Tax Deducted at Source (TDS) compliance is a crucial aspect of tax regulations for businesses and individuals. However, many taxpayers make common mistakes that can lead to penalties and legal issues. Here are some of the most common mistakes and ways to avoid them:
1. Incorrect TDS Deduction
Mistake: Deducting TDS at an incorrect rate or not deducting it when required.
How to Avoid: Always make sure to check existing rates in force for specific Financial Year along with threshold limits.
2. Non-Deduction or Short Deduction of TDS
Mistake: Failure to deduct TDS or deducting a lower amount than required.
How to Avoid: Verify TDS applicability for every transaction and ensure proper calculation based on the nature of payment or always check the latest TDS rates under the Income Tax Act and if LDC available than verify whether the recipient has a valid Lower/Nil TDS Deduction Certificate (Form 13)
3. Late Deduction and Payment of TDS
Mistake: Deducting TDS late or not depositing it within the due date (7th of the following month or 30th of following month in case of last month of Financial Year)
How to Avoid: Set reminders for TDS payments and ensure timely deduction at the time of credit/payment, whichever is earlier.
4. Non-Filing or Late Filing of TDS Returns
Mistake: Missing TDS return filing deadlines (Quarterly – Form 24Q, 26Q, 27Q,27EQ, Form 15G/H (in case of Banking Companies).
How to Avoid: Maintain a compliance calendar and ensure timely filing of returns to avoid penalties and interest.
5. Incorrect PAN or Non-Availability of PAN or PAN – Aaadhar not linked
Mistake: Incorrectly entering PAN details or deducting TDS without obtaining PAN or deducting at normal rate though PAN – Aadhar not linked or 206AB/206CCA specified cases leading to a higher deduction (20%).
How to Avoid: Verify PAN details with the Income Tax Department’s Report Insight site before filing returns or deduct TDS at higher Rate as prescribed in Act to avoid default on Traces
6. Mismatch in TDS Challan Details
Mistake: Errors in challan details like incorrect assessment year, TAN, or section codes.
How to Avoid: Double-check the details before making payment and use the OLTAS system to verify challan status.
7. Failure to Issue TDS Certificates (Form 16/16A)
Mistake: Not issuing TDS certificates to deductees within the prescribed time.
How to Avoid: Generate Form 16 (for salary payments) and Form 16A (for non-salary payments) through the TRACES portal and make sure to provide them Form 16/16A within 15 days of filing a return.
8. Wrong Section Selection While Deducting TDS
Mistake: Applying TDS under the wrong section (e.g., using 194C instead of 194J).
How to Avoid: Refer to the latest provisions and cross-check with experts if necessary.
9. Ignoring TDS on Non-Resident Payments
Mistake: Not deducting TDS on payments to foreign entities or individuals.
How to Avoid: Check the applicability of Section 195 and refer to DTAA (Double Taxation Avoidance Agreements) if required.
Conclusion
To ensure smooth TDS compliance, businesses should use automated TDS compliance software, set up internal audit mechanisms, and keep updated with the latest tax laws.
