Section 35 of the Central Goods and Services Tax (CGST) Act, 2017 mandates every registered person under GST to maintain true and correct books of accounts and records at their principal place of business and other places, as mentioned in the certificate of registration. These records are essential for ensuring proper compliance, audit trail, and verification of GST liabilities.

Maintaining proper records is not just a legal requirement but also a crucial element for claiming Input Tax Credit (ITC), reconciling supplies, and ensuring transparency in business operations.

Section 35(1): Books of Accounts to Be Maintained

Every registered person must maintain true and correct accounts of the following at their principal place of business:

• (a) Production or manufacture of goods
• (b) Inward and outward supply of goods or services or both
• (c) Stock of goods
• (d) Input tax credit (ITC) availed
• (e) Output tax payable and paid
• (f) Any other particulars as may be prescribed

✅Note:

• If multiple places of business are mentioned in the GST registration, records must be maintained at each such location.
• Books can be maintained electronically in a prescribed manner (as per Rule 56 of CGST Rules, 2017).

Section 35(2): Obligations on Warehouse Operators and Transporters

Every owner or operator of a warehouse/godown/storage facility, and every transporter (registered or not), must maintain the records of:

• Consigner
• Consignee
• Details of goods transported or stored

These records must be maintained as prescribed in Rule 58 of the CGST Rules, 2017.

Section 35(3): Commissioner’s Power to Notify Additional Requirements

The Commissioner may notify any class of taxable persons to maintain additional accounts or documents for specific purposes.

Section 35(4): Relaxation in Maintenance of Accounts

If a class of taxable persons is unable to maintain accounts as required, the Commissioner may, for reasons recorded in writing, permit them to maintain accounts in a different manner, as may be prescribed.

Section 35(5): [Omitted]

This sub-section which earlier dealt with compulsory audit by a Chartered Accountant or Cost Accountant for persons exceeding prescribed turnover, was omitted by Finance Act, 2021 (effective 01-08-2021).

👉Note: Audits are now conducted based on risk assessment by the department.

Proviso to Sub-section (4) – Audit Exemption for Government Departments

Inserted via Finance Act, 2018 (effective 01-02-2019):

Departments of Central/State Governments and Local Authorities are exempted from maintaining accounts under Section 35 if their books are audited by the CAG or an auditor appointed under existing laws.

Consequences of Not Maintaining Proper Accounts

If a registered person fails to account for goods or services as required under sub-section (1), the Proper Officer may:

• Treat such goods/services as supplied, and
• Determine tax liability accordingly, applying:
  • Section 73 (for cases without fraud),
  • Section 74 (for cases with fraud), or
  • Section 74A (inserted via Finance Act, 2024, w.e.f. 01-11-2024)

Supporting Rules under CGST Rules, 2017

✅ Rule 56 – Maintenance of Accounts by Registered Persons

Prescribes how books and records should be maintained:

• Electronic or manual format
• Language: English or Hindi
• Preservation: 6 years from the due date of annual return

✅ Rule 57 – Generation and maintenance of electronic records

Prescribes conditions for digital/electronic record maintenance.

✅ Rule 58 – Records to be maintained by warehouse operators and transporters

Details:

• Each consignment
• Goods stored/moved
• Period of retention

Notifications & Circulars

Penalties for Non-Compliance

Non-compliance with Section 35 can lead to serious penal consequences:

Importance of Maintaining Proper Records under GST

• Mandatory for Input Tax Credit (ITC) claim
• Smooth departmental audit/inspection
• Helps in preparing Annual Return (GSTR-9)
• Crucial for defending in case of litigation
• Facilitates GST reconciliation

Illustrative List of Records to Be Maintained (Rule 56)

Record Retention Period

As per Section 36, every registered person must retain records for 72 months (6 years) from the due date of filing annual return for the relevant financial year.

If a case is under investigation, audit, or appeal — the period gets extended till 1 year after conclusion of such proceedings.

Conclusion

Section 35 of the CGST Act lays the foundation for transparent tax compliance by mandating maintenance of correct and complete business records. It empowers the tax department to determine liabilities in cases of default and provides registered persons with a structured approach for managing their tax obligations.

Failure to comply can not only lead to financial penalties, but also loss of Input Tax Credit and potential litigation.