Traditional TDS vs eTDS

The TDS software enables easy calculation of TDS payable and tax credits receivable by corporate/ individual during the previous year.

As per the Income Tax laws, every entity –be it a corporate or non-corporate- that makes payments to third parties are required to deduct Tax at source, called as TDS from the payments to be done and remit the amount so deducted to the Government. The payment can be done by depositing the monies at the branch of designated banks via challan.

The challan should accompany the TDS returns giving the details of the taxes deducted, the names of the deductee(s) and the bank where the amount is remitted. From the year 2003 onwards, the Government has

a)    Made it mandatory for corporate assesses to furnish their TDS returns in electronic mode only, which is called the eTDS return.

b)    However, this compulsion is not applicable to non-corporate assesses and hence they can file their returns in physical mode only.

c)    Option is also given to non-corporate assesses to furnish their return via electronic mode by using the NSDL portal.

d)    After filing the e-return, the details of the deductee(s) along with the challan has to be submitted to the Department. This serves as a control chart. The list can be furnished in a CD or a floppy diskette. The prescribed form is Form 27A which checks and balances the “Amount Paid” and Tax deducted at Source”.

In physical TDS era, the option was not available. Every assessee had to furnish their return in physical mode which ended up in manual errors and huge queues at the Department of Income Tax during the last date of filing. This mode used to increase the tension of default which directly affected the quality of returns being submitted. Even the scrutiny was difficult as some of the manual entries were erratic and unclear.

Due to the huge rush for filing, the persons acknowledging the receipt of TDS returns at Department level had no time to pre-scrutinise the returns, this led to filing of incomplete returns also. This gave scope for scrupulous assesses to evade tax by furnishing the erratic returns. By the time the Department scrutinizes the returns and initiates the proceedings, it would have taken years together, resulting in delayed justice. These kinds of loopholes encouraged more evasion of tax at the deductor’s level.

But after the year 2003, with the eTDS initiative, it saves not only the precious time of the tax return preparers, but also restricts incomplete returns being filed with the Department. The information furnished in Form 27A should match with the amounts mentioned in the eTDS return. These kinds of checks and balances were not available in the traditional TDS filing.

The click of a mouse is sufficient now with the TDS software in place. The software enables calculation of TDS percentages, generation of TDS statements, tracking of TDS certificates receivable and the like. Even the past data relating to TDS can also be retrieved using the TDS software.

Important features of TDS software

The importance of TDS software need not be mentioned in specific as any kind of software is a boon today especially with the technology replacing many manual systems. The technology is simply excellent in the sense that it rules out the possibilities of errors that are, but common in manual systems.

The TDS software is more or less like a robot that does everything one asks them to do. In a nutshell, the features are:

1. 1.    It keeps the data for any number of years
2. 2.    With the click of a mouse, one can get the details quarter wise, client wise, employee wise and whatever category one requires
3. 3.    The data can also be uploaded into the website of the Income Tax department  without any further manual workings
4. 4.    The issue of TDS certificates becomes easier
5. 5.    The e-signatures can also be loaded into the software with limited usage permissions
6. 6.    There are few chances of errors being done
7. The user of the TDS software is advantaged in the following ways:
8. 1.    Automatic calculation of TDS and TCS
9. 2.    Generation of e-TDs and e-TCS statements
10. 3.    Print the Challan and certificates
11. 4.    Import of data directly from the Tally package or any other accounting software
12. 5.    Can be used for any size and structure of the company
13. 6.    Easy calculation of TDS on salaries, payments to contractors, TDS on interest payments/ receipts, Commission, professional fee , rent and the like
14. 7.    The format of certificate is already available which enables the auto printing  of TDS certificates
15. 8.    The challan for filing to the Income Tax department can be generated with the software
16. 9.    Statements for quarterly returns of TDS can be generated in prescribed form 24Q, 26Q, etc
17. 10.  Validation of the statements online with linkage to the NSDL website
18. 11.  Keeps the backup of TDS data for many years (even though a company is required to maintain data for 8 years only), the software can maintain data for more than that.
19. 12.  They can restore the data if a physical copy is lost.

The only care one must exercise is that the entry made is accurate. And that is it!! The software calculates the rates of TDS for different service providers, TDS on quarterly basis, reminder for filing returns on time, TDS for employees, TDS receivables, TDS payable and so on.

In a LAN network environment, the software can have multiple users with checks and balances in place which allows data to be fed from different locations and a moderator at the helm of all who authenticates the entries on periodical intervals.

The formula can be pre-fed into the system so that as soon as entry is made, the software recognizes the particular entry from the formula and calculates the TDS and gives the output in the form of

• a)    whether TDS is already paid
• b)    is there any excess TDS payments done
• c)    Any adjustments to TDS
• d)    Should advance tax be paid
• e)    Is the employer required to follow up for TDS certificates from clients
• f)     Any pending TDS calculations
• g)    Missing data, if any

Status of Tax assessments and TDS links to that assessments/ scrutiny

Importance of TDS in India

TDS is the acronym for Tax deducted at source. The article is incomplete without the mention of TDS software which is a handy tool to track the TDS payments into the Government treasury and any lacunae in deducting the TDS. It is also easy for individuals to get their salary certificates and TDS certificates at the click of a mouse.

           

In India, the income from unorganized sector is more as compared to that from the organized sector. The monies generated from the unorganized sector like unregistered associations, illiterate individuals and the like escapes the Tax purview as there are many escapades for them to avoid tax due to their size and huge burden on the department to scrutinize each and every file. This is paving way for the total tax burden being taken up by the organized sector. With a view to streamline this lacunae, the Ministry of Finance introduced the concept of TDS wherein the tax liability is spread across the sectors in economy. The monies generated from the unorganized sector, when comes into the hands of individuals becomes taxable. The TDS, instead of making individuals pay taxes, has fixed the onus to pay taxes by the source of income directly.

Earlier, the people working in unorganized sector never used to file tax returns and it was difficult for the department to track the errant public due to the heavy volume of filings done during April till September. The volume is a mind boggling number when there are revised returns, rectified returns, NIL returns and belated returns being filed by millions of Indian across the country. Now, as TDS is made compulsory, the employees get the salary as net of Taxes and the Government simply tracks the taxes deposited by the employer (both in organized and unorganized sector). Whether or not the individual files the Tax returns, the Government is sure that the taxes are received into its treasury to run the administrative expenses.

Further, in India where the illiteracy rates are comparatively high, people seldom make errors in filling the accurate data in their Income Tax returns. Though not intentionally, the error is pictured as an illegal act of the individual. In such cases, when TDS is deducted, the Assessing Officer can be sure, at least to some extent that the taxes are paid to the Government from the source of income directly.

As the onus of remitting the tax deducted to the Government treasury lies on the person deducting the tax, and that too within the prescribed period of time, the tracking of defaults become pretty easier for the Income Tax department too.

The advantages of TDS software can be clearly explained by using the following example: if Mr A is a businessman, he receives money from client X and has to pay salary to Mr Y. the TDS software keeps track of the taxes deducted by client X and also the taxes deducted from Y. This facilitates the synchronization of data and issue of salary certificate to the employees. And also facilitates the follow up of the TDS certificates from the client. 

How to save TDS legally?

With the green initiative being taken up by the Indian Government, almost every department is going the e-way. The Income Tax department is no exception and the TDS software is one useful tool in this direction to save paper-save environment.

Tax is deducted at source from the gross amount payable. The receiver seldom has any say in the TDS aspects. However, the onus to pay this amount back to the government lies on the person deducting the tax, but the receiver is not too happy to pay the TDS via the source of income.

Hence, the Finance ministry has given some relaxation to save TDS legally by using certain planning techniques:

1.  Taxes are deducted at source by banks on interest on Fixed deposits, when the interest exceeds Rs 10,000/- per annum. It is advisable to diversify the fixed deposit amount into different banks so that one does not receive Rs 10,000/- as interest from a single bank.

2.  Salaried employees can save under Chapter VI-A of the Income Tax Act, 1961 upto Rs 1,00,000/- per annum. This reduces the taxable income per year thus reducing the TDS amounts also.

3.  For professional services rendered, there is no possible way to save TDS legally. However, a TDS exemption certificate can be obtained from the Assessing officer  for professional fee or technical services as per Section 194J of the Income Tax Act, 1961.

4.  Professionals and businessmen can also reduce their TDS liability by providing proofs for business expenses. Though this is not considered as a strict method of TDS saving, it can reduce the tax burdens.

5.  Also, one can submit form 15G or Form 15H (for senior citizens and citizens below 65 years of age respectively) if they do not have any taxable income in the previous year. The form should be submitted to the concerned person at the source of income (be it a bank or a Company or otherwise) before 31^st March of the previous year.

From the above article, one can observe that a proper planning of the income receipts and due submission of relevant papers before 31^st March of the previous year will definitely reduce the Tax deduction at source. The tax savings so done is in a legal way. Tax avoidance is illegal whereas tax saving is legal. One can also set aside certain sums of money for long term savings such as savings in the schemes mentioned under chapter VI-A of the Income tax Act, 1961 and also get TDS relief for that particular year. However, the returns of few of those investments are taxable in the year of receipt.

The green initiative as mentioned before has reduced the paper work to a large extent. The TDS software is one such move by the technical guys out there, who have worked extensively on providing a fool-proof electronic method to have complete information on Tax deducted at source. The TDS software is capable of capturing the data from the Tax deducted and calculations as may be required so that there are minimum errors while paying the TDS amounts back to the Government.