Purchase bills and your income tax: why a lost bill costs more than its GST

Most owners think of a lost purchase bill as lost GST credit. The bigger cost is often income tax: your tax is on profit, profit is sales minus expenses, and an expense you cannot prove may not be allowed.

How a lost bill raises your income tax

Say you spent ₹50,000 on supplies this year but lost those bills. If the expense is disallowed, your profit is ₹50,000 higher on paper. For a firm taxed at about 31%, that is around ₹15,600 of extra income tax, on money you really spent, plus the GST credit on those bills.

Three income-tax rules every bill touches

• Cash payments: a payment over ₹10,000 in cash to one person in one day is generally not allowed as an expense (section 40A(3)). Pay by bank, UPI or card.
• TDS: rent, professional fees and payments to contractors often need TDS deducted. If it was due and not deducted, 30% of that expense can be disallowed (section 40(a)(ia)).
• Proof: keep the bill for every expense, with the supplier, date and amount. Without it, the expense is hard to defend if questioned.

When your business grows

• Above ₹1 crore turnover (₹10 crore if almost all receipts and payments are digital), your accounts need a tax audit (section 44AB), and the auditor will ask for bills.
• A sudden jump in turnover, or a large purchase, can bring questions from the tax department. Having every bill filed by month makes the answer quick.