Three Stages of TDS Compliance for a Company
Monthly TDS Liability Computation
For expenses done by any company in a month, TDS liability has to be calculated before 7th of next month and TDS has to be deposited with government mentioning the sections of TDS under which TDS has been deducted. Company needs to preserve the details like TDS Challan No., BSR Code and Date for quarterly return filing.
Quarterly Return Filing
Based on the monthly TDS Challans, company need to file its quarterly Income Tax Returns as per utilities for Form 26Q or Form 27EQ as applicable to the government and once such return is filed & accepted by government, respective Form 16A(s) can be shared with vendors and same information is populated in 26AS form of the vendor(s) on TRACES portal
Annual Form 3CD (as per Clause 34A of Income Tax Act)
Company needs to reconcile all its expenses & payments (transaction wise) for TDS deduction mentioning whether the expense was subject to TDS or not, with reason mentioned. If lesser amount of TDS was deducted then companies need to pay interest. Company needs to get this attested by auditors to complete the tax audit.
Reconciliation of Form 26Q & 27Q with expense ledger shall be done to ensure that right amount of TDS is deposited with the government
Typical Challenges in TDS Compliances
Data Transformation & Cleaning
Expense data is available in different formats through different sources. This data need to be cleaned and transformed before determining TDS applicability. Transactions like Reclass entries, Journal entires etc. need to be ignored. With large data volume and manual process, this activity takes a significant time.
People Risk
With manual processes, company relies on tax professional whether any expense is subject to TDS deduction or not. In case the person goes wrong, company carries non-compliance risk.
If the person leaves the company, then it becomes difficult for company to explain how the TDS calculations were arrived at without reworking the entire data.
Audit Risk
If reconciliation is done on total basis or just by matching the expenses with quarterly return filed then auditors may leave a remark while attesting Form 3CD, which is not a desirable situation for a company.