Introduction: What’s New in Finance Act 2025?

The Finance Act 2025 introduced significant amendments to various income tax provisions, including Section 44AA. These changes were aimed at simplifying compliance, enhancing transparency, and aligning the law with the digital ecosystem. With an emphasis on digitization and automation, the Act emphasized record-keeping practices that ensure accuracy, reduce tax evasion, and prepare businesses for potential audits.

Whether you are a salaried individual with side income, a professional, or running a small business, it is vital to understand your legal obligations under Section 44AA. With this article, we aim to provide you a complete and easy-to-understand breakdown of the updated Section 44AA as per the Finance Act 2025, along with practical insights, tables, and FAQs.

Understanding Section 44AA of the Income Tax Act

Section 44AA of the Income Tax Act lays down the requirement for specified professionals and businesses to maintain books of accounts. The objective of this provision is twofold: first, to enable the Income Tax Department to verify the accuracy of income declarations; and second, to bring about accountability and discipline among taxpayers.

The section is structured into two main clauses: 44AA(1) for specified professions and 44AA(2) for all other business categories. Both clauses are reinforced by Rule 6F of the Income Tax Rules, which details the types of books to be maintained.

Clause 44AA(1): Specified Professionals

Clause 44AA(1) applies to individuals engaged in certain notified professions. As per the Finance Act 2025, the list includes:

• Medical practitioners including doctors, surgeons, and dentists
• Legal professionals such as advocates
• Engineering and architectural professionals
• Accountants including Chartered Accountants and Cost Accountants
• Technical consultants
• Interior decorators
• IT professionals including software developers and cybersecurity experts
• Company Secretaries
• Film artists including actors, directors, cameramen, editors, etc.

If any of the above professionals have gross receipts exceeding ₹1.5 lakh in any of the three previous years, or are expected to exceed this limit in the case of a newly set-up profession, they must maintain proper books of accounts as prescribed by Rule 6F.

Clause 44AA(2): Other Businesses and Professions

This clause applies to taxpayers who are not covered under the list of specified professions. The thresholds prescribed are:

• For Individuals and HUFs: Income from business or profession exceeds ₹2.5 lakh, or turnover exceeds ₹25 lakh in any of the three preceding years.
• For other entities (firms, companies, LLPs): Income exceeds ₹1.2 lakh or turnover exceeds ₹10 lakh.

In the case of a new business, books must be maintained if the taxpayer expects to cross these limits during the year.

Types of Books to be Maintained Under Rule 6F

Rule 6F lists the specific types of records that specified professionals must maintain. These include:

• Cash Book: A day-to-day record of cash receipts and payments.
• Journal: Chronological record of transactions, if the mercantile system is followed.
• Ledger: Principal book showing individual account balances.
• Duplicate Bills and Receipts: For receipts over ₹25.
• Original Bills for Expenditure: For expenses above ₹50. For smaller expenses, payment vouchers suffice.

Medical professionals must also maintain a daily case register in Form 3C and an inventory of medicines and consumables used during the year.

Digital Record-Keeping Encouraged

The Finance Act 2025 explicitly allows digital modes for record-keeping. This includes the use of accounting software and cloud-based platforms. It is important, however, that these digital records are properly timestamped, maintained in an organized format, and can be presented in print if required by authorities.

Using tools like Zoho Books, Tally Prime, or QuickBooks not only helps in compliance but also improves overall business efficiency. Integration with GST systems and e-invoicing platforms is an added advantage for maintaining consistency and reducing manual errors.

Section 44AA and Presumptive Taxation

Presumptive taxation is a scheme that allows small taxpayers to pay taxes on a presumptive income without the burden of maintaining books of accounts. As per the Finance Act 2025, key updates are:

• Section 44AD: Available to businesses with turnover up to ₹5 crore. Profit is presumed at 6% (digital) or 8% (cash). No books required unless income declared is lower and exceeds basic exemption.
• Section 44ADA: Available to professionals with gross receipts up to ₹75 lakh. 50% of gross receipts are considered income. No books required unless lower income is declared and total income exceeds exemption limits.

Consequences of Non-Compliance

Failure to maintain proper books can attract a penalty of ₹25,000 under Section 271A. If a tax audit is also applicable and not conducted, further penalty under Section 271B may apply—up to ₹1.5 lakh or 0.5% of turnover.

It’s also important to note that improper maintenance (e.g., incomplete entries, forged documents, or inconsistencies) can trigger scrutiny and prosecution under the Income Tax Act.

FAQs on Section 44AA

Q1. Do freelancers need to maintain books?

Yes, if their income or turnover exceeds thresholds under Section 44AA(2) or if they opt out of presumptive taxation.

Q2. Are digital books valid?

Yes, digital books maintained in accounting software or spreadsheets are accepted, provided they are complete and auditable.

Q3. Can I maintain books in Excel?

Technically yes, but professional accounting software is preferred for accuracy, audit trail, and integration with compliance systems.

Q4. What if I maintain books voluntarily?

This is encouraged. Voluntarily maintaining books helps in funding, audit readiness, and long-term business planning.

Conclusion

Section 44AA continues to be a vital pillar in India’s tax compliance framework. The Finance Act 2025 has improved its clarity, modernized its language, and encouraged digital compliance without altering its spirit. Whether you are a business owner, freelancer, or professional—understanding when and how to maintain books of accounts is key to avoiding penalties, building credibility, and ensuring a smooth experience during tax assessments.

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