Tax Deducted at Source (TDS) is a critical aspect of a business’s statutory compliance framework in India. For employers, vendors, and financial institutions, timely and accurate filing of TDS returns is not just a legal requirement but also a foundation for clean books of accounts and audit readiness. In this blog, we’ll explore the serious consequences of non-filing or incorrect filing of TDS returns, especially in the context of a business tax audit.
Whether you’re a startup, SME, or large business operating in Kerala or elsewhere in India, you must understand how TDS compliance impacts your tax audit outcomes. Let’s examine the nuances, legal risks, and preventive solutions with the help of professional TDS filing experts like OurTaxPartner.com.
What Is a TDS Return and Why It Matters?
TDS is a mechanism under the Income Tax Act, 1961 that mandates the deduction of tax at the source of income by the payer (business or employer). The deducted amount must be deposited with the government and reported through TDS returns—filed quarterly via forms such as 24Q, 26Q, 27Q, and 27EQ.
The filing of TDS returns ensures transparency in income reporting, validates tax credit for the deductee, and allows for smooth issuance of Form 16/Form 16A. Most importantly, it plays a vital role during statutory audits under Section 44AB of the Income Tax Act.
Common TDS Filing Mistakes That Trigger Audit Red Flags
- Not filing TDS returns for one or more quarters
- Filing incorrect PAN details of deductees
- Mismatch between TDS deducted and deposited amounts
- Failure to issue Form 16/16A to employees or contractors
- Late filing of returns leading to interest and penalties
- Incorrect nature of payment codes in TDS forms
Consequences of Non-Filing or Incorrect TDS Filing During Tax Audit
1. Disallowance of Expenses Under Section 40(a)(ia)
If TDS is not deducted or not deposited on payments made to vendors or contractors, the Income Tax Department may disallow such expenses while computing the taxable income. This can significantly increase the tax liability of the business.
2. Penalties and Interest
The law mandates penalties for non-compliance:
- Section 234E: Late filing fee of ₹200 per day till the return is filed, subject to the total TDS amount.
- Section 271H: Penalty of ₹10,000 to ₹1,00,000 for incorrect filing or failure to file returns.
- Section 201(1A): Interest at 1% per month for delay in deduction and 1.5% per month for delay in payment.
3. Audit Qualifications
Auditors are required to report TDS compliance in Clause 34 of the Tax Audit Report (Form 3CD). Any delay or discrepancy in TDS filing is treated as a qualification or adverse remark in your audit report, which can affect credibility with stakeholders and financial institutions.
4. Increased Risk of Scrutiny
Non-compliance in TDS matters is a major trigger for scrutiny assessments by the Income Tax Department. It opens the door to detailed inquiries and potential litigation.
5. Problems for Vendors and Employees
Incorrect TDS filings affect your vendors and employees as well, because they may not get accurate credit in Form 26AS. This can lead to disputes, loss of trust, and delay in employee ITR processing.
How to Ensure TDS Accuracy and Avoid Audit Issues?
The best way to stay compliant is to follow a structured and expert-led process for TDS management. This includes:
- Maintaining accurate deductee and PAN details
- Timely deduction and deposit of TDS
- Automating TDS calculations using updated software
- Outsourcing TDS filing to professionals who understand quarterly compliance nuances
- Reconciling challans, payment vouchers, and bank statements monthly
At OurTaxPartner.com, we offer end-to-end TDS compliance services in Kerala and across India. Our team ensures every form—whether 24Q, 26Q, 27Q, or 27EQ—is filed accurately and timely, minimizing any risk during audits.
Our Expert TDS Filing Services Include:
- Quarterly TDS return filing
- Employee Form 16 generation
- Correction and revision of previously filed returns
- Compliance tracking and deadline reminders
- Support in responding to TDS-related notices from the IT Department
Conclusion
In summary, non-filing or incorrect filing of TDS returns can have serious implications for your business, especially during tax audits. It can lead to expense disallowances, penalties, and even damage your company’s financial reputation.
Don’t take chances with TDS compliance. Partner with professionals who ensure your business remains audit-ready year-round. Click here to learn more about our expert TDS services and schedule a consultation today.
