How to reconcile TDS effectively?

By Avdhesh Sharma — In Accounting Process, Process Automation, Tax Automation, Tax Law Changes — December 2, 2021



TaxReco has been discussing it since Feb 2021 as to how TDS Section 194Q will impact or has already begun impacting the way that tax teams work in companies across industries.

For one thing, the spotlight has been put on Form 26AS reconciliation/ TDS Reconciliation

Service sector organizations were doing 26AS reconciliation for many years to reconcile TDS deductions under different sections of TDS like 194C, 194J etc.

It has become crucial to get timely and accurate Form 26AS reconciliation done to save working capital, ensure accurate TDS credit claims and create a strong audit defense.

As companies look at ways to adapt to this change, there are multiple ways (automation/ reconcile manually) to handle this and there are multiple questions being asked in different forums. Let us explore these questions with possible pros and cons

Is there really a need for automation? Aren’t existing spreadsheets & tools sufficient?

Well, there are four  aspects to consider here.

Rigors of Transaction-Wise Reconciliation

If Form 26AS reconciliation only involved TAN number wise totals matching, one can do it with spreadsheets. However, Form 26AS reconciliation is more detailed and complex. Following are three such scenarios which cannot be handled by using excel sheets alone.

  • Transaction wise reconciliation is the requirement as per Income Tax Act Section 37B and TDS advance entries need to be adjusted and remaining balances should be carried forward.
  • There are entries in 26AS form which are pertaining to previous financial years and those entries should be adjusted against corresponding sales entries
  • It may happen that a customer may deduct TDS from multiple TAN numbers and this would need to be accounted for

Data Volumes

Form 26AS reconciliation can definitely be done using spreadsheets alone till the records are limited. For eg. transaction volume of up to 15,000 line items can be handled manually if an organization has a highly skilled person to do the job. Handling more data volume, however, becomes tedious and consumes way too much time to be done manually.

People Management

In this case, process becomes highly dependent on specific individuals. When person-in-charge changes, process changes too, thereby compromising the sacrosanct audit trail. Using technology, this change can be more robustly handled and audit trail maintained.

Follow up Communication

70% of transaction data does not reconcile when reconciliation is done for the first time. Any reconciliation activity hence will inevitably be followed by initiating communication with vendors and customers to get these unreconciled items to close. This will be beyond the scope of a spreadsheet, whereas a technology platform will integrate this end of Form 26AS reconciliation as well into the workings of the tool.

Finance teams have their own existing reporting frameworks for reconciliation. How can technology platform help?

Companies can expect reporting more streamlined, real time and suited for management, tax audit including

  • faster view of TDS that should be claimed leading to a faster TDS claim from the government.
  • A clearer, far more accurate look into the final output of customer reconciliation.

Apart from this, more detailed reporting can be provided including section wise reports for 194C, 194J, 194Q etc. which will be crucial for tax audits.

Does tax technology help in expediting responses to Assessment notices given the introduction of faceless assessments?

In line with the  Government of India’s (GOI) efforts to use technology for its tax processes, it has introduced faceless assessments. This implies that the GOI now initiates tax assessments and expects replies within the specified time as per the prescribed formats, all using technology. Delay in replying or furnishing inaccurate information can lead to penalties and missed tax claims. Hence companies need to be on top of their technology game.

Technology can help them in building a robust audit trail by having consistent, accurate, complete reconciliation of all the transactions. The repository of information created hence can help in filing responses on time.

To put it in a nutshell, tax processes need to evolve to accommodate newer regulations. Use of spreadsheets and MS excel can limit the extent of this evolution. For the long haul, there is a need to transition to right tax technology platforms and simplify existing tax processes.