List of Important Documents required for Tax Audit

Individuals earning income from their businesses or professions must keep a variety of records in order to comply with income tax audit requirements. Accounting books, cash registers, ledgers, and journals are examples of such records.

Furthermore, these records must be kept in a specific format and in accordance with established principles.

The government conducts income tax audits on high-earning businesspeople and professionals in order to ensure accurate reporting, deter tax evasion, and maintain equity in revenue collection. Audits also help to review complex financial transactions and promote overall tax compliance.

Important Documents Required for Income Tax Audits

The list of documents required for income tax audits is the same for all individuals subject to such audits. Nonetheless, specific professions such as law, engineering, and medicine necessitate additional document retention in addition to the standard list outlined below.

According to a tax and business consulting firm, some important documents that individuals must keep for income tax audits include the following.

For income tax audit purposes, a comprehensive set of documents is required, which should include the following:

• A cash book meticulously records all daily cash receipts and expenditures, as well as the closing cash balance at the end of a specified period, which should not exceed one month.
• A ledger that meticulously tracks all debit and credit transactions.
• A journal book, particularly when using the mercantile accounting system.
• Original invoices and receipts for expenses incurred by the individual are sent to the individual. If no bills or receipts are issued and the expenses do not exceed Rs 50, the taxpayer is only required to keep signed payment vouchers.
• Duplicate copies of bills issued by the individual, whether machine-numbered or sequentially numbered, as well as duplicate copies or counterfoils of receipts issued by the individual, if the total amount of the bills or receipts is Rs 25,000 or more.

It is critical to emphasise that the requirement to create and validate payment vouchers does not apply if the individual’s cash book adequately details the expenses incurred. Furthermore, all taxpayers who are subject to an income tax audit must maintain their financial records, which include the trial balance, profit and loss statement for the financial year, and balance sheet, among other things.

Tax Presumptive Scheme Under Section 44AD & 44ADA

There is no obligation to keep accounting books or subject them to audit if the taxpayer chooses presumptive taxation, whether for their business or profession, and meets the conditions outlined in Section 44AD or Section 44ADA.

If a taxpayer claims that their business or professional earnings are less than the prescribed presumptive taxation rates, they must keep accounting records and have them audited.

In addition to the aforementioned, the medical professional must keep the following items on hand:

• On a daily basis, fill out Form No. 3C.
• Inventory counts for the first and last days of the previous year.

An individual must also keep specific sets of accounting records in order to compile the necessary documents for an income tax audit. It is impossible to have the documents required specifically for an income tax audit without keeping a complete set of accounting records.

Fortunately, there are several accounting software options on the market that can help you manage this large number of documents. All that is required is a basic ledger to enter debit and credit entries into the software, which will then automatically generate the necessary accounting records.

Documents and Forms that must prepared by an Auditor

For individuals who are required to undergo audits under laws other than income tax regulations, the prescribed audit report form is Form 3CA, and the required details are to be provided in Form 3CD. In other cases, where a tax audit report is required, Form 3CB, along with Form 3CD, is the prescribed format.

Form 3CA: If a business is already required to have its financial records audited under another law, such as the Companies Act of 2013, the audit report will be in Form 3CA.

Form 3CD: This is a standard form used by individuals or entities subject to audits to ensure compliance with various laws such as the Income Tax Act, the Companies Act, and others.

Form 3CB: For individuals who require an audit solely for income tax purposes, Form 3CB is the appropriate choice.

It is important to note that the list provided is not exhaustive, as other forms may be required by a tax auditor depending on the specific laws applicable to a particular taxpayer.