceding the previous year, that the raised figures of Rs 2,50,000 and Rs 25,00,000 are confined by the two provisos to an individual or a Hindu undivided family, and that clauses (iii) and (iv) impose the obligation on the stated presumptive assessees without reference to any turnover threshold.
Not applicable — statutory provision, and no decision construing s.44AA(2) is recorded. What follows is this library's reading of the statutory words and is not authority; no court has held it. The structure carries the points: clause (i) joins the income test and the receipts test with 'or', so either alone suffices; the words 'in any one of the three years immediately preceding the previous year' fix the look-back period and exclude the previous year itself from that test; each proviso opens 'in the case of a person being an individual or a Hindu undivided family' and is expressed to affect 'the provisions of clause (i) and clause (ii)' only, so the raised figures reach neither clause (iii) nor clause (iv) nor any other assessee; and clauses (iii) and (iv) are framed on the act of claiming a lower income, or on s.44AD(4) applying, rather than on any monetary limit. In the words reproduced by the source cited on this page: "Provided that in the case of a person being an individual or a Hindu undivided family, the provisions of clause (i) and clause (ii) shall have effect, as if for the words "one lakh twenty thousand rupees", the words "two lakh fifty thousand rupees" had been substituted:"
It was decided by the CBDT Circulars & Instructions on 2018-04-01 and is reported as Income-tax Act 1961, s.44AA, sub-sections (1) to (4), as published on the Income Tax Department's section page for s.44AA. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 44AA, section 271A, section 44AD, section 44AE, section 44AB, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Not applicable — statutory provision. The operative rules are that the two limbs of clause (i) are alternatives, that the look-back is to any one of the three years immediately preceding the previous year, that the raised figures of Rs 2,50,000 and Rs 25,00,000 are confined by the two provisos to an individual or a Hindu undivided family, and that clauses (iii) and (iv) impose the obligation on the stated presumptive assessees without reference to any turnover threshold. It arises in Presumptive Taxation & Audit and How Tax Law Is Read matters, on section 44AA, section 271A, section 44AD, section 44AE, section 44AB of the Income Tax Act 1961, and was decided by Not applicable — statutory text as published by the Income Tax Department. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Check the client's status first — the Rs 2,50,000 and Rs 25,00,000 figures are available only to an individual or a Hindu undivided family, and applying them to a firm is a common and expensive slip. Where the client is a presumptive assessee, look at clauses (iii) and (iv) separately; they are triggered by claiming a lower income than the deemed profits, or by s.44AD(4) applying, and not by turnover. Where a s.271A penalty is proposed, test whether the obligation to keep books arose at all before arguing about reasonable cause — an assessee outside s.44AA(2) has committed no default. Where the client carries on a profession named in s.44AA(1) — legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, or a profession notified by the Board — sub-section (2) is irrelevant; the obligation under sub-section (1) is unconditional, and the books and documents prescribed by the Board under sub-sections (3) and (4) apply. Check the assessment year against the commencement. The Rs 2,50,000 and Rs 25,00,000 figures for an individual or a Hindu undivided family were inserted by the Finance Act 2017 with effect from 1 April 2018 and so apply from AY 2018-19 onwards; for an earlier year the figures are Rs 1,20,000 and Rs 10,00,000 for every assessee.
Searched for later treatment; none was found. That is not the same as a source affirming it. The provision has not itself been amended. The Department's own text of the section prints sub-section (2) with clauses (i) to (iv) and the two provisos in exactly the terms this entry states: Rs 1,20,000 of income or Rs 10,00,000 of sales, turnover or gross receipts, substituted by Rs 2,50,000 and Rs 25,00,000 where the assessee is an individual or a Hindu undivided family. The Department's Notes on Clauses to the Finance Bill, 2025 records no amendment to section 44AA. No later decision construing sub-section (2) is recorded, so this is not put higher than 'no later treatment found'. This states the law under the Income-tax Act, 1961, which governs every assessment year up to and including AY 2026-27 and the disputes arising from those years. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This entry is statutory text, not a decision, and it is entered because no decision construing s.44AA(2) is recorded. It asserts no holding, no bench and no judge's words; every quoted string in it is statutory text. The date in the decided_on field, 1 April 2018, is the commencement date of the Finance Act 2017 amendment that raised the two thresholds and is NOT a decision date; the companion entry on s.44AB treats that field the same way. It carries a specific warning that should not be lost. Copies of s.44AA(2) in circulation are unreliable. Some reproduce sub-section (2) with clauses (i) to (iv) and then stop, with NO proviso at all, and carry the pre-2016 wording of clauses (iii) and (iv). The text relied on here is the later one: it carries the two provisos raising the figures to Rs 2,50,000 and Rs 25,00,000 for an individual or a Hindu undivided family, and a clause (iv) framed by reference to sub-section (4) of s.44AD. If you are working from a copy that has no provisos, you are working from a superseded text and will understate the thresholds for an individual or a Hindu undivided family. The section itself carries no amendment footnotes, but the commencement is established from another departmental source: CBDT Circular No. 2/2018 (Explanatory Notes to the provisions of the Finance Act 2017), at its paragraph 22, records the raising of the limits 'from one lakh twenty thousand rupees to two lakh fifty thousand rupees and from ten lakh rupees to twenty-five lakh rupees' for individuals and Hindu undivided families with effect from 1 April 2018, applying from assessment year 2018-19 onwards. The amending Act is the Finance Act 2017. The wording relied on here is corroborated word for word by a second departmental statement of the same section. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Not applicable — statutory provision. The operative rules are that the two limbs of clause (i) are alternatives, that the look-back is to any one of the three years immediately preceding the previous year, that the raised figures of Rs 2,50,000 and Rs 25,00,000 are confined by the two provisos to an individual or a Hindu undivided family, and that clauses (iii) and (iv) impose the obligation on the stated presumptive assessees without reference to any turnover threshold.
TaxSphere, “Statutory position — s.44AA(2): who must keep books of account, and the thresholds”, https://taxnotice.vittsphere.com/caselaw/case/section-44aa-2-who-must-keep-books-and-the-current-thresholds/ (validity last checked 2026-09-07)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
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My client filed under s.44AD for two years and then declared below eight per cent in the third. What happens to him for the next five years, and does he now have to get audited?
I never maintained books of account at all. Can the department penalise me under section 271B for not getting them audited?
The officer penalised my client Rs 25,000 under s.271A for not keeping books and then another Rs 1,50,000 under s.271B for not getting them audited. Can he do both for the same year?
I never maintained books at all. Can they penalise me under 271B for not getting them audited?
