A Tax Scrutiny Notice can be a frustrating and time-consuming exercise for business owners. While honest owners have nothing to worry about, it’s still worth taking the necessary steps to avoid a tax notice.
There are few things a business owner dreads more than receiving a notification about a tax notice. Even if your tax return has been submitted correctly to the best of your knowledge, if the Income Tax Department decides to review your company, there is nothing you can do to stop it.
While a tax notice may ultimately turn out not to be a cause for concern, it can still prove to be an inconvenient and vexing experience. To reduce your chances of getting scrutinized, here are three measures you can take:
1. Be honest
This may seem like unnecessary advice, but being upfront about your tax return will go a long way to helping you avoid a tax notice. The Income Tax Department looks out for red flags on tax returns, so if something seems wrong with what has been declared or if the numbers don’t add up, then a notice will be sent to you. Avoid mismatches between incomes and investments.
Similarly, make sure your tax return is completed in full; any missing information will almost certainly result in the government taking a closer look at your taxes. Double-checking your return before submitting it can also save you an awful lot of trouble further down the line.
2. Be prepared
This means ensuring all your records, such as receipts and other documentation, are up to date and easily accessible. It’s also helpful for small businesses to have separate bank accounts for their business and personal banking to ensure more accurate bookkeeping. Moreover, you should maintain a documentary record of gifts received from friends and relatives as these details can be requested at any time.
Having everything in order before you file your return will greatly increase your chances of filing it correctly. That reduces the likelihood of receiving notice and allows you to produce the right documentation.
3. Use a tax return software from a trusted source
For most businesses, completing a tax return without the help of specialized software is not an option. The filing system is simply too complicated to do without expert help. The best bet for business owners? Reliable software that offers thousands of error checks and double-checks the tax return, and is 100 percent accurate.
Using tax return software and filing electronically will not exempt a business from getting a notice. However, using a trusted service from a company with many years’ experience in the field will eliminate simple mistakes that may bring your tax return to the attention of the Income Tax Department.
In all honesty, the likelihood of getting a tax notice is low; only a small percentage of businesses receive a tax notice each year and it’s not always as bad as you might imagine.