Books of Account to be Kept by Company (Section 128)
# Books of Account — Section 128, Companies Act, 2013
## 1. What must every company prepare?
Every company must prepare, for every financial year:
Books of account
Other relevant books and papers
Financial statements
These must give a true and fair view of the state of affairs of the company, including each branch office.
## 2. Method of accounting (the two non-negotiable rules)
Rule
Meaning
Accrual basis
Income and expenses are recorded when they accrue (i.e., when earned/incurred), not when cash is received/paid.
Double-entry system
Every transaction has a dual aspect — debit and credit — recorded in at least two accounts.
The company may keep these books in electronic mode.
## 3. Key definitions
"Books of account" — Section 2(13) includes records of:
1. All sums of money received and expended and matters in relation to which receipts/expenditure take place;
2. All sales and purchases of goods and services;
3. The assets and liabilities of the company; and
4. Items of cost as prescribed under Section 148 (for companies covered by cost records).
"Book and paper" / "book or paper" — Section 2(12) includes books of account, deeds, vouchers, writings, documents, minutes and registers maintained on paper or in electronic form.
## 4. Place where books must be kept
Default place: Registered office of the company.
Alternative place: Any other place in India that the Board of Directors decides.
Compliance step if Board decides on another place: File a written notice with the Registrar within 7 days, giving the full address of that other place.
Books must remain accessible in India for subsequent reference.
2
Information must be retained completely in the original format in which generated/sent/received and remain complete and unaltered.
3
Information received from branch offices must not be altered — it must depict what was originally received.
4
Audit trail / edit log — see below.
5
Information must be capable of being displayed in a legible form.
6
Back-up of books (including any kept outside India) must be kept on servers physically located in India on a periodic basis.
7
At time of filing financial statement, intimate the Registrar annually: (a) name of service provider; (b) IP address; (c) location; (d) cloud address (if applicable).
### Audit trail and edit log — Proviso to Rule 3(1)
For FY commencing on or after 1 April 2023, every company that uses accounting software must use only such accounting software which:
(a) has a feature of recording audit trail of each and every transaction;
(b) creates an edit log of each change made in books of account, along with the date when such changes were made; and
(c) ensures the audit trail cannot be disabled.
## 6. Branch office books
Proper books of account relating to transactions effected at the branch must be kept at the branch.
Proper summarised returns must be sent periodically by the branch to the registered office.
These are open for inspection by any director at the registered office or the other notified place during business hours.
## 7. Inspection by directors
Any director may inspect books of account and other books and papers during business hours.
A director can seek financial information of a subsidiary maintained outside India only individually — NOT through an attorney/agent/representative — and only on a written request authorised by a Board resolution.
## 8. Period of preservation
Books of account, together with vouchers relevant to entries, must be preserved in good order for at least 8 financial years immediately preceding the relevant financial year. If the company is less than 8 years old, then for all preceding years of its existence.
## 9. Persons responsible
1. Managing Director
2. Whole-time Director in charge of finance
3. Chief Financial Officer (CFO)
4. Any other person of the company charged by the Board with the duty of complying with Section 128.
## 10. Penalty for contravention
Fine: Minimum ₹50,000 and Maximum ₹5,00,000.
Worked example
### Example 1
Example 1 — Change of place of keeping books
XYZ Ltd has its registered office at Mumbai. On 10 June, the Board passed a resolution to keep its books of account at its corporate office at Bengaluru. By what date must intimation be given to the Registrar, and what must the intimation contain?
Answer: Under Section 128(1) proviso, where the Board decides to keep books at a place other than the registered office, the company must file a written notice with the Registrar within 7 days giving the full address of that other place. Hence, intimation must be filed on or before 17 June stating the full Bengaluru address.
### Example 2
Example 2 — Director's right of inspection (subsidiary outside India)
Mr. A, a director of P Ltd, an Indian company, wants to inspect financial information relating to S Inc., its wholly-owned subsidiary based in Singapore. He requests his Chartered Accountant friend to inspect on his behalf. Is this permissible?
Answer: No. Although a director can inspect books of account during business hours, where information relates to a subsidiary maintained outside India, it can be sought only individually by the director — NOT through an attorney holder, agent or representative. Further, such inspection must be authorised by a Board resolution. Mr. A must inspect personally after such authorisation.
### Example 3
Example 3 — Preservation period
ABC Ltd was incorporated on 1 April 2020. For the financial year 2026-27, for how many preceding years must it preserve its books of account?
Answer: Section 128(5) requires preservation for at least 8 immediately preceding financial years OR, if the company is less than 8 years old, for all preceding years of its existence. ABC Ltd has been in existence for FY 2020-21 to FY 2025-26 (6 years). Hence, books for all 6 preceding years must be preserved.
### Example 4
Example 4 — Audit trail compliance
DEF Ltd uses an in-house developed accounting software in which the IT admin can disable the audit trail. For FY 2024-25, is this compliant with Rule 3?
Answer: No. The proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014, requires that for FY commencing on or after 1 April 2023, the accounting software used must (a) record an audit trail of every transaction, (b) create an edit log of changes with dates, and (c) ensure the audit trail cannot be disabled. Since the audit trail can be disabled, DEF Ltd is in violation of Rule 3.
⚠️ Common exam mistakes
Confusing 'true and fair view' with mere arithmetical accuracy — the requirement extends to disclosure quality, not just totals.
Forgetting that the 7-day notice to the Registrar is required ONLY where the Board decides to keep books at a place other than the registered office (not for every change).
Stating preservation period as '8 years' for new companies — for companies less than 8 years old, only the preceding years of existence need to be preserved.
Including 'Company Secretary' in the list of officers responsible under Section 128 — the section lists MD, WTD in charge of finance, CFO, and any person authorised by the Board.
Assuming a director can use an attorney/agent to inspect books — this is specifically barred for financial information maintained outside India.
Treating accrual basis or double-entry as optional — both are mandatory under Section 128(1).
Ignoring the audit-trail requirement (applicable from FY commencing on/after 1 April 2023) for companies using accounting software.
Confusing the back-up rule — the back-up must be kept on servers physically located in India, even if the books are maintained on servers/cloud outside India.
Bare-Act text Section 128 · The Companies Act, 2013 read with Rule 3 of the Companies (Accounts) Rules, 2014 · click to expand
Section 128 — Books of account, etc., to be kept by company.
(1) Every company shall prepare and keep at its registered office books of account and other relevant books and papers and financial statement for every financial year which give a true and fair view of the state of the affairs of the company, including that of its branch office or offices, if any, and explain the transactions effected both at the registered office and its branches and such books shall be kept on accrual basis and according to the double entry system of accounting:
Provided that all or any of the books of account aforesaid and other relevant papers may be kept at such other place in India as the Board of Directors may decide and where such a decision is taken, the company shall, within seven days thereof, file with the Registrar a notice in writing giving the full address of that other place:
Provided further that the company may keep such books of account or other relevant papers in electronic mode in such manner as may be prescribed.
(2) Where a company has a branch office in India or outside India, it shall be deemed to have complied with the provisions of sub-section (1), if proper books of account relating to the transactions effected at the branch office are kept at that office and proper summarised returns periodically are sent by the branch office to the company at its registered office or the other place referred to in sub-section (1).
(3) The books of account and other books and papers maintained by the company within India shall be open for inspection at the registered office of the company or at such other place in India by any director during business hours, and in the case of financial information, if any, maintained outside the country, copies of such financial information shall be maintained and produced for inspection by any director subject to such conditions as may be prescribed:
Provided that the inspection in respect of any subsidiary of the company shall be done only by the person authorised in this behalf by a resolution of the Board of Directors.
(5) The books of account of every company together with the vouchers relevant to any entry in such books of account shall be kept in good order for not less than eight financial years immediately preceding a financial year, or where the company had been in existence for a period less than eight years, in respect of all the preceding years.
(6) If the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person of a company charged by the Board with the duty of complying with the provisions of this section, contravenes such provisions, such managing director, whole-time director in charge of finance, Chief Financial Officer or such other person of the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.