Books of Account Under the Income-tax Act 2025, and the Penalty for Not Keeping Them

Section 62(2): the conditions for everybody else

For completeness, because an examiner may ask why the section is drafted in two limbs. The conditions applying to persons within clause (b) are:

• (a) income from business or profession exceeding Rs 1,20,000, or total sales, turnover or gross receipts exceeding ten lakh rupees, in any one of the three years immediately preceding the tax year; or
• (b) for a newly set up business or profession, income likely to exceed Rs 1,20,000 or receipts likely to exceed ten lakh rupees during the tax year; or
• (c) where the assessee has claimed income from business or profession lower than the deemed profits under the presumptive provisions; or
• (d) for an individual or Hindu undivided family, the figures in (a) and (b) are modified to income exceeding Rs 2,50,000 and receipts exceeding twenty-five lakh rupees.

None of that applies to an advocate, who is inside clause (a). This is the most common error on the topic: applying a turnover threshold to a profession that has none.

Section 62(3): what the Board may prescribe

Section 62(3): "For the purposes of this section, the Board may prescribe: (a) the books of account and other documents (including inventories, wherever necessary) to be kept and maintained; (b) particulars to be contained therein; (c) the form, manner and place at which they shall be kept and maintained; and (d) the period for which such books of account and other documents are to be retained."

Four things are left to the rules: which books, what particulars, the form, manner and place, and the period of retention.

The retention period matters because section 441(b) penalises a failure to retain as well as a failure to keep and maintain, and the period is fixed by the rules and not by the section.

The rules made under section 62(3) are subordinate legislation and are amended from time to time; an advocate should check the current rules rather than rely on a figure remembered from a textbook, and this book does not print a rule number it has not verified from the rules themselves.

Section 63: tax audit

Section 63(1) requires every person carrying on business or profession who fulfils the conditions in the Table to that section to get his accounts of the tax year audited by an accountant before the specified date.

For a business the Table's first entry uses a threshold of one crore rupees of total sales, turnover or gross receipts, raised where cash receipts and cash payments each do not exceed five per cent of the respective totals.

Its relevance to an advocate is that section 62 makes him keep books and section 63 may require them to be audited once his receipts cross the threshold applicable to a profession. It is also the section referred to in the presumptive provisions, which require a person claiming lower profits to keep books under section 62 and get them audited under section 63.

Section 441: the penalty

Section 441: "A penalty of ₹25000 may be imposed on a person by the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals), if he fails to: (a) keep and maintain the books of account and other documents as per section 62 or the rules made thereunder, in respect of any tax year; or (b) retain such books of account and other documents for the period specified in the said rules."

Four points a good answer makes.

The amount is twenty-five thousand rupees. A fixed figure, not a percentage.

"May be imposed", so it is a discretion.

Who may impose it: the Assessing Officer, the Joint Commissioner (Appeals), or the Commissioner (Appeals).

Two separate defaults: failing to keep and maintain, under clause (a), and failing to retain for the prescribed period, under clause (b). An advocate who kept perfect books and destroyed them early is within clause (b).

How the tax duty and the Bar Council duty differ

MU's topic sits in a module about the Bar Council rules, so the comparison is the natural examination question.

Two duties, two purposes, two sanctions, and the same books can satisfy both if they are kept properly. That is the practical point: an advocate who keeps a cash book, a general ledger and a separate client's ledger, as chapter [The Books a Lawyer Keeps: Cash Book, Ledger, Journal and Trial Balance] describes, is meeting both obligations at once.

And the sanctions are not alternatives. A single failure to keep books can attract a penalty of Rs 25,000 from the Assessing Officer and a disciplinary proceeding under section 35, in the same way that one act can be both contempt and misconduct.

A worked example

Advocate Salim has practised for three years. His gross professional receipts are Rs 9,00,000 in the year. He keeps no books at all, writing figures on the backs of briefs, and files a return on estimated figures. In the fourth year his file is picked up for scrutiny.

Is he required to keep books? Yes. He carries on a specified profession, the legal profession being named first in section 62(4)(a), so section 62(1)(a) applies to him without any monetary threshold.

Does his level of receipts matter? No, for this purpose. The conditions in section 62(2), including the figures of Rs 1,20,000 and ten lakh rupees, apply only to persons within clause (b), that is those carrying on a business or a profession other than a specified profession.

What is the penalty? Under section 441(a), a penalty of twenty-five thousand rupees may be imposed by the Assessing Officer, the Joint Commissioner (Appeals) or the Commissioner (Appeals) for failing to keep and maintain the books required by section 62 or the rules made under it, in respect of any tax year.

Is that the end of it? No. The same absence of books means he cannot comply with rule 25, which requires an account of client money showing receipts, expenses and fee debits with dates, nor with rule 30, which entitles a client to a copy of his account on demand. Those breaches are professional misconduct under section 35, and on Prahlad Saran Gupta v. Bar Council of India, AIR 1997 SC 1338, a failure to deal properly with a client's money is misconduct even where dishonesty is not established.

Change one fact. Suppose Salim kept excellent books but destroyed them after two years to save space. He is outside clause (a) of section 441 but within clause (b), which penalises a failure to retain the books for the period specified in the rules made under section 62(3)(d).

Change it again. Suppose he is a first-year advocate with receipts of Rs 80,000. He is still required to keep books, because clause (a) of section 62(1) has no threshold for a specified profession. What the rules made under section 62(3) require of him may be lighter, but the duty exists.

What beginners get wrong

Citing sections 44AA and 271A. They are provisions of the repealed Income-tax Act 1961.

Applying a turnover threshold to an advocate. The conditions in section 62(2) apply to clause (b) persons, not to a specified profession.

Thinking the penalty is a percentage. It is a fixed Rs 25,000.

Forgetting the retention limb. Section 441(b) penalises failing to retain.

Thinking one duty satisfies the other. The Bar Council rules account to the client; section 62 accounts to the Assessing Officer. The same books can serve both, but the duties are separate and so are the sanctions.

Quick revision

• Income-tax Act 2025, Act 30 of 2025, assented 21 August 2025, in force 1 April 2026 by section 1(3). It replaced the Income-tax Act 1961.
• Renumbering: books of account s.44AA to s.62; specified profession s.44AA(1) to s.62(4)(a); tax audit s.44AB to s.63; penalty s.271A to s.441.
• Section 62(1)(a): a person carrying on a specified profession must keep and maintain such books of account and other documents to enable the Assessing Officer to compute his total income. No threshold.
• Section 62(4)(a): "specified profession" means legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, information technology or company secretary, or any other profession notified by the Board.
• Section 62(2) thresholds, for clause (b) persons only: income over Rs 1,20,000 or receipts over ten lakh rupees in any of the three preceding years; newly set up, likely to exceed the same; a claim below deemed profits; and for an individual or HUF, Rs 2,50,000 and twenty-five lakh rupees.
• Section 62(3): the Board may prescribe which books, the particulars, the form, manner and place, and the period of retention.
• Section 63: tax audit by an accountant before the specified date, on the conditions in its Table.
• Section 441: a penalty of Rs 25,000 may be imposed by the Assessing Officer, Joint Commissioner (Appeals) or Commissioner (Appeals) for failing to (a) keep and maintain books as per section 62 or the rules, or (b) retain them for the period specified in the rules.
• Two duties: the Bar Council rules account to the client and are enforced under section 35; the tax provisions account to the Assessing Officer and are enforced by penalty. Neither excludes the other.

Test yourself

1. Which provision requires an advocate to keep books of account, and is there a threshold? Section 62(1)(a) of the Income-tax Act 2025, read with section 62(4)(a), which defines "specified profession" to include the legal profession. There is no monetary threshold: the conditions in section 62(2) apply only to persons within clause (b), that is those carrying on a business or a profession other than a specified profession.

2. What is the test of sufficiency of the books? That they enable the Assessing Officer to compute the assessee's total income under the Act, which is how section 62(1) itself states the requirement.

3. What is the penalty for not keeping books, and who may impose it? Twenty-five thousand rupees, which may be imposed by the Assessing Officer, the Joint Commissioner (Appeals) or the Commissioner (Appeals) under section 441.

4. Name the two distinct defaults section 441 covers. Failing to keep and maintain the books of account and other documents as per section 62 or the rules made under it, in respect of any tax year, under clause (a); and failing to retain such books and documents for the period specified in those rules, under clause (b).

5. What did these provisions replace, and from when? Sections 44AA, 44AB and 271A of the Income-tax Act 1961. The Income-tax Act 2025 replaced that Act with effect from 1 April 2026, its section 1(3) providing that, save as otherwise provided, it shall come into force on that date.

6. How does the duty under section 62 differ from the duty under Bar Council rule 25? Rule 25 requires an account of the client's money, showing receipts, expenses and fee debits with dates, so that the advocate can account to his client, and it is enforced by a disciplinary committee under section 35. Section 62 requires books of the advocate's own affairs sufficient to let the Assessing Officer compute his total income, and it is enforced by a penalty under section 441. The same set of books can satisfy both, but the duties and the sanctions are separate.