Tax Audit Season: What Your Auditor Actually Needs From You
Most delays in a tax audit are not caused by complicated questions. They are caused by documents arriving in instalments. A business that assembles the file once, completely, finishes weeks earlier than one that answers queries as they come.
This is the list that matters, in the order it gets used.
Accounts and reconciliations
- Trial balance, profit and loss account and balance sheet, finalised — not a working version that will change.
- Bank statements for the full year for every account, with reconciliations to the books. Include accounts that were closed mid-year.
- Loan statements from every lender, with interest and principal split, and sanction letters for new facilities.
- Stock summary at year-end with valuation basis, and the physical verification record.
- Fixed asset register with additions, deletions, dates of put-to-use and invoices for additions.
Tax and statutory records
- Form 26AS and AIS, reconciled with income and TDS in the books.
- TDS returns for all four quarters, with challans, and the reconciliation of TDS deducted to TDS deposited.
- GST returns for the year — GSTR-1 and GSTR-3B — with turnover reconciled to the books.
- Advance tax challans and any self-assessment tax paid.
- Provident fund, ESI and professional tax payment records, with dates of deposit. Payment dates matter, not merely the amounts.
The items auditors most often have to chase
These four account for most of the back-and-forth:
- Related party details — parties covered, nature of relationship, and transactions with each.
- Cash payments above the permitted limit, and the ledger scrutiny behind them.
- MSME vendor status and payment ageing, for the section 43B(h) position.
- Loan confirmations and balance confirmations from parties, which take time to collect because they depend on someone else.
Start these four first. They have the longest lead time and they are the ones that hold up sign-off.
Practical points
- Give the auditor read access to the accounting system rather than exported PDFs where you can. It removes an entire category of query.
- Statutory dues paid after year-end but before the filing due date are generally allowable — but only if you can show the challan. Keep them together in one folder.
- Where a disallowance is going to arise, work out the number yourself before the audit. A known disallowance is a tax computation; a discovered one is a discussion.
- Do not revise the books after the audit report is issued. If something needs correcting, correct it before sign-off.
- Keep the audit file as a single indexed folder for the year. Next year's audit and any future notice both start from it.
Want your tax audit file assembled properly before the deadline? Talk to Kunal P Shah & Co.