What are the documents required to be maintained for an income tax audit? Further in cases of certain specified professionals like medical, legal, engineering, etc some additional documents are also required to be maintained in addition to the list of documents required for income tax audit
For income tax audit purposes, an individual with business or professional income is required to maintain several documents. The list of documents includes books of accounts, cash books, ledgers, journals, etc.Further, all these documents have to be maintained in a specific format and as per prescribed principles.
“The government mandates income tax audit for high-earning businessmen and professionals to ensure accurate reporting, prevent tax evasion, and maintain fairness in revenue collection. Audits also help scrutinize complex financial transactions and enhance overall tax compliance,” said Naveen Wadhwa, VP, Taxmann, a Delhi-based company that publishes tax books.
What are the documents which are required to be maintained for income tax audit?
The list of documents (mentioned below) which are required to be maintained for income tax audit is the same for all those who are required to conduct an income tax audit. However, for specified professions (legal, engineering, medical, etc.), certain additional documents are also required to be maintained. This is over and above all the documents mentioned below. According to Dr. Suresh Surana, founder, RSM India, a tax and business consulting group, some of the important documents that must be maintained (by an individual) for income tax audit purposes include the following:
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Cash book comprising records of: All cash receipts and payments maintained on a day-to-day basis; the cash balance in hand at the end of a specified period (which should not exceed a month).A journal book in case the accounts are maintained according to the mercantile system of accounting.A ledger that would record all debits and credits.Carbon copies of bills (whether machine numbered or otherwise serially numbered) issued by the person and carbon copies or counterfoils of receipts issued by the person where such bills/ receipts amount to Rs 25,000 or more.Original bills issued to the person and receipts in respect of expenditure incurred by the person. However, in case the bills and receipts are not issued, and the expenditure incurred does not exceed Rs 50, the taxpayer would only be required to maintain signed payment vouchers.
“It is pertinent to note that the requirement as to the preparation and signing of payment vouchers shall not apply in case the cash book maintained by the person contains adequate particulars in respect of the expenditure incurred by him. Apart from the above, every taxpayer subjected to an income tax audit would be required to maintain their financial statements such as trial balance, profit and loss statement for the financial year, balance sheet, etc.,” says Surana.
“If the assessee opts for presumptive taxation (either business or profession) and fulfills the conditions prescribed under Section 44AD or Section 44ADA, then the books of accounts are not required to be maintained and the assessee is not required to audit their books of accounts. But if the assessee claims that the profits and gains from the business/profession is lower than prescribed under presumptive taxation, then the assessee has to maintain the books of accounts and also have to get their books of accounts audited,” says chartered accountant Manas Chugh, head, regulatory services, Osgan consultants, a Delhi-based tax and business consultancy company.
Says Chugh, “Medical professional has to maintain the below items in addition to above:
1. Daily case register in Form No. 3C
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2. Inventory as on the first and the last day of the previous year,”
To maintain the list of documents required for income tax audit an individual needs to maintain certain other books of accounts. Without maintaining the full suite of books of accounts the documents specific to income tax audit cannot be maintained.
There are various accounting software available in the market which can ease the burden of maintaining such a long and exhaustive list of documents. All that is required is a simple ledger to record the debit and credit entries in the software and it will automatically prepare books of accounts from that data.
Documents/forms that auditor has to prepare/fill
According to Vijay Bharech, director, Deloitte Haskins & Sells LLP, a business consultancy company, “For persons, who are required to get their accounts audited under any other law (other than the income tax law), the Form prescribed for audit report is Form 3CA, and the prescribed particulars are to be reported in Form 3CD. For other cases, the Form prescribed for the tax audit report is Form 3CB along with Form 3CD.”You Might Also Like:
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Form 3CD: This is a common form for all those required to get their accounts audited to comply with any of the laws such as Income Tax Act, Companies Act etc.
Form 3CA: If a company is already mandated to get their books audited under any other law like the Companies Act, 2013, etc., then their audit report will be in Form 3CA.
Form 3CB: If an individual is only required to get an audit done for income tax purposes, then only Form 3CB is to be used.
The above list is not exhaustive. This is because there are other forms too which a tax auditor will need to use depending upon the applicability of a specific law to a particular taxpayer.
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This story originally appeared on: India Times - Author:Faqs of Insurances
