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Bookkeeping
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Why Bookkeeping is Required
Bookkeeping is required for all businesses to track finances, but mandatory audits/specific record-keeping kick in when you cross certain income/turnover thresholds, like India's ₹2 Crore for many, or if you claim lower income under presumptive schemes, need loans, or have government regulations like 'Making Tax Digital' (MTD). Essentially, from the moment a business starts, it needs books; specific legal mandates depend on size and tax rules.
Key Triggers for Bookkeeping
Starting a Business: As soon as you begin transactions (sales, expenses, receipts), you need bookkeeping to record them.
Tax Thresholds (India Example):
- Exceeding turnover of ₹2 Crore (FY 2021-22 onwards) often triggers audit requirements.
- If income exceeds ₹1,20,000 or turnover ₹10 Lakhs in any of the last three years, books are generally needed.
Presumptive Taxation: If you're under a presumptive scheme (like Section 44AE in India) but declare income lower than presumed, you must maintain detailed books and get an audit.
Financial Needs: Banks/investors demand clear financial statements (P&L, Balance Sheet) for loans or investments, requiring good bookkeeping.
Compliance & Audits: For government regulations (like MTD in the UK) or to prove accurate tax filings, organized records are essential to avoid penalties.
Why It's Always Needed (Beyond Legal Mandates)
- Track Performance: Monitor expenses, payments, profitability, and cash flow.
- Make Decisions: Understand financial health to plan for growth.
- Meet Obligations: Prepare for tax filings and potential audits.
In short, if you're running any business, you need bookkeeping; specific legal deadlines and audit rules depend on your country's tax laws and your business's financial scale.
What is the turnover limit for maintaining books of accounts?
Exemptions from Maintenance
If the income from a business or profession is below ₹1,20,000 and the turnover is below ₹10,00,000, then the individual is not required to maintain books of accounts. Newly established businesses can also be exempt if they do not expect to meet the income or turnover thresholds.
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