With the end of Financial Year 2021-22, every company would start reconciling 26AS form with their TDS Receivable Ledger.
The amount of TDS/TCS appearing in form 26AS has to be claimed from the government, after reconciliation, when Income Tax Return is filed.
More often than not, in case of manual reconciliation – whatever amount is appearing in Form 26AS is claimed by the companies.
But there are few questions, which are not answered in this process, let us try analyze few of them
1. What about those amounts which are not appearing in 26AS form (Customers/vendors have deposited TDS/TCS)?
Let’s assume a case where a company doing business of INR 200 crores annually and sales reported in 26AS form in only INR 180 crores. TDS is applicable on all transactions.
TDS Rate applicable is 2% on majority of transactions
TDS shortfall in Form 26AS vs TDS Receivable ledger is going to be 40 lakhs.
If TDS Receivable reconciliation is done as a year-end activity, then INR 40 lakhs is going to be minimum working capital loss and the company is going to carry this plus cost of capital for at least one year until this amount gets reconciled in next financial year.
If companies follow a mechanism of transaction-by-transaction reconciliation every quarter then they can proactively reach out to their customers/vendors to deposit TDS/TCS on time to save on working capital.
2. There are some TDS credits available in 26AS form but corresponding sales transactions are not available in sales ledger. What should be done in such a case?
There are multiple reasons due to which this mismatch may happen
- If a company is dealing with proprietorship firms, where legal name and trade name can be different. In such case, TDS reconciliation team need to work with invoicing team to identify such customers to claim the credit
- A company may have done transactions with these customers in the last few years and the customers have deposited TDS in the current financial year. This links to point no 1 already discussed earlier
If a company is still not able to find out a corresponding sales transaction against which TDS credit can be claimed then as per Accounting Standards, the company cannot claim TDS credit and has to forgo such TDS amount appearing in 26AS form.
3. Customer paid advance and deposited TDS, which is appearing in form 26AS. Can we claim the full credit?
As per Rule 37BA of the Income Tax Act, 1961, the credit of TDS/ TCS can only be claimed for the revenue which has been recognized by the company in the books for the financial year and not against the advance. Hence, it becomes important to keep a reconcile 26AS on a regular basis to identify such transactions and treat them as per the standards.
These examples illustrate that if a company regularly reconciles 26AS with sales transactions and not treat it as a year-end activity then company can
- Save working capital plus cost of capital
- Build strong audit defence by setting up a repetitive standard process
- Save on time in last days of financial year closing
Using tax technology can help companies to automate TDS reconciliation, follow ups with customers and can help to reap all three benefits mentioned above
Mark September 13, 2022
Thanks for your blog, nice to read. Do not stop.