The Government of India introduced TDS (Tax Deducted at Source) as a valid withholding tax with the enactment of the Income Tax Act of 1961. Initially, the TDS provisions were applied to specific payments, such as salaries, interest, and payments to contractors. Over time, these provisions were expanded to professional fees, rent, commission, etc. With the introduction of the Finance Act 2021, TDS has been extended to goods. Today, the majority of the B2B invoices have a TDS provision.
Common Practices that Pose Challenges in 26AS Reconciliation
- Imagine you are a Corporate and you sell your products regularly to your 100 buyers. Say you have ten invoices a month on average for each of your buyers. You invoice an average of 1000 invoices a month.
- Some buyers will pay you one payment for each invoice, whereas others will pay in bulk. Each buyer will deduct TDS from their invoice payments. Some buyers may share certificates for nil/lower TDS deductions. Some buyers will email you information on all their deductions; some may not.
- You will not be able to avail the benefits of withholding taxes in your annual tax return until the buyer has paid the TDS to the Government, filed their TDS returns, and provided confirmation. You will need to account TDS deducted before confirmations in a clearing account until you receive government confirmation that your buyer has paid the TDS.
- Typically, consolidated views of TDS paid confirmations are received through the Form 26AS statement in the Income tax portal. Unfortunately, the Form 26AS statements will not contain the invoice information, so you must build a match based on the amount, the posting period, TAN number, PAN number and other possible permutations and combinations.
- You might also have to chase your buyers if you cannot find a match or are sure they have not paid TDS to GOI.
Now imagine the same scenario of 100,000 invoices a month or more. The complexity, the back and forth in communication, and the potential reversal of the provisioned TDS entries in your ERP (book of accounts) will cost you anywhere between INR 40 to INR 50 per invoice based on your labour and operations costs.
Global PayEX has been solving this problem for its customers, such as Tata TeleServices, Stanley Black & Decker, Marico, and others, by implementing its 26AS reconciliation software powered by its machine learning product, AlgoriQ.
Overcoming the Challenges of 26AS Reconciliation with AlgoriQ
- AlgoriQ auto-reads payment advice emails/images and employs Optical Character Recognition and Machine Learning to understand the deductions claimed.
- AlgoriQ automates provisioning of TDS entries into your ERP (book of accounts).
- AlgoriQ sends dunning emails and reminders when the TDS information is not provided.
- AlgoriQ identifies if lower TDS deductions are claimed and requests for lower TDS certificates to be uploaded.
- AlgoriQ scans, verifies, and stores the lower TDS certificates or TDS exemption certificates in its digital store.
- AlgoriQ tracks the provisioned TDS entries against 26AS entries for reconciliation.
- AlgoriQ reads the Form 26AS statements and matches the entries against the provisioned ERP entries with a 98.8% success rate.
- AlgoriQ sends exception emails to your customers for confirmation and final resolution.
- AlgoriQ can handle similar flows for TDS on GST.
- AlgoriQ automatically reverses the provisional entries posted into your ERP for the cases where deductions remain unconfirmed over a predefined reversal period (typically 180 days from provisioning). This helps relieve the tax liability associated with the unconfirmed deductions provisioned and updates the balance due to be paid against those invoices.
To learn more about how AlgoriQ can help you automate TDS reconciliation, get in touch with our experts.
AlgoriQ’s Form 26AS Reconciliation solution can be also implemented for TCS reconciliation referring Form 26AS and books of accounts.
