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Income-tax Act, 1961 · Chapter XIV: Procedure for Assessment

Section 145: Method of accounting

The Income-tax Act, 1961 was repealed by the Income-tax Act, 2025 from 1 April 2026. The text is kept here because the judgments below apply it.

In plain words

Section 145 allows a taxpayer to compute income under the business or profession head or other sources using either cash or mercantile accounting, unless the government sets standards or the Assessing Officer doubts the accounts.

  • The taxpayer may compute income under the specified heads by cash or mercantile system.
  • The system chosen must be the one regularly employed by the taxpayer.
  • The Central Government may issue income computation and disclosure standards for any class of taxpayers or income.
  • If the Assessing Officer is not satisfied with the correctness, completeness, or regular use of the chosen system, they may make an assessment.
  • The assessment is to be made in the manner provided in section 144.

Example: A freelance graphic designer uses cash accounting for business income. If the Assessing Officer finds the accounts incomplete or the cash system not regularly followed, they may make an assessment under the procedure of section 144.

A simplified explanation, prepared with AI assistance from the official text below and checked automatically against it for numbers and cross-references. The official text is the law and prevails over this summary. Not legal advice.

Official text

(1) Income chargeable under the head —Profits and gains of business or profession‖ or —Income from other sources‖ shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.

(2) The Central Government may notify in the Official Gazette from time to time [income computation and disclosure standards] to be followed by any class of assessees or in respect of any class of income.

(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) [has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2)], the Assessing Officer may make an assessment in the manner provided in section 144.]

Source: India Code (Legislative Department), the text of the Act as it stood before its repeal. Words in square brackets [ ] were inserted or substituted by later amending Acts, and *** marks words omitted by an amendment. The amendment footnotes are not reproduced here. Official text on India Code.

Supreme Court judgments citing the section 145