Filing Income Tax returns is the statutory duty of every citizen and organization worldwide. This can be stressful as filing accurate income tax returns is necessary. Otherwise, it attracts tax notices and penalties from the tax department. The Income Tax department has also awarded Infosys the contract to create the following generation tax systems, which compile income tax returns for all of us, so that processing time is reduced from 2 months to just one day. The purpose of this was also to expedite the refund process. We also need accurate tax accounting systems which tally our trial balances and financial statements and create a reliable record of all our accounting transactions. Nowadays, we have methods that can also calculate our taxes with technological advancement.

Remember all the tax deadlines

We need to start calculating our taxes and pay advance taxes from September 15th of each financial year to avoid the penalty. We need to understand all the changes which have taken place in the Income Tax. We should also thoroughly review all expenses and incomes accounted for in the previous period.

Pay advance taxes to avoid delayed interest payment penalties

A system that accurately calculates income tax and facilitates filing income tax returns is very helpful. Our accounting system and tax calculation software should ensure that our net incomes and financial statements are compiled and forewarn us about the payment of advance taxes to avoid unnecessary penalties. This relieves one of our significant burdens if we outsource tax preparation. This can minimize our responsibility and relieve us of the burden of keeping track of the advance tax payment dates.

Monitor our financial statements

Always compare this year’s financial statements with the last year’s tax records; this will provide an appropriate checkpoint to ensure that all transactions are correctly recorded and there are no discrepancies.

Outsourcing tax preparation

Rather than fire-fighting by ourselves, it is always better to outsource tax preparation for our accounting and tax records to experienced accountants. They are conversant with accounting policies and tax laws and will prepare our accounts according to rules and regulations. But we should check references before going for tax preparation outsourcing. It is important to track records and the firm’s list of clients as this is sensitive work and vital as filing faulty tax returns can create a lot of trouble for us.

Ensure our records are segregated from our business records

Our businesses and we are distinct tax entities in the eyes of the law. So it is always necessary to ensure that our personal and business accounting and tax records are maintained separately. This will prevent confusion and ensure we do not mix up both and file wrong income tax returns. Also, this could hamper our businesses and our creditworthiness.

Collect and organize our records  

We must ensure that all our accounting records, invoices, and receipts are appropriately organized and filed. Even if we prepare to take outsourced accounting services, we need to ensure that all the proper records are handed over to them so that our reports are correctly compiled. Apart from regular paper files, it is always better to scan and keep digital documents to have a backup for our paper files. As tax work can be time-consuming, the onus is on us to prepare all the records and maintain them in files that can be analyzed and easily accounted for.

Reconciliation of bank accounts with our in-house statements

Bank reconciliation is one of the essential aspects of accounting. This is the first and primary step before we balance trial balances and ensure the accounts’ accuracy. We need to ensure that the in-house accountant does proper bookkeeping of accounts ensuring that our accounts books and the bank statements match with each other. This should be completed before our accounts and records are handed over for tax compilation.

Tax exemptions and deductions offered under the Income Tax rules 

Before filing the tax returns, we must ensure that our tax accounting firm applies all the necessary deductions and exemptions to claim the maximum benefit allowed by the Income Tax rules. We must ensure that we take all the required actions and make investments that garner the total tax deductions and exemptions permissible under the Income Tax Act. Most of the deductions and exemptions are allowed under the old regime of the Income Tax Act. We should take the advice of our tax advisors to ensure we gain maximum benefit.

Key Takeaways

As mentioned before, filing proper accounting and tax returns with the Income Tax authorities every financial year is one of our duties. Preparing, organizing our records, and filing our tax returns well in advance ensures that we can have a stress-free financial year and avoid a nerve-wracking experience.