The major tax collection procedure for the government is Tax deduction at source (TDS) also called withholding tax, it indeed is a source of detailed collation to fetch the revenue leakages. Under the Income-tax act 1961,(“the act”) the Indian tax regulations stated complete provisions which deal with the TDS around applicability, tax rates, rules, and outcomes for the non-compliances.
The provisions draw tough responsibilities on assessees for tax withholding during furnishing the particular payments. In these years the government has executed various changes to expand the scope of withholding tax, for instance, TDS on the purchase of goods, e-commerce transactions, cash withdrawal, and others. Indeed the provisions to have the effective rules by incorporating higher TDS rates for the non-compliant recipients or in which the PAN card is not given.
Application and Consequences of TDS
Relying on the type of transactions, the tax is needed to get deducted by the assessee during the time of payment or credit to the recipient’s account that happens before and towards the limit mentioned for these payments.
The rates at which the tax is needed to be deducted differ from 0.1 percent to 10 percent (except for payroll payments). When a recipient is not able to file its permanent account number (PAN) then a higher TDS rate of 20% is subjected to apply. Identical to the case of payments to non-residents, the subject withholding tax rates rely on the subject domestic tax provision and related treaty provisions, which is more advantageous to the recipient.
To avail of the advantages of treaty provisions, non-residents are required to file a tax residency certificate taken via the tax council of their resident country including a self-declaration of not having any business in India via a permanent establishment.
Interest shall be levied on the non-withholding or short withholding of taxes in the range of 1% to 1.5% per month. This shall be rendered towards the disallowance of expenses for the assessee. The same law furnishes for penalty and prosecution implications towards some class of defaults such as where the tax is restrained and not deposited with the government exchequer.
Major Steps in TDS Rules
The TDS rules platform furnished the mentioned below steps:
- Deductor is required to receive a one-time tax deduction account number (TAN) by the Deductor.
- Collate various payee information like PAN, address, transaction type, and payment or credit date.
- Find out whether the tax is to be restrained on a specific transaction. If yes, then at what rate is the tax to be restrained.
- Deduct specific tax during the recording of the transactions or payment whichever is before.
- Deposit taxes are deducted with the government exchequer via the seventh of the next month excluding the month of March, where tax restrained could be deposited by April 30.
- File quarterly TDS return in the subject forms within the mentioned dates which comes at the time of month-end just after the quarter.
- Issue withholding tax certificates in Form 16/16A to the deductee.
To provide the tax deductors to furnish the TDS returns, several forms are prescribed like Form 24Q for payroll TDS returns, Form 26Q form other than payroll transactions, and Form 27Q for non-resident payments (other than salary), etc. additional forms for the individual tax deductors in the form of challan, in which furnishing the amount payable and TDS inside it is enough to take the responsibility to furnish TDS return.
All the mentioned rules are handled electronically via specific interfaces with the government sites.
The Filing of Quarterly TDS Returns
The TDS compliances are handled via a separate platform of the tax heads, namely the TDS reconciliation examination and correction enabling system (TRACES). TRACES platform secures several tools which a tax deductor could refer to for effective learning and meet its responsibility.
While TRACES has made the automated application to track the TDS preciseness and compliances, the same is indeed mentioned with a simple procedure for TDS return filing. An individual could simply download the facility via the TRACES website and furnish a TDS return by furnishing various inputs needed in it.
Below mentioned is a summary of the process to furnish a non-salary TDS in Form 26Q:
| Fill General details about the deductor | Information of the deductor like a financial year where the return is concerned to the quarter for which the return gets furnished, name of the deductor, TAN, PAN, address of the deductor, name of person responsible for deduction of tax, designation, email ID and mobile number. | |
| Fill challan details | Information appearing in the challan generated on the deposit of the monthly TDS liability would be furnished. This information comprises the amount of TDS deposited, date of deposit, BSR code, challan serial number, and interest/penalty, if any, included in the challan. | |
| Fill deductee details | Details for every deductee like PAN, name, status, the amount paid, TDS deducted, date of deduction, date of payment/credit, the section under which TDS is deducted, and the rate at which tax is deducted is needed to be furnished. | |
| Validating the return by importing Challan Status Inquiry (CSI) file | The CSI file consists of ingredients which are required to be downloaded through the Tax Information Network (TIN) website and composed in the files to finish the TDS return. The procedure to download the CSI file is easier and could be made by inserting TAN, the period where the challan would be deposited and the captcha code in the TAN-based can be seen for assessees. | |
| Generation of FVU file | Post to filing all the information, the return made is validated via the latest file validation utility (FVU). The return preparation utility (RPU) checks the format level preciseness of the return made and verifies the information of the challan inserted from the CSI file downloaded through the latest FVU. After verifying the return successfully, a file would be generated which has a .fvu extension which is needed to be submitted with the tax council. The TDS return inside the .fvu file could be submitted physically to TIN Facilitation Centers (TIN-FC) who are authorized to accept the same on the grounds of the tax council. Also the same shall be furnished online via the income tax portal through the information of the TAN. | |
| Generation of form 27A | Including with FVU file, the application indeed generates Form 27A in pdf format which reveals a summary of the number of items in a PAN wise form available in TDS return, the total amount upon which the TDS gets deducted, and the total amount of challan with respect to the amount. The same Form 27A is needed to be signed either digitally or by hand and submitted to a TIN-FC including with the soft copy of FVU file for the uploading or filing. | |
| Filing of FVU file | After the FVU file and signed Form 27A are given to the TIN-FC, they upload the TDS return to the tax council. On the finish of uploading, with the unique acknowledgment number for future reference, an acknowledgment gets generated. |
On the successful filing of the TDS return, a deductor could see the status of that on the TRACES portal through its login credentials. The portal prompts the information of whether the return is furnished successfully or are there any causes to be improved through filing the correction statement etc.
Major Considerations During Filing the TDS Return
Using the technology the TDS filing returns would be easier for the government, but there are some specific points that are needed to note during the filing of these returns. Because of the growing use of technology, a data input furnished through TDS returns enables the execution of multiple tax records that the department uses during processing the tax returns of assessees such as assessing the income of assessees, foreign remittances in case of non-resident payment, and others.
Some points are mentioned below, a disclosure where the TDS returns might go a long way to diminish the compliance cost and unnecessary tax disputes and demands on deductors and deductees:
- Citing the specific PAN in the TDS returns is a prerequisite. Any error in PAN might be directed to denial of the tax credit to the actual deductee and at that point, create a demand on the deductor to apply a higher rate that is 20% on account of incorrect PAN.
- Placing the right date of deduction and the payment date in RPU. One needs to remember the dates to be filled in DD/MM/YYYY format, any glitches in the date might direct to a circumstance of short deduction or late deposit of TDS and lastly, a demand of tax shall be asked on the deductor.
- Filing of TDS return on or prior to the last date to prevent the denial or late tax credit to the deductee and the payment of late fee by the deductor.
- Precise disclosure of the amount upon which the tax is deducted at source and tax actually deposited to prevent any mismatch in the records of the deductee.
Conclusion
The tax deduction at source is a process for the tax council to collect the tax during the transaction itself and take the details to avoid any tax leakages.
During that time, the process of furnishing the TDS returns gets smoother over the years via several operations made by TRACES. When it complies then the tax deductors shall remain obedient with the same essential part of compliance.
Gen TDS is the most popular software in the market for filling out TDS quickly; In this software package includes all required specifications, which help in furnishing the returns. Additionally, Gen TDS return filing software is user-friendly and an easier platform that is specifically designed to file the TCS along with TDS returns according to regulations set by the TRACES in India.
