Unfold the magic of Accounting Independence in 5 Steps

Have you ever felt like you had shown all your incomes while filing your income tax returns, paid all your taxes, contributed to nation building and development, but still you have received the scrutiny notice?

Has this ever happened to you?

So, let’s decode the reasons for the same and understand how to prepare financial statements easily and avoid scrutiny.

Are you a Salaried Employee or self-employed finance professional?

AND

Are you trading in Stock Futures derivatives(F&O) in India?

Did you Know Trading in Stock Futures Derivatives is Taxable as Business Income?

What if I told you that Books of Accounts preparation is mandatory for filing your Income Tax returns, thereby making Financial statements preparation mandatory too?

You can prepare your Financial Statements by importing your Books of Accounts and Ledger Posting, independently in just FIVE C.L.I.C.K.S

Save Rs.18,000/- or more per annum, by preparing financial statements from, Not be liable to pay a Penalty of Rs.25,000/-, Be 100% tax Compliant.

Save Time, as High Volume Stock Futures Derivative Transactions are Imported in just few clicks.

Reduce Errors

Simplify Tax Filings.

Now, this is what I call Accounting Independence!

Financial Statements such as Trading, Profit & Loss A/c, and Balance Sheet are a prerequisite for the presentation of the financial figures in the Income Tax Returns in India for most corporates/non-corporates and individuals trading in Stock Futures derivatives including Salaried Individuals, to avoid Income Tax scrutiny.

What do you think Books of Accounts comprise of?

Primary Books of Accounts include Bank Book, Journal, Ledger, Sales Ledger, Purchase Ledger, Cash Book.

Each and every financial transaction is recorded in Books of Accounts either as an Income, Expense, Asset, Liability, Receivable or Payable depending on nature of Transaction.

What if I told you? All the books of accounts once prepared manually are now a part of the Digital Financial Statements, without any need to maintain any additional manual Books of Accounts.

Section 44AA of Income Tax Act prescribes books of accounts to be maintained by businesses and Professionals. Books of accounts are also required to be maintained by the Companies, Trusts, and Professionals.

Fast Forward today, The record of Books of Accounts are kept and maintained on Systems in Digital Formats as compared to manual Books, which were kept at Official Address of the business earlier.

Books of Accounts Format is similar for all ledgers and Cash Book & Bank Book with Debit side and credit side, having Date, Particulars and Amount columns on each side. Journal entries are directly posted into ledgers giving double effect to each transaction.

Writing the books of accounts and preparing final accounts is mandatory in case your business income from Proprietary business and profession is more than Rs.2,50,000/- or your turnover exceeds Rs.25,00,000/- and in the case of Partnership Firms, business income exceeds Rs.1,20,000/- or your turnover exceeds Rs.10,00,000/- and in all audit cases.

How are Basic books of accounts a part of Financial Statements?

Bank Book entries-

Bank book entries can be directly entered into accounting software’s from vouchers, bills, or excel sheets with basic columns of date, particulars, and amount, maintained for incomes and expenses either daily, monthly or quarterly, or at the end of the financial year, depending on the size of your business and number of transactions involved without the need to maintain manual Bank Book, as earlier.

How to Prepare Financial Statements in Tally?

Digital Bank book can be maintained by directly importing the bank statement entries into the accounting software after downloading in excel format. This option can be useful and effective mainly if there are no pending bank entries at both ends like in Trading of Stock Futures Derivative Transactions.

Similar is the procedure for importing journal entries into the accounting software.

Once the bank and journal entries are imported into the accounting software, basic classification is done under various heads as per their nature of income, expense, asset, and liability, thereby creating separate ledgers such as Purchase, Sale, Expense, Income, Cash a/c, Receivable a/c, Investment’s a/c, Fixed Assets, Capital, & Bank a/c respectively.

 Financial Statements, the ultimate goal of any business organization, are prepared from a basic set of books of accounts, after posting to respective ledgers, which in turn gives you the financial position of your business & liquidity as on a particular date and profits/losses earned during the year.

Preparation of Financial statements sounds like a long process of first maintaining basic books of accounts, then posting to ledgers, finally preparing financial statements, but you will see the magic of preparing financial statements at a click of a button in 5 easy steps.

This magic can be learned using various accounting software. But you may use the Tally Prime with the add-on feature to unveil the magic of importing Bank statements and Journal entries into the Tally software, thereby preparing financial statements in Tally.

Step1: Five Easy Steps to importing your Bank Statements into Accounting Software

• Download the Tally Prime from the Tally solutions website and complete the process

• Download the add-on feature of Bank Statement Import 1.4

• Download all your bank statements in excel format

• Reformat your downloaded excel bank statements in Prescribed Tally Format

• Import the bank statement into Tally.

Step2: Five Easy Steps to importing your Journal entries into Accounting Software

• Download the add-on feature of Import Journal Vouchers (JV) from Excel P1.1

• Download your Ledger in excel format. (Your ledger with broker/exchange)

• Remove all bank entries from the ledger. 

• Reformat your downloaded excel Journal entries in Prescribed Tally Format

• Import the Journal entries into Tally.

Once Bank & Journal entries are imported into Tally, classify all the entries imported under separate ledgers created to prepare the financial statements.

Once financial statements are prepared with Profit & Loss & Balance Sheet, you may import the entire Final Accounts into Income Tax Filing software to proceed with your computation of Income and thereby presentation in your Income Tax Returns for filing your Tax Returns in India.

Step3: Five Easy Steps to Presentation of your Incomes in your Return of Income

• Import the Tally data into Income Tax Return filing software.

• Import 26AS into the Income Tax Return filing software.

• Fill in all the incomes, exemptions, deductions, set off, and your Income Tax account and bank details.

• Your Computation of Income is ready.

• Pay Advance Tax/Self-Assessment Tax, if any.

• Fill in Your Income Tax Return information & returns presentation is ready.

Is your Turnover up to Rs.2Crores?

You as a Resident Individual, HUF, or Partnership Firm may opt for Presumptive Taxation u/s 44AD, with no mandatory requirement of maintaining Books of Accounts, in respect of your Business Income from Trading in Stock Futures Derivative for Turnover up to Rs.2 Crores.

There is no mandatory requirement for preparing your financial statements except presenting a few financial figures in your income tax returns.

A sum equal to at least 8%/6% of your Gross Receipts/Turnover is offered to tax.

BUT If you have shown Business Income less than 8%/6% of your Gross Receipts/Turnover, then you have to prepare your Books of Accounts, post to respective ledgers, and hence prepare your financial statements, and also get your accounts audited. 

Is your Turnover above Rs.2Crores but up to Rs.10 Crores?

You have to mandatorily prepare regular Books of Accounts, failing which a Penalty of Rs.25,000/- may be imposed us 271A, if your turnover is more than Rs.2 Crores.

Books of Accounts such as Purchase, Sales, Bank, Cash, Receivables, Payables, Expenses, and Incomes, which are a part of Digital Financial Statements, determine parameters like Business Income, Turnover/Gross Receipts, Gross/Net Profit or Loss, Balances as on specified date, which help in ascertaining the business liquidity and debt.

Is your Turnover above Rs.10Crores?

If Your Turnover exceeds Rs.10 crores, or Rs.1crore in case of Cash income/expense above 5%, or is under a Loss, then you have to get your accounts audited by a Chartered Accountant, failing which a penalty of Rs.1,50,000/- or 0.5% of the turnover (whichever is less) may be imposed u/s 271B.

Financial Statements preparation is a pre-condition to conducting a Tax Audit and a Tax Audit report is prepared to discourage tax avoidance and tax evasion under sec 44AB of the Income Tax Act.

If you are a person not liable to any other statutory audit requirements, then you have to get your accounts audited u/s 44AB in Form 3CB & 3CD. In all other cases, the Tax audit report is filed in Form 3CA & 3CD.

Tax Audit details along with Financial Statements comprising Books of Accounts and respective Ledgers details, are to be submitted in your Income Tax Returns prior to uploading of Returns.

I will share more information on Accounting Independence in the following blog. 

However, since you understand quite a lot about preparing financial statements, I recommend you try the above procedure once to understand the applicability of preparing your financial statements using accounting software for your case.

Do you have any questions? Leave it in the comments section below.