Records to keep for a tax audit

Whether you need an audit

A tax audit is required when your turnover or receipts go above a set limit, or when you have opted out of presumptive taxation and your income falls below the stated rate. For a business, the turnover limit is ₹1 crore, or ₹10 crore where cash receipts and payments are within 5%.

The limits differ for professionals, and they depend on whether you are on a presumptive scheme and on how much you deal in cash. If you are near a limit, work out which applies before the year ends, not after.

The core books

• Cash book, bank book, ledger and journal, written up for the whole year and not only the months you remember.
• Sales and purchase registers with the invoices behind them.
• Stock records, with the quantity and value at the start and end of the year.
• A fixed-asset register showing what was bought, when, and the depreciation charged.

Records that must match each other

An auditor reads one set of figures against another, so the gaps between them are what get asked about.

• Bank statements for every account, reconciled to the books.
• GST returns, reconciled to sales and purchases in the books.
• TDS you deducted, with challans and quarterly returns, and TDS deducted from your receipts as shown in Form 26AS and the annual information statement.
• Loan statements and confirmations from parties you owe, or who owe you, at the year end.

Support for the larger entries

Keep the agreement, bill or voucher for anything large or unusual. That means loans taken or given, cash payments above the limits, payments to related parties, and one-off expenses. An entry with no document behind it is the most common reason an auditor adds a remark.

Habits that save the most time

1. Write up the books monthly, not at year end.
2. Reconcile the bank and GST each month, while the details are fresh.
3. Scan or file every bill on the day, named by date and party.
4. Bring last year’s audit report and return along, since the opening balances start from them.