Accounting and bookkeeping is the day-to-day recording of a business's transactions, the monthly closing of accounts and the preparation of financial statements that feed every statutory return. In India the duty to keep proper books comes from several laws at once: the Companies Act, 2013, the LLP Act, 2008, the GST law and the income-tax law. This page explains what records you must keep, for how long, what changed with the mandatory audit trail, and how good books make compliance cheaper.
What are accounting and bookkeeping?
Bookkeeping is the recording of every transaction: sales, purchases, expenses, receipts, payments, assets and liabilities, supported by vouchers and invoices. Accounting goes a step further. It classifies and summarises those records, reconciles them with bank statements and tax returns, and produces the balance sheet, profit and loss statement and cash flow statement.
For a company, Section 128 of the Companies Act, 2013 requires proper books of account to be kept at the registered office (or another place the Board decides, with intimation), on accrual basis and using the double-entry system. Books must show a true and fair view of the state of affairs. Section 128(5) requires books with vouchers to be preserved for at least eight preceding financial years. Under Section 128(6), the managing director, whole-time director in charge of finance, the CFO or another person charged by the Board is responsible for compliance, and a default is punishable with a fine reported as not less than Rs 50,000 which may extend to Rs 5,00,000.
Technology rules have tightened. Under the proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014, companies using accounting software must use software with a feature to record an audit trail (edit log) of every change, and the trail cannot be disabled. This applies from financial years starting on or after 1 April 2023, after two deferrals, and auditors report on it under Rule 11(g). Rule 3(5), inserted in 2022, requires daily back-up of books on servers physically located in India, and Rule 3(6) requires an annual intimation to the Registrar about the service provider when books are kept electronically.
Beyond company law, you must keep records for GST (invoices, purchase and sale registers, input tax credit workings, stock records and e-way bill data, as provided in the CGST Act and Rules) and for income-tax (books and documents supporting the return and TDS). The Income-tax Act, 2025 replaces the 1961 Act from 1 April 2026, so the specific provisions, section numbers and thresholds for books of account should be confirmed against the new Act. Accounting standards also apply: Ind AS for companies covered by the Companies (Indian Accounting Standards) Rules, 2015 and the notified Accounting Standards for other companies, with thresholds set in the rules.
Who needs structured accounting and bookkeeping?
Every business needs records, but the legal duty and the depth differ by entity type:
- Companies of all kinds, including private limited, OPC, public and Section 8 companies, under Section 128 of the Companies Act, 2013
- LLPs, which must maintain books and file annual statements of account and solvency
- GST-registered businesses, which must keep prescribed records and returns support
- Proprietors, partnership firms and professionals, who need books to support income-tax returns and any audit requirement
- Start-ups preparing for fundraising, due diligence or loans, where clean books affect valuation and trust
- Businesses with TDS, PF, ESIC and professional tax obligations that depend on accurate payroll and expense records
Benefits of Accounting & Bookkeeping Services
Accurate statutory returns
GST, TDS, income-tax and ROC filings are drawn from the books. Clean books mean fewer revisions, notices and reconciliation fixes.
Monthly visibility
Closing each month shows margins, cash position, receivables and payables while there is still time to act.
Audit readiness
Vouchers, ledgers, reconciliations and a working audit trail reduce audit queries and shorten audits.
Better access to finance
Banks, NBFCs and investors ask for clean financials and ratios. Properly maintained books make loan and funding processes faster.
Protection for directors and partners
Responsibility for proper books falls on named officers, so structured records and approvals protect them in case of inspection.
Applicability & what you must keep
Your obligations follow your legal form and registrations. As a working checklist:
- Companies: books on accrual basis and double-entry, kept at the registered office or another notified place, with vouchers preserved at least eight financial years
- Companies using software: audit trail that records every change and cannot be switched off, with daily back-up on servers located in India
- GST-registered persons: records of outward and inward supplies, tax paid, input tax credit and stock as the GST law requires, kept at the principal place of business
- Income-tax: books and documents sufficient to compute income and support the return, as required by the applicable Income-tax Act provisions
- TDS and payroll: deduction, deposit and certificate records supported by payroll workings
- Accounting standards: Ind AS or notified Accounting Standards, depending on the company's category under the rules
Documents required
Transaction records
- Sales invoices, credit notes and debit notes
- Purchase bills, expense vouchers and petty cash vouchers
- Bank statements, payment gateway reports and cash records
Statutory and tax records
- GST returns, ITC reconciliation with GSTR-2B and e-way bill data
- TDS challans, returns and certificates
- Payroll registers with PF, ESIC and professional tax workings
Entity and asset records
- Loan agreements, lender statements and charge documents
- Fixed asset register with purchase date and cost
- Inventory records and stock valuation workings
- Agreements, board approvals and related-party details for disclosures
How a monthly accounting cycle works
A practical cycle for a small or mid-sized business, from set-up to year-end, is below. Adjust it to your software and entity type.
Set up the chart of accounts and software
Choose software with an audit trail that cannot be disabled, set up the chart of accounts, opening balances and tax ledgers, and confirm back-up location in India.
Record transactions daily or weekly
Enter sales, purchases, expenses and bank entries against vouchers. Late entry is the biggest source of errors.
Reconcile bank, cards and wallets
Reconcile every bank, credit card and payment gateway account monthly. Investigate every unmatched item.
Reconcile GST and TDS
Match sales and purchase registers with GST returns, check input tax credit against the auto-generated statement, and tie TDS deducted with deposits.
Close payroll and provisions
Book salaries, PF, ESIC, professional tax, depreciation, accruals and prepaid items for the month.
Review MIS
Prepare the trial balance, profit and loss, balance sheet and a short management report, and clear unusual balances.
Prepare year-end statements
Finalise financial statements under the applicable accounting standards, support them with schedules and hand over to the auditor where audit applies.
Archive and back up
Preserve vouchers and electronic records for the retention period, keep the audit trail intact and take daily back-ups on Indian servers.
Government fees
There is no government fee for maintaining books of account. The costs are internal: software, staff or a service provider, and any statutory audit where it applies. Penalties for default are covered below.
Professional charges are quoted separately after reviewing your case. Government fees are paid directly to the authority.
How often should books be closed?
The law requires proper books at all times, not on a fixed day, but the compliance calendar makes a monthly close the practical standard: GST returns, TDS deposit and payroll compliances all fall within each month. Annual financial statements follow the financial year ending 31 March, and companies must hold their annual filings within the dates under the Companies Act.
| Stage | Typical time |
|---|---|
| Daily or weekly | Record transactions and bank entries |
| Monthly | Reconcile, close payroll, GST and TDS workings, prepare MIS |
| Quarterly | TDS returns, advance tax review, management review |
| Annually | Financial statements, audit where applicable, ROC and income-tax filings |
Retention & preservation
Section 128(5) of the Companies Act, 2013 requires books of account with vouchers to be kept for at least eight preceding financial years, and the position taken in practitioner commentary is that the audit trail forms part of the books and is retained for the same period. GST and income-tax law have their own retention periods, which are often longer in particular cases, for example when proceedings are pending. Do not discard records until you have checked each law applicable to you.
Compliance linked to your books
- File GST returns from reconciled books; see GST return filing
- Deposit and file TDS from payroll and expense workings; see TDS return filing
- File income-tax returns supported by the books; see income tax return filing
- Prepare financial statements and annual filings with the Registrar; see ROC annual filing
- Keep minutes, registers and statutory records in line with the books; see secretarial records
- Intimate the Registrar annually about the service provider and person in control of electronically kept books, as Rule 3(6) requires
- Review audit trail reports with your auditor before year-end
Common mistakes & audit findings
Accounting software with the audit trail switched off
Companies that use desktop software without an enabled edit log, or allow users to disable it, face an adverse remark in the auditor's report.
Back-up outside India
Daily back-up on servers physically located in India is a requirement. Cloud services with servers abroad can breach it.
Books not tied to GST and TDS
Sales or purchases in GST returns that do not appear in the books, or TDS deducted but not recorded, are the most common reconciliation notices.
Mixing personal and business transactions
Owner withdrawals booked as expenses distort profit and complicate tax assessments and audits.
Missing vouchers
Expenses without bills or invoices can be disallowed and create audit queries. Preserve vouchers for the retention period.
Cash basis in a company
Companies must follow accrual and double-entry. Recording only when cash moves understates liabilities and misleads financial statements.
Penalties for non-compliance
Under Section 128(6) of the Companies Act, 2013, the managing director, whole-time director in charge of finance, the CFO or any other person charged with compliance can be liable for default, with a fine reported in practitioner commentary as not less than Rs 50,000 and extendable to Rs 5,00,000. Auditors have separate reporting exposure. GST and income-tax law have their own penalties for non-maintenance of records, whose amounts are not stated here. Confirm the specific provisions of the CGST Act and the applicable Income-tax Act before relying on any figure.
Practitioner tips
- Choose accounting software on two checks before price: audit trail that cannot be turned off, and back-up on servers located in India. Retrofitting later is expensive.
- Reconcile GST and TDS inside the same month-end checklist. Most notices arise from timing differences left unexplained.
- Keep a voucher index. When an auditor or officer asks for support, being able to produce it within a day changes how the query is handled.
- Name the person responsible for books in a Board resolution. Section 128 places responsibility on identified officers, and clarity protects them.
- Review accounting standard applicability when turnover, net worth or borrowings grow. Crossing a threshold changes the framework and the disclosures.
How Lawgical Guru helps
Set-up and clean-up
We review your current books, set up the chart of accounts and software, and clean up opening balances and backlog.
Monthly bookkeeping and reconciliation
We record transactions, reconcile bank, GST and TDS, and give you a monthly view of your numbers.
Tax-ready records
We keep books ready for GST return filing, TDS return filing and income tax return filing.
Year-end and ROC support
We help prepare year-end schedules and coordinate audit and ROC annual filing.
Compliance check on software and records
We review whether your software, audit trail, back-up and retention practices meet the Companies (Accounts) Rules.
Accounting & Bookkeeping Services: frequently asked questions
What is the difference between accounting and bookkeeping?
Bookkeeping is recording every transaction supported by vouchers. Accounting classifies and summarises those records, reconciles them with banks and tax returns, and prepares financial statements. Bookkeeping supplies the data; accounting turns it into statements that satisfy tax, audit and company law requirements.
Is it mandatory for a private limited company to maintain books of account?
Yes. Section 128 of the Companies Act, 2013 requires every company to keep proper books of account on accrual basis using the double-entry system, giving a true and fair view. The books are kept at the registered office or another place decided by the Board, with intimation to the Registrar.
How long should books of account be kept?
Section 128(5) of the Companies Act, 2013 requires books of account with vouchers to be preserved for at least eight preceding financial years. GST and income-tax law have their own retention rules, which may be longer where proceedings are pending, so check each before discarding records.
What is the audit trail requirement in accounting software?
Companies using accounting software must use software that records an edit log of every change, with the date and user, and that cannot be disabled. The requirement applies from financial years starting on or after 1 April 2023, and auditors report on it under Rule 11(g).
Do backups have to be kept in India?
Yes. Rule 3(5) of the Companies (Accounts) Rules, 2014 requires daily back-up of books of account on servers physically located in India. Rule 3(6) requires annual intimation to the Registrar about the service provider and the person in control of the books when they are kept electronically.
Do proprietors and firms need to maintain books?
Proprietors and firms need records to compute income and support returns under the income-tax law, and GST-registered persons need the records the GST law prescribes. The depth of books and audit requirement depend on turnover and the type of business, so check the applicable provisions of the Income-tax Act.
What is the penalty for not maintaining books under the Companies Act?
Section 128(6) makes the managing director, whole-time director in charge of finance, CFO or other designated person liable. Practitioner commentary reports a fine of not less than Rs 50,000 extendable to Rs 5,00,000. Confirm the current text of the Act before relying on the figure.
Which accounting standards apply to my company?
Companies covered by the Companies (Indian Accounting Standards) Rules, 2015 follow Ind AS, and other companies follow the notified Accounting Standards. Applicability depends on listing status, net worth and other thresholds in the rules, so have your category confirmed before preparing financial statements.
Has the new Income-tax Act changed bookkeeping rules?
The Income-tax Act, 2025 replaces the 1961 Act from 1 April 2026, so section numbers and some thresholds for books and audit have been renumbered or revised. The practical need to keep complete, voucher-backed books continues. Confirm the new provisions with a professional before relying on old section numbers.
Should a small business outsource bookkeeping?
Outsourcing makes sense when volume, GST and TDS reconciliation or audit-trail software needs exceed in-house capacity. Whoever keeps the books, directors and partners remain responsible. Agree on cut-off dates, voucher handover, software access and who reviews monthly reports.
Reviewed by Satyam Gupta, Company Secretary (CS) & Advocate
8+ years of industry experience. This page was last reviewed on 16 October 2026 against the official sources below. Rules and fees change — confirm on the official portal before you apply.