Tax Deducted at Source (TDS) & Tax Collected at Source (TCS) compliance is a crucial responsibility for all deductors and collectors. While the process is straightforward, common mistakes can lead to penalties, interest charges, and unnecessary complications. Here are some of the most frequent compliance pitfalls and actionable steps on how to avoid them.
1. Incorrect PAN Details
One of the most common errors is providing incorrect or incomplete PAN details for deductees or collectees. If the PAN is incorrect or invalid, TDS / TCS applies at a higher rate.
How to Avoid:
- Always verify PAN details before filing TDS / TCS returns.
- Maintain an updated record of deductees’ and collectees’ PANs, and double-check for typos or discrepancies during data entry.
2. Late Deduction / Collection and Late Deposit of TDS / TCS
Failure to deduct or collect tax on time or delayed deposit of TDS / TCS to the government results in penalties and interest. TDS / TCS must be deducted or collected when either payment is made or credit has been provided, and it must be deposited within the specified timelines.
How to Avoid:
- Set automated reminders for TDS / TCS deductions and payment deadlines.
- Deposit the deducted or collected tax promptly to avoid late fees and interest. TDS / TCS must be paid by the 7th of the following month, except for the month of March, where the due date for TDS deposit is 30th April.
3. Non-filing or Late Filing of TDS / TCS Returns
TDS / TCS returns are required to be filed quarterly, and failure to file on time attracts penalties under Section 234E (late fees) and Section 271H (additional penalties).
How to Avoid:
- Maintain a TDS / TCS return filing calendar and ensure your returns are filed within the due dates. For TDS, the due dates are 31st July, 31st October, 31st January, and 31st May. For TCS, the due dates are 15th July, 15th October, 15th January, and 15th May.
- Prepare returns well before the deadline to avoid last-minute rush.
4. Using Incorrect TDS / TCS Rates
A frequent issue is deducting or collecting tax at incorrect rates, either high or low. For lower deduction / collection is a compliance issues and surely notices can be expected from the tax department.
How to Avoid:
- Stay updated with the latest TDS / TCS rates applicable for each type of transaction. Refer to government notifications and official resources.
- Use a proper TDS Compliance software that updates TDS / TCS rates and helps in avoiding errors.
5. Mismatch in TDS / TCS Returns and Payments
Discrepancies between the deductions / collection, with the amount deposited and subsequently reported in the returns is common error. Mismatches can lead to notices from the Income Tax Department and may delay in credit for deductees and collectees.
How to Avoid:
- Reconcile your TDS / TCS challan amounts with the return data before filing.
- Use validation tools to check for mismatches between challans and returns, and correct any discrepancies before filing.
6. Failure to Issue TDS / TCS Certificates
Deductors and collectors are required to issue TDS / TCS certificates (Form 16, 16A for TDS and Form 27D for TCS) to deductees and collectees. Failing to issue certificates is a compliance default.
How to Avoid:
- Ensure timely generation of TDS / TCS certificates after filing returns. The certificates must be issued within 15 days of the due date for filing the respective returns.
- Ensure timely download of the certificate files from TRACES.
7. Ignoring Amendments to TDS / TCS announcements
TDS and TCS laws and provisions undergo frequent changes and deductors, collectors who are unaware may inadvertently fail to comply, leading to penalties or incorrect filings.
How to Avoid:
- Stay informed about updates in tax laws, especially related to TDS / TCS, by regularly reviewing Income Tax Department notifications.
- Subscribe to updates or newsletters from tax professionals or government sources to receive timely information.
By proactively addressing these common pitfalls can ensure seamless TDS / TCS compliance, avoid penalties, and maintain good standing with tax authorities.