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TDS review and compliances for a spring manufacturing company

Engagement: The client was a wholly owned subsidiary of a leading manufacturing company in Japan, engaged in the manufacture of valve springs, clutch springs, tension springs, torsion springs, wire form and suspension springs at its two plants located in India.

The client wanted to have an independent assessment with regards to compliance with TDS provisions for domestic payments made by them. Also, since the volume of transactions was high, they wanted to outsource the compliance work on a regular basis.


  • Review of the accounts of both plants to verify whether tax has been deducted at source wherever required. If yes, whether it is deducted at the correct rate, under the correct section and deposited on time. We provided a TDS review report detailing the following:
    - Instances of short-deduction and non-deduction
    - Recommendations to deal with such instances to correct the said defaults
  • Certain policies adopted by the company did not concur to the legal position existing on the said matters. We also provided the detailed legal position and the way forward to tackle the said discrepancies. Some of them have been highlighted below:
    - The company did not make TDS on the service tax charged by vendors on their invoices
    - The company had not made TDS on software and internet payments which as per the retrospective amended brought in by Finance Act, 2012 attracted TDS. In fact, when the amendment was proposed in the Budget 2012, a tax alert to that effect was provided to the company to ensure timely compliance in view of the proposed retrospective amendment.
    - For clearing and forwarding charges, where the vendor provides a consolidated invoice for its charges as well as for reimbursements, the company made TDS on the agent’s charges alone.
    - Motor car perquisite was missed to be taxed in the hands of the employees
    - No TDS was made at the time of making advance payments
  • Providing advisory services on TDS
  • Review of data prepared for two plants for filing of the e-TDS returns – 24Q, 26Q and 27Q.  Volume of data reviewed : 5,415 entries reported in the fourth quarter e-TDS returns filed in FY 2011-12 and 6,248 reported in the first quarter e-TDS returns filed for FY 2012-13
  • Generation and review of Form 16A
  • Limited review of the process to capture TDS and identification of loopholes in the same. Some of our observations are highlighted below. We also provided recommendations to deal with these gaps in the process:
    - Certain expenses that attracted TDS were paid directly through the bank account and were not routed through the vendor’s account
    - Where the TDS rate is entered in the Vendor Master, the system provided a value of TDS for every invoice. However, the data entry operator could manually change the TDS amount.
    - The company’s ERP system did not have the facility to consider the lower/nil deduction certificates that any vendor may provide
    - As per the vendor coding system adopted by the company, the codes for purchase vendors start with ‘V’ and those of service vendors start with ‘S’. However, in course of our review we observed that these codes were used interchangeably for the said types of vendors
    - Where the PAN was entered as “Applied”, the system deducted the tax at normal rates instead of at 20%, which was a policy not in line with the tax laws.

Value Delivered

  • Timely review and submission of quarterly returns within the prescribed due dates
  • Substantial volumes handled with ease and ensured due and correct compliance
  • To adhere to the specific input received from the system, we developed a specific methodology taking into account the peculiar aspects of the system in order to ensure complete TDS compliance
  • Detailed TDS review report provided detailing policies adopted by the company that did not concur to the legal position existing on the said matters and also the way forward to tackle the same
  • Observations on the process for capturing TDS provided along with identifying gaps and ways to bridge the same.