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What Triggers an Audit?
Common triggers include:
High-income declarations
Mismatched income reporting (e.g., between TDS/1099 and return)
Excessive deductions or losses
Random selection
Business transactions above specified thresholds (in India: Sec 44AB)
Inconsistent or suspicious activity
Types of Tax Audits
a) In the U.S. (IRS):
Correspondence Audit – via mail, for minor issues
Office Audit – in-person at an IRS office
Field Audit – IRS visits your home/business
b) In India:
Tax Audit under Section 44AB (mandatory for businesses/professionals above certain turnover limits)
₹1 crore for businesses (₹10 crore if most transactions are digital)
₹50 lakh for professionals
Documents Usually Requested
Bank statements
Financial statements (P&L, balance sheet)
Bills and receipts
Tax returns (past years)
TDS certificates (Form 16, 26AS)
Purchase and sales invoices
Payroll records
Audit Outcomes
No change – everything matches
Refund adjustment – you get back overpaid tax
Tax due – you owe more, possibly with interest or penalty
Penalties – for fraud, underreporting, or non-compliance
How to Prepare
Maintain clean records
Keep documents for at least 6 years (U.S.) / 6–8 years (India)
File timely and accurate returns
Work with a tax professional or chartered accountant (CA/CPA)