In recent years TDS has become a transaction tax and it is applicable on almost every transaction like GST. It is very important for a company/person to comply with TDS rules and any failure in TDS compliance may lead to penalty or assessment notice.
Let us first understand what is TDS and TCS
The concept of TDS was introduced with an aim to collect tax from the very source of income. As per this concept, a person/company (deductor) who is liable to make payment of specified nature to any other person/company (deductee) shall deduct tax at source and remit the same into the account of the Central Government. As per Income Tax Act, It is mandatory for a deductor to deposit TDS with government by 7th day of succeeding calendar month. Failure in depositing tax on time may result in penalty and assessments
The deductee, from whose income tax has been deducted at source, would be entitled to get credit of the amount deducted based on Form 26AS or TDS certificate (Form 16A) issued by the deductor.
There are many sections under TDS: section 192, 192A, 193, 194B, 194C, 194F, 194I etc. TDS deduction is applicable on payments such as salaries, rent, professional fee, brokerage, commission, raw material procurement etc. TCS deduction is applicable on sales of goods like timber, scrap, mineral wood, and so on.
FORM 26AS
Form 26AS is a statement for a taxpayer having details of Tax deducted at source (TDS), Tax collected at source (TCS), advance tax paid by the assesses, self-assessment tax payments, details about income tax refunds and the details of tax deducted on the sale of immovable property, among other details.
26AS Form can be downloaded from Income tax Portal or TRACES (https://contents.tdscpc.gov.in/en/home.html )
FORM 16A
Form 16A is the certificate of deduction of tax at source providing details of TDS / TCS for various transactions between deductor and deductee. It is mandatory to issue these certificates to Tax Payers.
TDS Reconciliation
TDS Receivable Reconciliation – Deductee need to reconcile receivable transactions with Form 26AS. It is important for a deductee to regularly reconcile receivable transactions with Form 26AS and follow up with customers if transactions aren’t reported in 26AS Form. Deductees’ having large volume of data spend significant amount of time in manual reconciliation by using excel sheets and are not able to find time for data analysis, follow-ups etc. Mismatches in TDS credits lead to significant cash lock-up and loss of working capital
TDS Payable Reconciliation – A deductor need to ensure that TDS is deducted and deposited with government for the expenses booked as per TDS rates applicable for the Financial Year. All expenses done by a deductor, during Financial Year, need to be checked & verifed by tax auditor and verified whether right amount of TDS was deducted (no short deductions) and reasoning is provided by deductor for TDS deduction/exemption. Any expense item identified where TDS was not deducted or short deduction was done, TDS has to be deposited with penalty.
Reasons for mismatches between TDS statement and Form 26AS:
TDS information in book of accounts may differ from what is available in Form 26AS. Most common reasons for such mismatch(es) are listed below:
- Deductor has not deposited TDS on time or has missed to deposit TDS
- Wrong PAN number mentioned in TDS Return
- Amount mentioned in TDS Return is not correct
- Revision of TDS Returns
Due to mismatches, deductee may miss to claim Income Tax Credit on time and this results in loss of working capital
A deductee also need to check that right amount of TDS is claimed and if some amounts are mistakenly coming in Form 26AS due to errors mentioned above then those amounts cannot be claimed in Income Tax Return. For claiming TDS appearing in 26AS Form, deductee shall have corresponding receivable transaction from their books to show to Tax Auditors/Income Tax authorities
By Manorama Sharma – TaxReco Intern