Last reviewed: 25 September 2026. Since the Income-tax Rules, 2026 were notified, a great deal of commentary has described a new "Rule 46(8)" requiring every business keeping electronic books to back them up daily on a server in India. Other practitioners who have read the notified Rules report that Rule 46 contains no such clause. We have not been able to confirm the notified text, so this post separates what is certain from what is still being clarified. What is certain is that companies have had a daily India-backup obligation under the Companies Act since August 2022, and it is the one most foreign-hosted accounting set-ups are missing.
What the Companies Act already requires
Rule 3 of the Companies (Accounts) Rules, 2014, as amended by the Companies (Accounts) Fourth Amendment Rules, 2022 with effect from 11 August 2022, sets three requirements for a company that keeps its books in electronic form:
- Accessible in India at all times: the books of account and other relevant books and papers maintained electronically must remain accessible in India, at all times, so as to be usable for subsequent reference (Rule 3(1)).
- Daily back-up in India: the back-up of the books of account and other books and papers maintained in electronic mode, including at a place outside India, must be kept in servers physically located in India on a daily basis (Rule 3(5)).
- Annual intimation: the company must intimate the Registrar, each year when it files its financial statements, the name and address of the service provider and, where books are maintained on the cloud, the service provider's address and the location of the books (Rule 3(6)).
The rule does not force a company to move its primary accounting system to India. It forces a specific, verifiable daily back-up in India. It sits alongside the audit-trail requirement in the proviso to Rule 3(1); see our audit trail guide for that side of the same software question.
The Income-tax Rules, 2026: what is and is not settled
Books of account under the Income-tax Act, 2025 are governed by section 62 (old section 44AA), with the detail in the Rules. The Income-tax Rules, 2026 were notified by Notification No. 22/2026 (G.S.R. 198(E)) on 20 March 2026. Commentary is divided on what Rule 46 contains:
- A large body of commentary describes a Rule 46(8) requiring daily back-up of electronic books on servers in India, along with new tax-audit reporting fields and penalty figures.
- At least one practitioner who has read the notified Rules reports that Rule 46 lists the books to be kept and the audit-trail requirement for electronic records, but has no daily-backup or India-server clause, and that the daily-backup requirement people have in mind is the Companies Act rule above.
We have not been able to confirm the notified text, so we are not stating either reading as settled, and we have removed the penalty figures and audit-form fields we previously reported. The position is under clarification; check with us before relying on it. We will update this page once we have confirmed the text.
Who this covers
| Entity | Daily India back-up | Source |
|---|---|---|
| Company (private, public, OPC, Indian subsidiary of a foreign group) | Required | Companies (Accounts) Rule 3(5) |
| Proprietorship, partnership firm, LLP keeping books electronically | Not required by the Companies Act rule; income-tax position under clarification | Income-tax Rules, 2026 (to be confirmed) |
The tax-audit thresholds under section 63 of the Income-tax Act, 2025 (old section 44AB) are unchanged in substance: turnover above Rs 1 crore for a business, or Rs 10 crore where cash receipts and cash payments are each within 5% of the total, and gross receipts above Rs 50 lakh for a professional. Whether the tax audit report will ask the auditor to confirm an India back-up depends on the final text; we will confirm the reporting fields with you during audit planning.
What "India-located back-up server" means for common set-ups
Worked example 1 — desktop Tally, single office. A company running Tally on a local office PC, with data backed up manually to a pen drive or an occasional email to the owner, does not have a verifiable daily back-up on an identifiable India-located server. The fix is inexpensive — a scheduled daily back-up job to an India-hosted NAS, an Indian cloud storage account, or an India-hosted back-up service, with a log that shows it actually ran.
Worked example 2 — Indian subsidiary on foreign-hosted cloud books. An Indian subsidiary of a US or European group often keeps its books in the parent's instance of QuickBooks Online (US), Xero or NetSuite, hosted outside India. That is permitted, but the platform's automatic back-ups usually replicate within the same foreign region. The practical fix is to enable an India data-residency or India-region back-up option where the platform offers one, or to run a scheduled daily export or API pull into an India-hosted storage account, keep the configuration proof, and report the cloud location to the Registrar under Rule 3(6). Outsourced-accounting teams working in the client's system should build this into their month-end routine; see our guide to outsourcing bookkeeping to India and our foreign subsidiary accounting service.
Action checklist
- List every system holding electronic books and records — accounting software, GST/e-invoicing tools, payroll, inventory — and where each is physically hosted.
- For companies: confirm with each vendor whether a daily back-up already routes to an India server; if not, enable the India-region option or configure a parallel export.
- Get the India back-up server's location in writing from the vendor, and keep it with the Rule 3(6) intimation details.
- Set a back-up log or notification so failures are caught the same day, not discovered at audit time.
- For firms, LLPs and proprietors: keep reliable daily back-ups as good practice, and check the final income-tax position with us before your FY 2026-27 audit.
Frequently asked questions
Does Rule 46(8) of the Income-tax Rules, 2026 require a daily backup on servers in India?
The position is under clarification. Much professional commentary describes a Rule 46(8) requiring every person keeping electronic books under section 62 of the Income-tax Act, 2025 to back them up daily on servers located in India. Other practitioners who have read the Income-tax Rules, 2026 as notified (Notification No. 22/2026, G.S.R. 198(E), dated 20 March 2026) report that Rule 46 as notified contains no daily-backup or India-server clause. We have not been able to confirm the notified text, so check with us before relying on either reading.
Which daily-backup rule is definitely in force?
For companies, Rule 3(5) of the Companies (Accounts) Rules, 2014, inserted by the Companies (Accounts) Fourth Amendment Rules, 2022 with effect from 11 August 2022. It requires the back-up of books of account and other books and papers maintained in electronic mode, including at a place outside India, to be kept in servers physically located in India on a daily basis. Rule 3(1) also requires electronic books to remain accessible in India at all times.
Who is covered by the Companies Act daily-backup rule?
Every company under the Companies Act, 2013 that keeps its books in electronic form, including private companies, one person companies and Indian subsidiaries of foreign groups. It does not apply to proprietorships, partnership firms or LLPs, which should follow whatever the Income-tax Rules finally require.
Our company's cloud accounting software is hosted outside India — are we non-compliant?
Not automatically. The Companies (Accounts) Rules allow books to be maintained on servers outside India, but the daily back-up must be kept on servers physically located in India, and the company must give the Registrar the service provider's details and the location of the books each year when it files its financial statements (Rule 3(6)). The usual gap is that no India back-up was ever configured for software hosted in the US or another region.
What does this mean for our tax audit?
The tax-audit thresholds under section 63 of the Income-tax Act, 2025 (old section 44AB) are Rs 1 crore of turnover, Rs 10 crore where cash receipts and payments are each within 5%, and Rs 50 lakh of gross receipts for professionals. Whether the tax audit report will ask the auditor to confirm an India back-up depends on the final text of the Rules and the audit form; we will confirm the reporting fields with you during audit planning.
What should we do now?
Four steps cover most of the practical gap: (1) list every system that holds books electronically — accounting software, GST/e-invoicing tools, payroll — and note where each is hosted; (2) if you are a company, configure a daily automated back-up to an India-based server or Indian data-centre region of your cloud provider; (3) get written confirmation from each software vendor of the India back-up location and retention policy; (4) brief your CA early so the check is built into audit planning rather than discovered at signing.
We help businesses configure compliant bookkeeping, cloud accounting and CFO reporting, and prepare tax-audit documentation end to end.
Bookkeeping services Accounting automation Tax audit services Talk to usThis article is for general guidance and reflects our understanding as of 25 September 2026. The Companies (Accounts) Rules position is settled; the Income-tax Rules, 2026 position on daily back-up is under clarification and should be confirmed against the notified text before being relied upon. It is not a substitute for professional advice on your specific facts. Related reading: Tax Audit under Section 44AB: AY 2026-27 Limits and Due Date and Documents Required for Tax Audit: The 3CD Data Pack.