A few weeks ago, I heard from the service tax department. It was a note asking me to clarify the difference in the amount filed for income tax and for service tax in — wait for it — 2015.
This is surprisingly common, especially with the tax departments in India. Plenty of freelancers will tell you they’ve had this exact experience.
When you’re running your own business, you have to maintain impeccable records right from the first year. Have a downloaded copy of everything, starting from that challan you get when you pay your taxes, to all the bills and invoices. You never know when you’ll need to refer to it.
Year after year, maintain all your tax documents in one folder. Also, keep a document in which you note down every miscalculation or adjustment.
For example, I have a spreadsheet that I work on at the end of the year. When my CA makes calculations, they’ll send me a sheet with questions about certain transactions that are not clear to them. And they’ll also send a suspense account, which is basically transactions that they can’t particularly place.
In response, I leave comments on every single transaction explaining it to them, like I missed to file GST for an invoice or Singapore dollars falsely noted down as US dollars. I keep a copy of this spreadsheet, named appropriately.
I can’t emphasise enough how important it is to keep an accurate and hawk-eyed track of your financial records for the entire year, every year. It’s hard to remember what we did earlier this year, let alone 5 years ago!
When the taxman comes knocking and asks you to explain why there’s a difference, you won’t be lost for an answer. Trust me, you’ll thank me later.