The Direct Tax Code (DTC) 2025 imposes significant books of account obligations on AIF trustees and fund managers under Section 62 and Rule 46 of the Income-tax Rules, 2026. Understanding these requirements is essential for AIF trustees and fund managers to ensure compliance and avoid penalties. This guide analyses the books of account rules and their application to AIF entities.
The Books of Account Framework
Section 62 — Maintenance of Books of Account
Section 62(1) requires that any person carrying on specified profession or any person carrying on business or profession satisfying the prescribed conditions shall keep and maintain such books of account and other documents to enable the Assessing Officer to compute his total income under the Act.
Section 62(2) — Conditions for Maintenance
The conditions for persons required to maintain books of account are:
- Where income from business or profession exceeds ₹1,20,000 or total sales, turnover or gross receipts exceeds ₹10,00,000 in any of the three years immediately preceding the tax year
- Where business or profession is newly set up, income is likely to exceed ₹1,20,000 or sales, turnover or gross receipts is likely to exceed ₹10,00,000
- Where the assessee has claimed income lower than deemed profits under Section 58(2) or 61(2)
- For individuals or HUFs, the thresholds are ₹2,50,000 for income and ₹25,00,000 for sales, turnover or gross receipts
Section 62(4) — Specified Profession
"Specified profession" means:
- Legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, information technology or company secretary
- Any other profession notified by the Board
Rule 46 — Maintenance of Books of Account
Rule 46 of the Income-tax Rules, 2026 prescribes the detailed requirements for maintenance of books of account.
Rule 46(1) — General Requirement
Every person required to keep and maintain books of account and other documents under Section 62(1)(b) shall maintain such books of account and other documents that enable the Assessing Officer to compute his total income under the Act.
Rule 46(2) — Specific Professions
Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or profession of authorised representative or film artist, shall keep and maintain the books of account and other documents specified in sub-rule (4).
Rule 46(3) — Exemption
The provisions of Rule 46(2) shall not apply:
- In relation to any tax year in the case of any person, if his total gross receipts in the profession do not exceed ₹1,50,000 in any one of the three years immediately preceding the tax year
- Where the profession has been newly set up in the tax year, his total gross receipts in the profession for that year are not likely to exceed the said amount
Rule 46(4) — Books of Account and Other Documents
The books of account and other documents referred to in Rule 46(2) shall be the following:
- A cash book
- A journal, if the accounts are maintained according to the mercantile system of accounting
- A ledger
- For sums equal to or exceeding two hundred and fifty rupees, copies of bills or receipts issued by him
- Original bills and receipts in respect of expenditure equal to or exceeding two hundred and fifty rupees incurred by the person and issued to him
- Payment vouchers prepared and signed by the person, where the expenditure incurred does not exceed two hundred and fifty rupees, and the cash book maintained by the person does not contain adequate particulars in respect of such expenditure
Rule 46(5) — Definitions
- "Authorised representative" means a person who represents any other person on payment of any fee or remuneration before any Tribunal or any authority constituted or appointed by or under any law, but does not include an employee of the person so represented or a person carrying on legal profession or a person carrying on the profession of accountancy
- "Cash book" means a record of all cash receipts and payments, kept and maintained day-to-day and giving the cash balance in hand at the end of each day or at the end of a specified period not exceeding a month
- "Film artist" means any person engaged in his professional capacity in the production of a cinematograph film as an actor, cameraman, director, music director, art director, dance director, editor, singer, lyricist, story writer, screen-play writer, dialogue writer, or dress designer
Rule 46(6) — Medical Profession
A person carrying on medical profession shall, in addition to the books of account and other documents specified in Rule 46(4), keep and maintain:
- A daily case register in Form No. 25
- An inventory under broad heads, as on the first and the last day of the tax year, of the stock of drugs, medicines and other consumable accessories used for the purpose of his profession
Rule 46(7) — Place of Maintenance
The books of account and other documents other than those relating to a tax year which has come to an end shall be kept and maintained at:
- The place where he is carrying on the profession
- Where the profession is carried on in more places than one, at the principal place of his profession
- If separate books of account are maintained in respect of each place, at the respective places at which the profession is carried on
Rule 46(8) — Electronic Records
The books of account and other documents maintained in electronic mode shall remain accessible in India at all times, and the back-up of such books of account and other documents maintained in electronic mode shall be kept on a daily basis in servers physically located in India.
Rule 46(9) — Retention Period
The books of account and other documents shall be kept and maintained for a period of seven tax years from the end of the relevant tax year.
Rule 46(10) — Reassessment
Where the assessment in relation to any tax year has been reopened under Section 279, all the books of account and other documents which were kept and maintained at the time of reopening of the assessment shall continue to be so kept and maintained till the assessment so reopened has been completed.
Application to AIF Trustees and Fund Managers
1. AIF Trustees
AIF trustees are responsible for:
- Maintaining books of account for the trust
- Ensuring compliance with Section 62 and Rule 46
- Retaining records for seven years
2. AIF Fund Managers
AIF fund managers are responsible for:
- Maintaining books of account for the fund management activities
- Ensuring compliance with Section 62 and Rule 46
- Retaining records for seven years
3. AIF as a Business
AIFs may be treated as carrying on a business for tax purposes. This triggers the books of account requirements under Section 62.
Specific Requirements for AIF Trustees and Fund Managers
1. Cash Book
Maintain a cash book recording all cash receipts and payments day-to-day, with cash balance at the end of each day or month.
2. Journal
If accounts are maintained according to the mercantile system of accounting, maintain a journal.
3. Ledger
Maintain a ledger recording all transactions.
4. Bills and Receipts
For sums equal to or exceeding ₹250, maintain copies of bills or receipts issued.
5. Expenditure Records
Maintain original bills and receipts for expenditure equal to or exceeding ₹250.
6. Payment Vouchers
For expenditure not exceeding ₹250, maintain payment vouchers prepared and signed.
7. Electronic Records
If books are maintained in electronic mode, ensure:
- Accessibility in India at all times
- Daily backup on servers physically located in India
8. Retention
Retain books of account and other documents for seven tax years.
Practical Compliance
1. Determine Applicability
- Determine whether the AIF trustee or fund manager is required to maintain books of account
- Consider the income and turnover thresholds
2. Set Up Systems
- Set up systems for maintaining books of account
- Ensure compliance with the specific requirements
3. Maintain Records
- Maintain all required records
- Ensure records are complete and accurate
- Retain records for seven years
4. Ensure Accessibility
- If records are in electronic mode, ensure they are accessible in India at all times
- Maintain backups on servers physically located in India
5. File Tax Returns
- File tax returns based on the books of account
- Ensure the returns are consistent with the books of account
Consequences of Non-Compliance
Section 441 — Penalty for Failure to Maintain Books
Section 441 provides that a penalty of ₹25,000 may be imposed by the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals), if the person fails to:
- Keep and maintain the books of account and other documents as per Section 62 or the rules made thereunder
- Retain such books of account and other documents for the period specified in the rules
Other Consequences
- Disallowance of deductions
- Best judgment assessment
- Interest and penalty
Expert Legal Guidance
Anuj Desai & Associates provides comprehensive legal advisory services on books of account compliance for AIF trustees and fund managers. Our direct tax experts help AIF entities understand their obligations, set up compliant systems, and navigate the regulatory framework. We assist in compliance assessment, system setup, and representation before income-tax authorities.
Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on books of account compliance or any other direct tax matter, please consult qualified legal professionals.
Need Expert Legal Guidance?
Navigating the books of account compliance framework requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive direct tax advisory services, including:
- Compliance Assessment: Evaluation of books of account obligations
- System Setup: Guidance on setting up compliant systems
- Record Maintenance: Assistance with record maintenance
- Representation: Representation before income-tax authorities
Contact us for expert legal guidance on your books of account compliance matters.