Books of Account: Who Must Keep Them, and the 2026 Change That Catches IT Consultants

Most people assume that keeping books of account is something that kicks in once a business gets big enough. For a large group of professionals, that has never been true — the obligation applies from the first rupee, with no threshold at all.

And from 1 April 2026 that group gets larger. The Income-tax Act, 2025 adds information technology and company secretary to the list of professions that must maintain books regardless of turnover. For Pune’s very large population of independent IT consultants, that is a change worth knowing about before it applies rather than after.

Two different rules, depending on what you do

Both Acts split the obligation in two. There is a list of specified professions, which must keep books whatever they earn. And there is everyone else, who must keep books only once certain financial thresholds are crossed.

If you are in a specified profession: no threshold

Section 44AA(1) of the 1961 Act requires every person carrying on a listed profession to “keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income”. There is no turnover figure and no income figure in that sub-section. The obligation is absolute.

Section 62(4) of the 2025 Act defines “specified profession” as “legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, information technology or company secretary”, or any other profession notified by the Board.

The practical effect for an IT consultant. An independent software developer or IT consultant billing ₹18 lakh a year is, under the old Act, outside the specified-profession list and subject only to the general thresholds. From tax year 2026-27 they are inside the list, and the threshold question stops being relevant — books must be kept either way.

Two qualifications worth being honest about. First, “information technology” is not further defined in the section, so exactly which activities fall inside it is a question that will be worked out in practice. Second, many IT consultants were already arguably covered as “technical consultancy”; what the new entry removes is the argument, not necessarily the obligation. Either way, from 2026-27 the safe assumption for anyone selling IT services is that books are required.

If you are not: the thresholds

For everyone else carrying on a business or a non-specified profession, section 44AA(2) of the 1961 Act and section 62(2) of the 2025 Act impose the obligation where any of the following applies:

Under the 1961 Act the higher individual and HUF figures come from the two provisos to section 44AA(2); under the 2025 Act they are in section 62(2)(d). Either limb will do — income or turnover. You do not need to cross both.

The three-year look-back — the bit that surprises people

This is the detail most often missed. The test is not whether you crossed the threshold this year. Both Acts apply it where the threshold was crossed “in any one of the three years immediately preceding” the year in question.

So a consultant who had one strong year, then two quiet ones, is still required to maintain books in the quiet years. The obligation is sticky in a way a single-year test would not be. If you crossed the line in any of the last three years, you are in.

For a business or profession newly set up, the test is forward-looking instead: whether income or turnover is likely to exceed the thresholds during that year — section 44AA(2)(ii), section 62(2)(b).

Declaring below the presumptive rate

There is a third route in, unconnected to size. If you are within the presumptive scheme and declare profits lower than the deemed rate, books become mandatory.

Under the 1961 Act that appears in section 44AA(2)(iii), covering sections 44AE, 44BB and 44BBB, and in section 44AA(2)(iv) for cases where section 44AD(4) applies and income exceeds the maximum amount not chargeable to income-tax. Under the 2025 Act the equivalent is section 62(2)(c), by reference to sections 58(2) and 61(2).

This sits alongside the parallel rule for tax audit, which is triggered in much the same circumstances. If you are weighing whether to declare below the presumptive rate, both obligations arrive together — see our guides to section 44AD and section 44ADA, and to tax audit under section 44AB.

What “books of account” actually means

The statutory standard is functional rather than prescriptive. Both Acts require books and other documents “to enable the Assessing Officer to compute his total income”. That is the test: not whether the records look professional, but whether someone else could arrive at your taxable income from them.

Beyond that, the Board is empowered by rules to prescribe the books and documents to be kept, including inventories where necessary, the particulars they must contain, the form and manner and the place at which they are kept, and the period for which they must be retained — section 44AA(3) and (4), and section 62(3). Those specifics live in the rules rather than in the Act, so check the rules applicable to your year; this guide does not state them.

What it costs to not keep them

Under the 1961 Act, section 271A provides that where a person fails to keep and maintain books as required by section 44AA or the rules, or fails to retain them for the period specified in the rules, the officer may direct payment, by way of penalty, of ₹25,000. Note that it opens “without prejudice to the provisions of section 270A or section 271” — this penalty sits on top of any under-reporting penalty, it does not replace it.

The 2025 Act keeps the same figure. Section 441 provides that a penalty of ₹25,000 may be imposed where a person fails to keep and maintain the books and other documents as per section 62 or the rules, or to retain them for the period specified in the rules.

And here is a contrast worth drawing, because it is deliberate. The books penalty under section 441 remains a penalty, and section 470 expressly lists section 441 among the provisions under which no penalty is imposed if reasonable cause is proved. Compare the tax audit default, which the Finance Act, 2026 moved out of the penalty chapter entirely and turned into a fixed fee under section 428(c) — where the reasonable-cause provision does not reach. The drafters treated the two defaults differently on purpose.

The real cost of not keeping books, though, is rarely the ₹25,000. It is that without records you cannot substantiate a deduction — and an expense claimed with nothing behind it is not merely disallowed, it falls within the misreporting category of “claim of expenditure not substantiated by any evidence”, which carries a penalty at 200% rather than 50%. Books are what keep an ordinary disagreement about a deduction from becoming something much worse.

Which Act applies to your year

Section 536(2)(c) of the Income-tax Act, 2025 continues the 1961 Act for proceedings in respect of any tax year beginning before 1 April 2026. So FY 2025-26 and earlier run on section 44AA and section 271A; tax year 2026-27 onwards runs on section 62 and section 441 — including the expanded specified-profession list.

Practical checklist

1. Work out which side of the line you are on first. If you are in a specified profession, stop — you must keep books, and the thresholds are irrelevant.
2. If you sell IT services, plan for tax year 2026-27 now. From that year the threshold question falls away.
3. Apply the threshold test across three years, not one. Check each of the three preceding years, not just the last.
4. If you are newly set up, use the forward-looking test — what income or turnover is likely to be this year.
5. If you intend to declare below the presumptive rate, expect both books and audit obligations to follow.
6. Check the retention period in the rules for your year and keep the records that long. The penalty bites on failing to retain, not only on failing to create.
7. Keep records good enough that a stranger could compute your income from them. That is the statutory standard, and it is also the standard that protects a deduction when it is questioned.

Need help setting books up?

We do accounting and bookkeeping for professionals and businesses in Pune and across India — setting records up so they meet the statutory standard, so the tax audit can actually be completed by its deadline, and so that a deduction can be substantiated when someone asks. If you are moving into a specified profession from 2026-27, or you have crossed a threshold without noticing, it is worth looking at before the year ends rather than after.

Sources

• Income-tax Act, 1961 — section 44AA with its two provisos, and section 271A, read from the Income Tax Department’s consolidated text, pages 174 and 962. Official text, section by section
• Income-tax Act, 2025, as amended by the Finance Act, 2026 — section 62 including the definition of “specified profession” in sub-section (4), section 441, section 470 and section 428(c), pages 112–113, 541, 550 and 530–531. Official text, section by section

This guide explains who must maintain books of account and what the statute requires of them. It is not advice on any particular case, and it deliberately does not state the prescribed books or the retention period, both of which are fixed by rules rather than by the Act and should be checked for the year in question. Take advice on your own position.