Challenges in TDS compliance
Understanding TDS Compliance: A Simple Guide for Everyone
In this post, we will discuss TDS compliance; what it means, common challenges businesses face, and how to avoid costly mistakes. Let’s examine these sections:
What is TDS Compliance?
TDS means Tax Deducted at Source. It simply means that when a person or a company makes a certain type of payment to someone, they have to cut a small portion of that amount as tax before paying. This rule is as per the Income Tax Act, 1961. The Act also gives the rate and the limit for each type of payment.
TDS is cut from payments like salary, rent, interest, commission, professional fees, and so on. The amount that is cut is directly paid to the Income Tax Department. It is a way to make sure that taxes are collected regularly and people do not skip paying them.
For example, if XYZ Pvt Ltd pays a monthly office rent of ₹80,000 to a property owner, they have to deduct 10% TDS on it. So they will cut ₹8,000 as TDS and pay ₹72,000 to the owner. Later, the property owner will show the full ₹80,000 as his income and can claim credit for the ₹8,000 already paid as TDS.
TDS is also applicable on things like salary or maturity amount of life insurance. It is a simple way to pay a part of your tax to the government in advance.
Top Challenges in TDS Compliance and How to Avoid Them
Some common TDS/TCS challenges and how you can avoid them:
1. Wrong PAN Details
Many times, PAN of the deductee or collectees is typed wrongly or is incomplete. If PAN is not correct, then tax will be deducted or collected at a higher rate.
What you could do:
- Always check and verify PAN before filing.
- Keep an updated list of PANs and double-check entries for spelling or number mistakes.
2. Late Deduction / Collection and Late Payment of TDS / TCS
If you deduct or collect tax late, or pay it to the government after the due date, you may have to pay interest and penalty.
What you could do:
- Set reminders for all TDS / TCS related tasks.
- Pay the tax on time. It must be paid by the 7th of next month (for March, the due date is 30th April).
3. Not Filing Returns on Time
TDS and TCS returns must be filed every quarter. If not done on time, there will be late fees and penalties.
What you could do:
- Mark all the return due dates clearly.
For TDS: 31st July, 31st October, 31st January, 31st May
For TCS: 15th July, 15th October, 15th January, 15th May - Start preparing returns early so you don’t miss the deadline.
4. Using Wrong Tax Rates
Sometimes people deduct or collect tax using the wrong rate. If the rate is less than what is required, notices may come from the department.
What you could do:
- Always check the current TDS / TCS rates before deduction or collection.
- Use reliable software that is updated with the latest tax rates.
5. Mismatch Between Returns and Payments
If the amount you deduct or collect doesn’t match with the amount shown in the returns, it will lead to problems.
What you could do:
- Always match challan details with return data before submitting.
- Use tools that help verify and match challan vs return properly.
6. Not Giving TDS / TCS Certificates
After you deduct or collect tax, you must give proper certificates (Form 16 / 16A for TDS and Form 27D for TCS). If not given, it is a default.
What you could do:
- Download and issue certificates quickly after return is filed.
- Do this within 15 days from the due date of filing returns.
7. Not Keeping Track of Law Changes
TDS / TCS rules change frequently. If you don’t keep track, you may follow old rules by mistake and land in trouble.
What you could do:
- Keep checking for updates from the Income Tax Department.
- Subscribe to tax updates from reliable sources or professionals.
By being careful with these small things, you can avoid mistakes, stay safe from penalties, and manage your TDS / TCS duties smoothly.
Conclusion
To follow TDS rules properly, businesses should start using TDS software, do regular internal checks, and stay updated with the latest changes in tax rules.
This concludes our post. Please feel free to leave any questions or comments in the box below, and we will be happy to respond.
FAQs
Q. What are the compliance requirements for a private limited company?
Ans: If a private limited company gives a salary to an employee that is more than the basic exemption limit, then it has to deduct TDS from the salary and deposit it with the government every month. This is one of the TDS rules that the company must follow as part of its regular compliance.
Q. What is the legal compliance of a company?
Ans: A company must keep proper records of its accounts, take help from a good tax expert, and file TDS returns on time. This helps the company follow all TDS rules properly and avoid paying any big fines.
Q. What is the limit of tax audit in Pvt Ltd?
Ans: For private limited companies, if most of the business transactions are done online, then tax audit is needed only if the turnover goes above Rs 10 crore. So, if your company mainly deals in digital mode and turnover is more than Rs 10 crore, then tax audit becomes necessary.
