Do you feel that data segregation or data sorting is the biggest issue while reconciling expense ledger for TDS payable applicability?
Do you know that approximately TDS is under deducted for 7% of vendors due to multiple reasons?
TDS Payable Reconciliation, as per clause 34(a) of IT Act to generate Form 3CD, is a time-consuming activity and lot of time goes (4-man weeks effort to 5-man months effort) into following activities
Data Cleaning – First task is to download expense ledger from ERP system, perform data sorting and cleaning activities to remove Journal entries, reclass entries etc. More than 50% of the time is spent removing redundant data. This activity is done multiple times in case any discrepancy is found during analysis. Hence, tax teams spend the majority of their time in this mundane manual task of data sorting and cleaning.
TDS Applicability Determination – Depending upon the nature of expense TDS applicability is determined for each transaction and applicable TDS rate is applied. Few examples of Under deduction errors are
- TDS deducted at 1% for 194C by choosing the wrong Withholding tax code
- Wrong TDS section applied for professional fees
- TDS deducted at normal rate but Vendor’s PAN number is Inoperative or not compliant to Sec 206AB
It has been observed that there is an error rate of 7% in determining the TDS applicability when looking at data for different companies.
Reconciliation of Form 26Q – It is an important task before closing the tax audit. This process ensures the accurate reconciliation of TDS deposited with the government (Form 26Q/27Q) with the expense ledger, thereby identifying any cases of TDS deduction but not deposited or short deduction.
A company can avoid such mistakes by adopting a technology platform which can automate all these activities so that tax team can audit the TDS data on monthly basis, spend quality time on analysing the data and close tax audits faster.
To read more on this – please click on https://www.taxreco.com/challenges-in-automation-of-form-3cd/