What to do if income tax return is selected for audit

Has your income tax return file been selected for audit by the tax authority? Feeling anxious about it and unsure what to do? In such a situation, it is important to remain calm.

Because a tax return being selected for audit does not mean that additional tax will automatically be imposed on you.

This time, income tax return files have been selected for audit through an automated process. As a result, even taxpayers who have correctly paid their taxes may be selected for audit.

This year, the National Board of Revenue (NBR) has selected 88,000 taxpayers’ returns for audit.

In the first phase, in July, return files of 15,494 taxpayers were selected for audit. Recently, in the second phase, another 72,341 taxpayers’ returns were selected.

Returns submitted for the 2023–24 tax year were considered for audit through a fully automated system.

At present, there are more than 12 million (1.21 crore) holders of Taxpayer Identification Numbers (TINs). Of them, more than 4.25 million (42.5 lakh) taxpayers submitted returns this year.

The NBR has undertaken the audit initiative to verify whether any taxpayer provided incorrect information in their return or failed to pay the correct amount of tax.

You can also check online whether your return has been selected for audit.

If your return has been selected for audit, there is nothing you need to do immediately.

Under Section 183(3) (a) of the Income Tax Act, if the Deputy Commissioner of Taxes considers the presence of a taxpayer or any supporting evidence necessary for determining tax liability, the taxpayer will be summoned for a hearing on a specified date and time.

The taxpayer or their representative must appear before the Deputy Commissioner of Taxes.

Before attending the hearing, you should prepare all supporting documents relating to the income and expenditure information you submitted in your return.

These documents must be presented during the hearing. The Deputy Commissioner of Taxes may also request further hearings and additional evidence during the tax assessment process.

It should be noted that no additional tax can be imposed on a taxpayer without giving them an opportunity to be heard.

If additional tax is imposed, the tax office must notify the taxpayer within 30 days. Therefore, you should organise all supporting documents relating to your return.

Keep all documents supporting the income, expenditure, assets, or investments declared in your return organised in separate files. These may include:

1. Salary certificate

2. Bank transaction statements

3. Fixed deposit receipt (FDR) or savings certificate documents

4. Deeds relating to the purchase or sale of land or flats

5. Business accounts and records

6. Loan documents

7. Tax payment challans and certificates of tax deducted at source

You should be prepared to explain your bank transactions. If there are large deposits or withdrawals, you may be asked to explain their source.

Whether the funds came from family support, the sale of assets, loans, or business transactions, keep the relevant supporting documents ready.

Check whether there is any inconsistency between your declared income and lifestyle expenditure.

Questions may arise if you declared low income but purchased substantial assets or reported unusually high expenditure. Therefore, review your income, savings, and asset information carefully to ensure consistency.

If there are mistakes in your income tax documents, do not attempt to conceal them. Instead, provide a clear explanation.

If there are accounting mistakes, omitted information, or typing errors, explain them transparently. If necessary, find out whether you have the opportunity to submit a revised return.