Books of Account — Maintenance Requirements under the Companies Act, 2013

What records every company must keep, where they can be kept, and for how long.

At a Glance

•      Governed by Section 128 of the Companies Act, 2013.

•      Every company must keep proper books of account on an accrual basis, following the double-entry system of accounting.

•      Books can be kept in electronic form, but with strict backup and accessibility conditions.

•      Books of account must be preserved for a minimum of 8 financial years.

 

Accurate books of account are the raw material from which financial statements, tax returns, and audit reports are all built. Section 128 lays down clear, non-negotiable requirements on how a company must maintain its accounting records — covering the location, format, and retention period.

What Must Be Maintained

Every company must keep books of account and relevant vouchers, giving a true and fair view of the state of affairs of the company, including branch offices, explaining its transactions, and kept on accrual basis following the double-entry system of accounting.

Where Books Must Be Kept

Books of account must ordinarily be kept at the registered office. However, the Board may decide to keep all or any of the books at any other place in India, provided the company files a notice in Form AOC-5 with the Registrar within 7 days of the Board's decision, disclosing the full address of that other place.

Electronic Maintenance of Books

•      Books maintained electronically must remain accessible in India so as to be usable for subsequent reference.

•      The information must be retained in the same format in which it was originally generated, sent, or received, or in a format that accurately represents the original.

•      The information must be adequately backed up, either in servers physically located in India or (from time to time, subject to conditions) a server located outside India, provided a proper backup is also maintained on servers within India.

•      For companies with servers outside India, additional intimation to the Registrar is required regarding the name of the service provider, IP address, and location of the server.

Inspection and Retention

Books of account and vouchers must be preserved in good order for a minimum period of 8 financial years immediately preceding the current year. Where an investigation has been ordered under the Act, the Central Government can direct that books be preserved for a longer period. The books are open for inspection by any director during business hours.

Illustration

Example

A company decides to shift its accounting records from its registered office in Mumbai to a shared services centre in Pune for operational convenience. The Board passes a resolution approving this and must file Form AOC-5 with the Registrar within 7 days, disclosing the Pune address, to remain compliant with Section 128.

 

Penalty for Non-Compliance

•      The managing director, whole-time director in charge of finance, CFO, or any other person of a company charged by the Board with the duty of complying with Section 128, who contravenes the provision, is punishable with imprisonment up to 1 year, or a fine of ₹50,000 to ₹5 lakh, or both.

 

Practical Compliance Checklist

•      Decide early whether books will be maintained physically, electronically, or in hybrid form.

•      If keeping books outside the registered office, file Form AOC-5 within 7 days of the Board's decision.

•      For electronic records, confirm servers are backed up in India even if hosted abroad, with proper documentation.

•      Set a document retention policy that meets or exceeds the 8-year minimum requirement.

•      Grant directors clear access rights for inspection during business hours, as required by law.

•      Periodically audit whether accounting software/backup arrangements still meet the Rule 3 conditions.

 

Common Mistakes Companies Make

•      Keeping accounting records solely on a personal device or with a third-party vendor without proper backup in India.

•      Forgetting to file Form AOC-5 after shifting book-keeping location away from the registered office.

•      Discarding records before the mandatory 8-year retention period has elapsed.

•      Restricting a director's access to inspect books without a valid Articles-based restriction.

Frequently Asked Questions (FAQs)

Q1. Can books of account be maintained entirely in electronic form?

Yes, provided the electronic records remain accessible in India, are retained in their original (or unaltered) format, and are properly backed up as per the conditions prescribed under the Companies (Accounts) Rules, 2014.

Q2. For how long must a company retain its books of account?

A minimum of 8 financial years immediately preceding the current financial year must be preserved in good order, and longer if directed by the Central Government during an investigation.

Q3. Who has the right to inspect a company's books of account?

Every director has the right to inspect the books of account and other books/papers of the company during business hours, subject to reasonable restrictions specified in the Articles.

Q4. Is it mandatory to notify the Registrar if books are kept outside the registered office?

Yes, if the Board decides to keep books at a place other than the registered office (within India), a notice in Form AOC-5 must be filed with the Registrar within 7 days of the decision.

Q5. Do branch offices need to maintain separate books of account?

Yes, proper summarised returns must be periodically sent by every branch office (whether in India or outside) to the registered office or another designated place in India where the main books are kept, so the company's overall accounts remain complete.

Q6. Can the same electronic accounting software be used across multiple group companies?

Yes, provided each company's data remains distinctly identifiable, accessible, and separately backed up as required, shared software platforms are commonly used across group companies for efficiency.

Q7. What is considered a 'true and fair' accounting record versus a mere transaction log?

Books of account must go beyond a simple transaction log to explain the company's transactions in a manner that supports the preparation of true and fair financial statements, following the accrual and double-entry principles mandated under Section 128.

Conclusion

Proper books of account are not just an accounting best practice but a strict statutory requirement with personal liability for the finance leadership if violated. Companies moving to cloud-based or offshore accounting systems should pay particular attention to the backup and accessibility conditions under Section 128.

Disclaimer: This article is for general informational purposes only and is based on the Companies Act, 2013 and related rules as amended up to date. It does not constitute legal or professional advice. Companies should verify current provisions on the MCA portal (www.mca.gov.in) or consult a qualified Company Secretary/Chartered Accountant before acting on this information.