In order to maintain compliance with the law and prevent fraudulent tax practices, enterprises and individuals are required to undergo tax audits by a chartered accountant, according to Section 44AB of the Income Tax Act of 1961.
If your Indian business has a revenue of Rs. 1 crore or more in a fiscal year, it must face a tax audit, as must a professional service provider with an annual revenue of over Rs. 50 lakhs.
Tax returns are audited by the Indian Revenue Service (IRS). The majority of audits will focus on returns that were filed during the last two years. The IRS sends out notices to taxpayers to have the statute of limitations for tax assessments extended, only in the event that an audit is not completed. An IRS audit examines the enterprise’s or individual’s financial records to ensure the accuracy of reported data and compliance with tax regulations. Although the possibility of an audit may seem daunting, the IRS’s selection criteria for audits do not always signify a problem.
The idea of a tax audit could be intimidating, especially for first-timers. MPVD & Associates, a tax audit firm in Kolkata, can provide you with a proactive plan and assist you in passing the auditing process confidently and holistically.
Getting Prepared for Your First Tax Audit in India
After getting an IRS notice, your first task is to be ready for your answer letter. Whether it is a field audit, office audit, or correspondence audit, each issue that the IRS identified in its audit letter must be addressed.
Any and all supporting paperwork must be included in your letter, along with a stipulated meeting time and date to address the issues raised by the findings. Always ask for confirmation of receipt from the delivery service before mailing documents to the IRS. Consult an accountant or a tax attorney for assistance if necessary.
At this phase, you may request company audit services from your CA Firm to help you thoroughly evaluate your audit notice and collect the necessary data. MPVD & Associates can also help you with this.
Clean and Organise All Relevant Financial Data That Could Be Audited
Your tax audit procedure is severely hampered by disorganized and erroneous data. The IRS notice usually specifies the -records needed for the audit as well as instructions on how and when to deliver them. These records and documents could be:
- Banking records
- Receipts for both outgoing and incoming payments
- Any payment reimbursement receipts
- Loan contracts
- Details about past travels and visits to paid events in a fiscal year
- Details about service records, events, and appointments
- Schedule K-1 for business partners and stakeholders
- Legal documents concerning cash flow, finances, and accounting and bookkeeping records
In order to assist clients in keeping their asset information structured throughout its lifecycle and lower the possibility of human error, MPVD & Associates incorporates automated asset management technologies.
A good solution can assist in ensuring that all data is correct and current if it is used frequently during your annual inventory process. Automated databases always contain 100% accurate data, including serial numbers, income sources, and all other small financial details.
Make Tax Audits a Part of Your Business or Professional Career
A tax audit letter is evidence that either your business or you, are developing professionally. It is a good time to start thinking positively about taxation and the audit system.
As a prudent taxpayer, you should avoid hastily preparing for a tax audit. You must think of maintaining an organized record of your finances as an ongoing, yearly operation and put an action plan in place for preparing for internal audits.
You may cut down on the time and stress required for audit preparation activities toward the end of the year by allocating time to tasks like paperwork throughout the year.
For individualized assistance, you may seek the professional tax & accounting consultation of MPVD & Associates to prepare for your first tax audit, write the response letter diligently, request mediation and Alternative Dispute Resolution (ADR) and address any penalties.