Facing a tax inquiry before assessment under Section 162 can make the taxpayers nervy owing to the paucity of facts and lack of understanding about the tax laws. Moreover, the scrutiny under the section 162 also involves the scrutiny of financial records, transactions, and tax filings. Nevertheless, this overwhelming situation could still be steered clear with the guidance of an able tax advisor.
Understanding Section 162: What to Expect
Section 162 of the Income Tax Act gives the authority to the concerned tax offices to launch an inquiry prior to the final assessment of taxes. This inquiry shall be comprised of examination process of a tax payer’s financial documents. The individual/organization could also be subjected to questioning certain transactions, and seeking clarifications on deductions or exemptions claimed. Hence, by no means a taxpayer should fail to provide complete and accurate information. In case, any discrepancy is found, it shall lead to penalties or further investigations.
Steps to stay prepared for a tax inquiry
1. Maintain accurate financial records
The first and foremost directive of for staying prepared for a tax inquiry is maintaining accurate and organized financial records. In this direction, certain documentations such as keeping track of income statements, bank statements, receipts, invoices, and any other financial documents should be in place. Doing this makes it easier for the taxpayers to maintain proper documentation; you can easily provide the necessary information during the inquiry. A tax advisor can also be come in handy to help you in organizing and reviewing these documents, ensuring that nothing is overlooked.
2. Ensure timely and correct tax filings
Timely and accurate tax filings are crucial in avoiding any red flags during an inquiry. Therefore, it becomes the fundamental duty of every tax payer to ensure that all their income is reported correctly and that deductions or exemptions claimed are legitimate and backed by proper documentation. The downside of late tax filing or providing incorrect information is facing of the scrutiny. Hence, one needs to fall back on the expertise of a tax advisor. Upon the review done by them, much of the tax filing errors can be avoided and this can lead to a smooth process of enquiry.
3. Respond promptly to notices from tax authorities
If you receive a notice of inquiry under Section 162, the first thing to do would be responding to the inquiry promptly and professionally. Ignoring or delaying responses can lead to more ramifications and penalties which may also snowball the issues. A tax advisor must be contacted for drafting appropriate responses to the notices and ensure that all necessary documents are submitted on time.
4. Maintain transparency regarding your disclosures
Transparency determines the course of the inquiry under section 162 and hence the taxpayers must avoid concealing information or providing inaccurate details as such actions can result in severe consequences, including penalties and further investigations. Rather than waiting for the tax authorities to declare the filing as misleading or irregular, it is wise to seek consultation from the tax advisor and also disclose the errors to them upfront.
5. Seek professional assistance early
The best way to stay prepared for tax inquiry is to seek professional’s assistance early on. A tax advisor is adept at local tax laws and procedures. They shall help you in navigating through the process, offering valuable insights on how to approach the inquiry. Their guidance and support can also let the taxpayers understand the intricacies and all the legal requirements under Section 162 and provide personalized advice on how to prepare your documents and respond to any queries.
This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.