Can a company keep its books of account online?
Yes. A company may keep its books of account in electronic mode. Section 128 still requires the books, at the registered office or at another place in India the board has decided, and Rule 3 adds conditions: the records stay accessible in India, they can be displayed in a legible form, and a backup is kept on a server physically located in India.
What does electronic mode require?
The books must remain accessible in India so they can be used later. They are retained in the format in which they were generated, or in a format that presents the same information, and that information must be capable of being displayed in a legible form. Putting the entries in software does not change what the books contain. They are still kept on accrual and in double entry, for eight years. Where the company may keep them, and the penalty for not keeping them, is on the books of account page.
Where is the backup kept?
The backup of books kept in electronic mode is stored on servers physically located in India, on a periodic basis. A service whose only copy is outside India does not meet that condition. Once a year, at the time of filing the financial statements, the company intimates the Registrar of the name of the service provider, the internet protocol address of the service provider, the location of the service provider, and, if the books are maintained on a cloud, the address the service provider has provided. That intimation rides with the filing. It is not a separate licence to keep books.
What does the software not replace?
An application does not appoint the auditor, and it does not file Form AOC-4. Those remain the company’s filings. The due date for AOC-4 is on the AOC-4 page. The software also does not decide a tax rate, and it does not replace a voucher or an invoice the company is required to keep. It is a way of recording transactions the Act already requires to be recorded.
Frequently asked questions
Four questions cover a foreign server, the yearly intimation, audit, and how long the books are kept.
Can the only copy sit on a server outside India?
No. Books kept in electronic mode must remain accessible in India, and a backup must be kept on a server physically located in India.
Does the Registrar need the service provider’s name?
Yes. Each year, with the financial statements, the company gives the service provider’s name, the internet protocol address, the location, and, where the books are on a cloud, the address the service provider has given.
Does online software remove the audit?
No. The books are still the company’s books under section 128. The company still appoints an auditor and still files AOC-4. The software is the manner of keeping the books, not a filing by itself.
How long are the books kept?
Eight years. That period does not become shorter because the books are on a server.
Sources
Electronic books are allowed by section 128 of the Companies Act, 2013, on the conditions in Rule 3 of the Companies (Accounts) Rules, 2014.