India, with its tax reforms and re-focus on digitization to reduce hurdles in adhering to greater tax compliance, every year, crores of new tax payers are filing their first time income tax returns. It’s vital to understand what documents need to be kept for future reference.
- Crores of 1st time taxpayers filing their taxes in India
- Tax Department expecting evidence for minor discrepancies
Most common thinking with today’s tax payers in India is to have their tax documents at the time of tax filing to show to an Intermediary, or a Tax Consultant as an evidence. But often forget to keep those documents for future reference as the Income Tax eFiling typically doesn’t require to attach any of the documents such as Form 16, P&L, Balance Sheet, Trading Statements etc.
Now, the new Tax season has started for AY2018-19, it is important to know what documents and how long to keep them to future proof your tax compliance. The retention period is different under different tax authorities/entities from their respective laws, such as Income Tax Act 1961, Companies Act, Service Tax (prior-GST), GST, SEBI, Central Excise, also varies based on source of income and filing status like an Individual or Business filings.
In an era of digitized tax compliance, Department with its computerized rules-engine behind serving tax notices, is expecting supporting documents even for small amounts such as a Rs.200 difference. In addition, the department is considering ways to increase the tax review percentage every year that may force the taxpayers to keep their tax documents.
Common reasons for keeping the Tax Documents ?
In case of any mistake in filing your return, department allow you to file a Revised Tax Filing for the corresponding year, this requires you to refer to your source of income documents such as Form-16s, Interest, Dividend, or Trading statements etc.
For those who are eligible to carry forward their losses from one year to another need to know such information at the time of future filing years.
In addition, for those who are required to go thru tax audit need to maintain their tax documents, return statements for up to 6 years for Individuals, 8-10 years for Businesses, and 16 years for those in having Foreign Income from certain countries.
- Individuals to keep their supporting Tax documents for at least 6 years
- Business Taxpayers to keep Financial Statements for at least 8 years, in some cases 10 years
- NRI Taxpayers to keep their Foreign Tax Return Documents for at least 16 years
Important Documents and it’s retention period
One of the most common document for salaried Tax Payers is the Form-16, while Form 26AS is maintained by the income tax filing portal, keeping Form-16 for 6 years is the taxpayers responsibility, to show it as an evidence of earned salary income, perks and other benefits.
If applicable, Yearly Bank, Dividend, Shareholding or Brokerage Statements, Home Loan Certificates, Rent Receipts for claiming house rent allowance (HRA), Education Loan, Disability Certificate (10-I) to be retained for at least 6 years for individuals, and 8 years for businesses.
Capital Gains Statements to be captured with details such as cost of acquisition, cost of improvement, dates related to such costs and their corresponding receipts to be maintained for 6 years, unless it’s related to a business where it is recommended to keep them for 8 years.
Books of Accounts, to be maintained for at least 8 years, but for those who are filing under Presumptive taxation (u/s 44) would normally required to retain for at least 6 years.
Foreign Income, where the taxpayer claiming for a foreign tax credit due to income generating from any asset outside of India, it advisable to keep tax records for up to 16 years as the tax department can serve a notice to prove such income that requires tax certificates or statements from those countries, or territories.
How to keep them Safe and Secure ?
Typical tax document do contain PAN, Personal information such as Address, contact information such as email, phone numbers and your income and benefits, in essence, some of the document do mention what you worth. Many firms, companies are well after such information, and frauds are happening to steal such information.
It is recommended to keep your financial records secured both in paper form, and digitized version to make sure they are accessible to you even in the case of any disaster such as flooding etc. As the technology gets updated, typically, we switch a computer for every 5 years, this may cause you to lose your digitized version if not maintained a proper backup. It’s advised to keep the paper forms in safe secured place with a lock and key.
Today, usage of Google Drive or Microsoft OneDrive is very common but recommended to enable them for an OTP authentication to keep them safe from unauthorized access.
It is also recommended to get a digitized invoices, income statements from online businesses that you work with, to have your own copy rather sheer dependence with their business websites for future downloads. It was observed thru our own customer experiences @ EZTax.in that it would be difficult at times to get such statements from those websites due to technology upgrades, and organizational retention policies. One example to quote here is, Google being a large corporate have not retained their pre-gst invoices in India. Hence, advise you to download such documents and keep them safe and secure.
Mandatory Tax Compliance
Income Tax filing was made mandatory starting from FY2017-18 (AY2018-19), starting from April 1st 2018, if you file your Income Tax Return (ITR) after July 31st 2018, you will be liable to pay a maximum penalty of Rs 10,000. As per the new act, a penalty of Rs. 5,000 will be levied if the return is filed after the due date but before December 31st of that year, and Rs 10,000 post December 31. However, for small taxpayers with an income up to Rs 5 lakh, the maximum penalty levied will be limited to Rs 1,000.
Similarly, for those who are in to businesses with GST number, should file their GST Returns promptly before monthly, quarterly due dates to avoid Penalty of Rs.50/day, and additional Interest.
The writer is CEO @ EZTax.in
EZTax.in, a most innovative tax compliance company covering both Software and Services for Direct and Indirect Taxes (GST). The company offering 100% FREE Income Tax Filing for this season along with India’s 1st Tax Optimizer Report to enable tax planning.
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