Section 44AA mandates the maintenance of books of accounts by certain professionals and businesses, depending on their income, turnover, and the nature of business.

🏢 A. Specified professions include:

• Legal

• Medical

• Engineering

• Architecture

• Accountancy

• Technical consultancy

• Interior decoration

• Film artists

• Authorized representatives

• Company secretaries

• Information technology professionals

✅ Required to maintain books if:

As per Section 44AA(1):

“If gross receipts from such profession exceed ₹2,50,000 in any one of the three immediately preceding previous years.”

📘 Such professionals must maintain books as per Rule 6F (covered later below).

🏢 B. Businesses (Non-specified professions)

✅ Books required under Section 44AA(2) if:

• Income from business or profession exceeds ₹2,50,000 in any one of the 3 preceding years
  OR

• Turnover or gross receipts exceed ₹25,00,000 in any of the 3 preceding years

💼 C. Persons not covered above but opting out of presumptive taxation (Section 44AD/44ADA/44AE)

If the person:

• Declares income less than the presumptive rate
  AND

• Their income exceeds the basic exemption limit,
  ➡️ Books of account must be maintained.

Sumamry:

1. Three sections deal with this matter:

• Section 40A(3) – Disallowance of cash expenditure

• Section 40A(3A) – Treatment of unpaid expenses paid in cash in subsequent years

• Rule 6DD – Exceptions to the above disallowance

2. What Does Section 40A(3) Say?“

Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque or bank draft or use of electronic clearing system through a bank account, exceeds ₹10,000, no deduction shall be allowed in respect of such expenditure.”

✅ Key Points:

🔁 3. What is Section 40A(3A)?

If an expense was allowed in a previous year on accrual basis, but it is actually paid in cash in a later year exceeding ₹10,000, then the cash payment is deemed as income of the year of payment.

📌 In simple terms: The deduction is reversed and taxed in the year of cash payment.

🔒 4. Exceptions under Rule 6DD

Certain genuine situations allow cash payments > ₹10,000 without disallowance:

📌 Note: The burden of proving the genuineness of such payments lies on the taxpayer.

🧾 5. Penalty or Consequence:

• No penalty directly, but expenditure is disallowed, thereby increasing taxable profit.

• Results in higher income tax liability.