Compliance and record-keeping for the self-employed: books, invoices, GST, and TDS

When you work for yourself — whether as a business owner, freelancer, or independent professional — tax compliance is entirely your responsibility. The Income Tax Act, GST law, and various regulations expect you to maintain certain records, issue certain documents, and in some cases deduct tax at source from payments you make. This guide is a practical checklist of the main obligations.

Books of account: when and what

The Income Tax Act requires you to maintain books of account if your turnover or gross receipts cross certain thresholds:

• Business: turnover exceeds the limit specified under Section 44AD (historically ₹25 lakh if you do not opt for presumptive taxation; ₹2 crore if you do opt in and stay within 44AD).
• Profession: gross receipts exceed the limit specified under Section 44AA (historically ₹50 lakh if you do not use Section 44ADA; verify current limits).
• If you declare profit below the presumptive floors (below 8%/6% for 44AD or below 50% for 44ADA), you must maintain books regardless of turnover.

What 'books' means

For most small businesses and professionals, 'books of account' means at a minimum: a cash book (or bank book), a journal (day-to-day ledger of receipts and expenses), and supporting vouchers (bills, invoices, receipts). Larger businesses may need full double-entry books, stock registers, and asset registers. The exact requirement depends on the nature of your business and the applicable accounting standards.

Tax audit under Section 44AB

If your turnover or gross receipts exceed prescribed limits, you must get your accounts audited by a Chartered Accountant and file a tax audit report (Form 3CA/3CB and 3CD) along with your return:

• Business: turnover exceeds ₹1 crore in a financial year (or ₹10 crore if cash receipts and payments are within 5% of total transactions — verify the exact conditions).
• Profession: gross receipts exceed ₹50 lakh.
• Presumptive taxpayers under 44AD or 44ADA are exempt from audit as long as they declare the minimum deemed profit and stay within turnover limits.

Invoicing: why it matters

An invoice is proof of a transaction. For GST, it is mandatory: if you are GST-registered, you must issue a tax invoice for every taxable supply, showing the GSTIN, HSN/SAC code, GST amount, and other prescribed details. Even if you are not registered for GST, good invoicing practice protects you in disputes and helps you track income and receivables. Clients often require an invoice to claim their own expenses or input tax credit.

GST registration and compliance

Goods and Services Tax (GST) is an indirect tax, separate from income tax, but it affects almost every business and many professionals.

When you must register for GST

• Your aggregate turnover in a financial year exceeds ₹40 lakh (₹20 lakh for special category states) for supply of goods, or ₹20 lakh (₹10 lakh for special category states) for supply of services.
• You are engaged in inter-state supply (selling to customers in other states), regardless of turnover.
• Certain categories (e-commerce sellers, certain service providers) must register regardless of turnover. Check the GST portal for the full list.

What GST registration entails

• Obtain a GSTIN (GST Identification Number).
• Collect GST from your customers (output tax) and claim credit for GST you paid on business purchases (input tax credit).
• File periodic GST returns: typically GSTR-1 (outward supplies), GSTR-3B (summary and payment), and annual return GSTR-9. Frequency and forms depend on your turnover and registration type (regular, composition).
• Maintain GST-compliant invoices and records.

Composition scheme

Small businesses with turnover below a certain limit (historically ₹1.5 crore; verify current ceiling) can opt for the composition scheme: pay a low flat rate of GST (1%–6% depending on business type) and skip detailed monthly returns. You cannot claim input tax credit or make inter-state supplies under composition.

TDS (Tax Deducted at Source) obligations

When you pay others for certain services or expenses, you may be required to deduct TDS and deposit it with the government. Common scenarios for the self-employed:

• Section 194C: payment to contractors for work contracts (if you are a business and payment exceeds ₹30,000 in a single transaction or ₹1 lakh in a year, you must deduct TDS at 1%–2%).
• Section 194J: payment for professional or technical services (if you are required to deduct TDS as a business or professional and the payment exceeds ₹30,000 in a year, deduct TDS at 2%–10% depending on the nature of service).
• Section 194H: commission or brokerage exceeding ₹15,000 in a year — TDS at 5%.
• Section 194I: rent payment (if you are a business or professional paying rent exceeding ₹2.4 lakh in a year, deduct TDS at 10% for land/building, 2% for plant/machinery).

Who must deduct TDS? If you are a business or professional whose accounts are subject to audit under any law, you are generally required to deduct TDS under these sections. The rules are detailed; consult the Income Tax Act or a CA if you make regular large payments.

If you deduct TDS, you must deposit it by the 7th of the following month, file quarterly TDS returns (Form 26Q for non-salary TDS), and issue Form 16A or a TDS certificate to the deductee.

Compliance sounds like a burden, but it is also a discipline. Good records protect you in scrutiny, help you claim every legitimate deduction, and make tax time far less stressful. Start simple: a cash book, a folder for bills, and a calendar for due dates.

Key takeaways

• Maintain books of account if your turnover crosses prescribed thresholds or if you opt out of presumptive schemes.
• Get a tax audit under Section 44AB if turnover exceeds ₹1 crore (business) or ₹50 lakh (profession), unless covered by presumptive taxation.
• Issue proper invoices; GST-registered taxpayers must issue tax invoices with GSTIN and GST details.
• Register for GST if turnover crosses ₹40 lakh (goods) or ₹20 lakh (services), or if you make inter-state supplies.
• Deduct TDS when you pay contractors, professionals, rent, or commission — if you meet the criteria. Deposit and file returns on time.

Official sources

This explainer is based on official and primary sources. Always confirm figures and dates on these before acting:

• Income Tax Department — incometax.gov.in
• Central Board of Direct Taxes (CBDT), Department of Revenue
• Income Tax Act & Rules — incometaxindia.gov.in
• GST Portal — gst.gov.in

Reviewed: October 2026. Tax rules change — verify the current financial year and assessment year before you rely on any figure.

This is general educational information for Indian taxpayers, not personalised tax, legal or financial advice. Union of Taxpayers is an independent platform and not a government body. Consider a qualified professional for your specific situation.