What books of account and records must a sole proprietor keep, and for how long?

What does the law say?

Section 174(1) of the Income Tax Ordinance, 2001 says that, unless the Commissioner authorises otherwise, every taxpayer must maintain in Pakistan the accounts, documents and records that are prescribed. The prescribing is done in Chapter VII of the Income Tax Rules, 2002. Rule 28 says that chapter sets the minimum level of books and records, and that a business may keep more, add columns, or adapt the format to the nature of its business.

Rule 29(1) requires every taxpayer with income under the head “Income from Business” to keep proper books, documents and records of:

• all money received and spent, and what each receipt or payment was for;
• all sales and purchases of goods, and all services provided and obtained;
• all assets;
• all liabilities; and
• for assembly, production, processing, manufacturing, mining or similar work, all items of cost for materials, labour and other inputs.

Rule 30 then lists the minimum books for taxpayers other than companies, in four groups.

Which records apply to my kind of business?

Group under rule 30	Minimum records
(1) Business income up to Rs. 500,000, and new business taxpayers	Serially numbered, dated cash memo, invoice or receipt for each sale; daily record of receipts, sales, payments, purchases and expenses (single daily entries per head are enough); vouchers of purchases and expenses
(2) Business income above Rs. 500,000, and all wholesalers, distributors, dealers and commission agents	Numbered, dated invoices; cash book or bank book, or a daily record; general ledger or an annual summary under separate heads; vouchers of purchases and expenses; quarterly inventory of stock-in-trade if you buy and sell goods
(3) Professionals such as doctors, lawyers, accountants, architects and engineers	Numbered, dated patient slip, invoice or receipt; daily appointment diary; daily record of receipts and expenses; vouchers
(4) Manufacturers with turnover above Rs. 2.5 million	Numbered invoices; cash book or bank book; sales and purchase day books and ledgers where applicable; general ledger; vouchers; stock register supported by gate inward and outward records, with a quarterly inventory including work-in-process

Each invoice must show your name or business name, address, NTN or CNIC, and sales tax registration number if any, plus the description, quantity and value of what was sold. Where each transaction is Rs. 100 or less, one or more cash memos per day for all such sales may be kept instead. In groups (2) and (4), a single sale above Rs. 10,000 must record the customer’s name and address (in group (2), this applies to wholesalers, distributors, dealers and commission agents), and a purchase or expense voucher above Rs. 10,000 must carry the payee’s name and address.

How long must records be kept?

Section 174(3) and rule 29(4) both say six years after the end of the tax year to which the records relate. For tax year 2027 (1 July 2026 to 30 June 2027), that means until at least 30 June 2033.

Two things extend this. First, the proviso to section 174(3) and rule 29(5) require you to keep the record until the final decision where any proceeding is pending before an authority or court. The explanation in section 174(3) lists assessment or amendment of assessment, appeal, revision, reference, petition, prosecution and Alternative Dispute Resolution proceedings. Second, the six-year limit does not apply to records about income, assets, expenses or transactions covered by section 111(2)(ii), which deals with assets or expenditure outside Pakistan and foreign-source concealed income.

Worked example (illustrative figures)

Tariq runs a hardware shop in Faisalabad as a sole proprietor. His business income for tax year 2027 is Rs. 1,800,000, and he also sells in bulk to smaller shops as a wholesaler.

1. His business income is above Rs. 500,000, and he is a wholesaler, so rule 30(2) applies.
2. Every sale needs a serially numbered, dated invoice with his business name, address and NTN. A bulk sale of Rs. 45,000 to a shop in Jhang is above Rs. 10,000, so that invoice must also carry the buyer’s name and address.
3. He keeps a cash book or bank book (or a daily record), a general ledger or annual summary under heads such as rent, wages and electricity, and purchase vouchers. A Rs. 60,000 purchase voucher from a Lahore supplier must show the supplier’s name and address.
4. Because he deals in goods, he takes a stock count showing description, quantity and value every quarter.
5. He keeps the tax year 2027 records until at least 30 June 2033. If his tax year 2027 assessment is under appeal in 2033, he keeps them until the appeal is finally decided.

What if…?

What if my business is brand new? Rule 30(1) places new taxpayers deriving business income in the first group, unless they fall within the professional or manufacturer groups.

What if the Board requires an electronic system? Section 174(5) lets the Board require any person or class of persons, by notification in the official Gazette, to install and use an electronic resource for recording transactions. Whether that applies to your trade depends on a notification, and those are not in this corpus.

What if I keep records at home in another country? Section 174(1) requires the records to be kept in Pakistan unless the Commissioner authorises otherwise.

Common mistakes

• Keeping only bank statements. Rule 29(1) and rule 30 ask for invoices, a daily or cash record and vouchers. A bank statement alone does not cover cash sales or record what each payment was for.
• Throwing records away after five years. The period was five years before amendment; the current text in both section 174(3) and rule 29(4) says six.
• Assuming a small shop needs nothing. Even the first group under rule 30(1) must issue numbered sale memos and keep a daily record and vouchers.
• Missing receipts for expenses. Under section 174(2), an expense without evidence can be disallowed or reduced unless you had reasonable cause.

What to check in the official text

Read section 174 in full, and Chapter VII of the Income Tax Rules, 2002, rules 28 to 30. The Rules in this corpus are amended to 24 November 2023. The Rs. 500,000 thresholds in rule 30 were set by S.R.O. 1218(I)/2015, so check whether a later S.R.O. has changed them. Penalties and prosecution for not keeping records are covered on a separate page.