How long to keep your Tax Records and Why?

First-time tax filers in India are in 10's of Lakhs. The tax department expects proof of even for minor discrepancies.

Discover what tax records, data to keep safe after submitting Income Tax Return (ITR).

This document covers

1. Background
2. Common reasons for keeping the Tax Documents ?
3. Important Documents and it’s retention period
4. How to keep them Safe and Secure ?
5. GST document retention & archival policy

1. Background

1. Indian taxpayers submit their taxes through an intermediary like EZTax or a tax expert. Even though Income Tax eFiling doesn't require Form 16, P&L, Balance Sheet, Trade Statements, etc., few individuals save them.
2. As AY 2023-24 tax season approaches, it's important to know what papers to keep and for how long to comply with taxes. The retention term depends on the tax authority/entity, statute, income source, and filing status (individual or business). Retention periods vary by legislation, such as the Income Tax Act 1961, Companies Act, Service Tax (pre-GST), GST, SEBI, Central Excise, and source of income and filing status (individual or company).
3. Even for Rs.200, the Department's computerized rules-engine tax notices require accompanying documents. The government may also raise the tax review percentage annually to require people to keep their tax documents.

2. Common reasons for keeping the Tax Documents ?

1. If you file a mistaken return, you can file a Revised Tax Filing for the same year using Form-16s, Interest, Dividend, or Trade statements.
2. Moving losses from one year to the next requires paperwork and information when filing taxes.
3. Those who are subject to a tax audit must also retain their tax documents and return statements for up to six (6) years for individuals, eight to ten (8-10) years for businesses, and sixteen (16) years for those with foreign-earned income from certain countries.

3. Important Documents and it’s retention period

1. Form-16 is one of the most common forms for salaried Taxpayers. Form 26AS is maintained by the income tax filing portal, whereas the taxpayer is responsible for retaining Form-16 for six (6) years as evidence of salary income, perks, and other benefits.
2. Individuals must keep their Annual Bank, Dividend, Shareholding, or Brokerage Statements, Rent Receipts for claiming House Rent Allowance (HRA), Education Loan, and Disability Certificate (10-I) for at least 6 years and businesses for 8 years, respectively.
3. Capital Gains Statements should be kept for six (6) years unless they are business-related, in which case they should be kept for eight (8) years. These statements should contain information such as the cost of purchasing the property and the cost of alterations.
4. Books of Accounts must be kept for a minimum of 8 years, but those who file taxes under Presumptive Taxation (u/s 44) only need to keep them for a minimum of 6 years.
5. Foreign Income: If a taxpayer is claiming a foreign tax credit due to income from an asset located outside of India, they should retain their tax records for up to sixteen (16) years. The tax department can send a notice to prove such income, which requires tax certificates or statements from those countries or territories.

4. How to keep them Safe and Secure ?

1. The majority of tax documents contain your PAN, personal information such as your address, contact information such as your email address and phone number, as well as details about your income and benefits. In brief, some of the documents do indicate your value. Numerous businesses and organizations seek this information, and cons are used to take it.
2. It is a good idea to store both paper and digital copies of your financial documents in a secure location so that you can access them even if a disaster, such as a flood, occurs. As the technology evolves, we typically acquire a new computer every five years. You risk losing your digital copy if you haven't maintained an adequate backup. The paper forms should be locked away in a secure location.
3. Today, numerous individuals utilize Google Drive or Microsoft OneDrive. To prevent unauthorized access, it is recommended to configure them for OTP authentication. And from time-to-time, one need to check to see any updates from the drive / company. There are instances in which you must periodically log in to maintain drives active; otherwise, they may be deleted.
4. It's also a good idea to receive invoices and income statements from online businesses you deal with in digital format, so you have your own copy and are not reliant on their websites for future downloads. From what we've observed with our own customers at EZTax.in, it can be difficult to obtain these types of statements from other websites due to technological advancements and organizational guidelines regarding recordkeeping. Google, a large corporation, has not preserved their pre-GST invoices in India, which is an example. Therefore, we advise you to acquire these files and store them safely.

5. GST document retention & archival policy

1. While books of accounts to be maintained for 8 years for every business due to income tax guidelines, GST return document retention for GSTR-1, GSTR-3B and GSTR-9* is set for 7 years from the date of filing of the return.
2. W.e.f 01st August 2024, GST portal has started archiving the GST Returns, which are beyond 7 years.
3. W.e.f 01st Oct 2024, the data archival will be a monthly activity and taxpayers cannot see Sep 2017 data from 01st Oct 2024
4. Hence the taxpayers are recommended to download and save the data for future record
5. How to download documents from GST Portal?
   • Login to gst.gov.in
   • Go to Services > Returns > Annual Return
   • Select the relevant Financial Year and Click on Annual Return GSTR-9 - Prepare Online
   • GST portal will show "Download GSTR 1 and GSTR 3B Summary" for entire year
   • Click on download to save for future records