How to Maintain Accounting Records A Practical Guide to Section 128 of the Companies Act 2013

If you run a company in India, keeping proper books of account is not just good practice — it is a legal duty under Section 128 of the Companies Act, 2013. Directors, business owners, and finance teams are all responsible for ensuring the company’s financial records are complete, accurate, and stored correctly. The people named in the law can be personally penalised if they are not.

The trouble is that many owners treat bookkeeping as a year-end task for the accountant and only discover the specific legal requirements — where books must be kept, in what form, for how long, and who is answerable — when an auditor, an investor or the Registrar asks. By then, gaps are expensive to fix.

This guide explains, in plain terms, what Section 128 actually requires: which records you must keep, where and how to keep them, how long to preserve them, who is responsible, and what happens if you get it wrong.

 

Table of Contents

Section 128: Maintenance of Books of Accounts

Section 128 requires every company in India to keep proper books of account. In practical terms, your records must:

  • Give a true and fair view of the company’s financial position for every financial year, covering both the registered office and any branch offices
  • Explain every transaction the company enters at the head office and its branches
  • Follow the accrual basis of accounting — recording income and expenses when they arise, not only when cash moves
  • Follow the double-entry system — every entry recorded as a corresponding debit and credit

“Books of account” here is broad. It covers records of all money received and spent, all sales and purchases, the company’s assets and liabilities, and — where applicable — cost records. Alongside these sit the financial statements and other relevant books and papers.

 

Where Must You Keep Your Books of Account?

By default, your books of account must be kept at the company’s registered office.

However, the law gives you flexibility. The Board of Directors can decide to keep the books at another place in India — for example, a head office, a finance shared-service centre, or the accountant’s premises. If the Board makes that decision, the company must file Form AOC-5 with the Registrar of Companies within seven days, giving the full address of the new location. Skipping this filing is a common and avoidable slip.

 

Keeping Books of Accounts in Electronic Form (Accounting Software)

Section 128 allows books to be kept electronically, which most companies now do. But electronic record-keeping comes with its own conditions under the Companies (Accounts) Rules, 2014. The records must:

  • Remain accessible in India and be capable of being displayed in a readable form
  • Every company which uses accounting software for maintaining its books of account, shall use only such accounting software which has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled
  • Be retained completely and unaltered, in the format in which they were originally generated
  • Have information about the service provider and the location of the servers disclosed to the Registrar each year when the financial statements are filed

If your accounting data or cloud servers sit outside India, you must still be able to produce the records in India on demand — a point that catches out companies using foreign cloud accounting tools.

 

Accounting Records for Branch Offices

If your company has a branch — in India or abroad — you don’t need to keep all the branch’s detailed books at your registered office. Instead:

  • The branch keeps its own proper books of account.
  • The branch sends summary reports of its accounts to the registered office from time to time.
  • Every branch, in India or abroad, must send periodic summarised returns to the registered office; where the branch or information is held outside India, these returns must be sent at quarterly intervals.

 If done, the company is treated as following the rule.

 

The Right of Directors to Inspect Accounting Records

Section 128 gives every director the right to inspect the company’s financial records. The key points:

  • Every director can inspect the books of account and other relevant books and papers during business hours.
  • For a subsidiary’s books, inspection is done by a person authorised by the Board of Directors.
  • For information kept outside India, a director must request it in writing, and the company must provide it within a reasonable time.

This is an important governance safeguard — directors are accountable for the company’s finances, so they are entitled to see them.

 

How long You Must Keep Your Records

Your books of account, together with the relevant vouchers, must be preserved for at least eight financial years immediately preceding the current year. If the company has existed for less than eight years, you must keep the records for the entire period of its existence.

There is one extension to note: where the Central Government has ordered an investigation into the company, it can direct that the books be kept for a longer period. Destroying or tampering with records within the preservation period is a serious matter, so a reliable retention and backup system is essential.

 

Who is responsible for maintaining accounting records?

Section 128 does not leave responsibility vague. The persons answerable for compliance are:

  • The Managing Director
  • The whole-time director in charge of finance
  • The Chief Financial Officer (CFO)
  • Any other person the Board has specifically charged with this duty
  • In the absence of any of the officers mentioned above, all the directors

If they fail to comply, the penalty is:

  • A fine of not less than ₹50,000, which may extend to ₹5,00,000.
  • No imprisonment. The section originally allowed imprisonment of up to one year, but the Companies (Amendment) Act, 2020 removed the imprisonment provision — so the current penalty is a monetary fine only.
  • Liability can fall on each responsible person. Where more than one person is charged with the duty, no one can escape by pointing at a colleague.

 

Why does this matter beyond the law?

Proper books under Section 128 are not just about avoiding a penalty. They are the foundation of everything else the company does — the statutory audit, the income tax return, GST filings, raising funds, satisfying investors’ due diligence, and answering any query from the Registrar or other authorities. Companies with clean, well-kept records move faster and face fewer surprises; companies with gaps spend far more time and money fixing them later.

 

A Simple Compliance Checklist for Maintenance of Books of Accounts in India

To stay on the right side of Section 128:

  • Keep books on an accrual basis and a double-entry system, giving a true and fair view.
  • Keep them at the registered office, or file Form AOC-5 within seven days if kept elsewhere in India.
  • If using electronic or cloud accounting, ensure records stay accessible in India and disclose server details annually.
  • Send periodic summarised returns from branch offices to the registered office.
  • Preserve books and vouchers for at least eight financial years.
  • Make sure a named person — MD, finance director or CFO — owns this responsibility.

 

How Mercurius Can Help

At  Mercurius, we help companies set up and maintain their accounting records exactly as Section 128 requires — accurate, accrual-based books that give a true and fair view, kept and preserved correctly whether on-premises or in the cloud. We manage your day-to-day bookkeeping, ensure the right filings such as Form AOC-5 are made, keep your records audit-ready, and make sure the compliance responsibility is properly handled. With the right systems in place from the start, statutory compliance becomes routine rather than a year-end scramble.

Contact us to keep your company’s accounting records accurate, compliant and audit ready.

Phone: +91 96677 79615 | Email: info@masllp.com | Website: masllp.com

 

Frequently Asked Questions

1. Where must a company keep its books of account?
At the registered office by default. The Board can decide to keep them at another place in India, but the company must then file Form AOC-5 with the Registrar within seven days.

2. For how many years must accounting records be kept?
For at least eight financial years immediately preceding the current year, or for the whole period if the company is younger. An investigation can extend this.

3. Can books of account be kept electronically?
Yes. Electronic records are allowed, provided they remain accessible in India, are retained complete and unaltered, and the server and service-provider details are disclosed to the Registrar each year.

4. Who is responsible for maintaining books of account?
The Managing Director, the whole-time director in charge of finance, the CFO, or any other person the Board charges with the duty.

5. What is the penalty for not maintaining proper books?
A fine of ₹50,000 to ₹5,00,000 on the responsible person. The imprisonment provision that once applied was removed by the Companies (Amendment) Act, 2020.