Government Amends Books of Accounts Rules Applicable for Companies

The government amended the rules relating to maintaining books of accounts by companies. Experts believe that the changes would enhance the security of the accounts by the concerned authorities. Earlier this month, the Ministry of Corporate Affairs notified the Companies (Accounts) Fourth Amendment Rules, 2022.

The change provides how the books of accounts are to be kept in digital form. As per the amendment, the companies should ensure that the books of accounts and other relevant papers and books maintained in electronic form are accessible at all times in India.

The amendment also provides that the backup of the books of accounts and other papers and books of the company maintained in electronic form should be mandatorily kept in physical servers located in India daily. Earlier, the rules provided that the requirement to maintain backup was only periodical.  

According to the amended rules, a company should notify the concerned Registrar of Companies (ROC) about the address and name of the person in control of the books of accounts and other papers and books in India in its annual filings where the location of the service provider is outside India.

Megha Bhargava, a partner at Cyril Amarchand Mangaldas, stated that the amendments would increase the compliance degree for companies to maintain books of accounts in electronic form. It allows for an enhanced level of access and scrutiny by Indian authorities. It will enable the Indian authorities to pin accountability on persons in India when the service provider’s location is outside India.

Sandeep Jhunjhunwala, M&A and regulatory partner at Nangia Andersen LLP, stated that the rules are amended to give more stimulus to the accessibility of papers and books maintained in electronic mode by companies.

The amendment notification comes after a recent CBDT notification prescribing detailed records and books to be maintained by charitable institutions. The amendments may disturb the status quo for corporates, especially those with external dependencies on third-party cloud service providers for keeping their books of accounts.

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