Tax Collection at Source Module of DigiTDS

Tax Collection at Source Module of DigiTDS is an automated solution which enables businesses to handle the expanded Tax Collected at Source (TCS) regime by using technology.

Related topics Tax Tax function operations

What Tax Collection at Source Module of DigiTDS can do for you

Tax Collected at Source provisions, under the Income-tax Act, 1961, have existed for decades but for a restricted set of transactions. With the intent to widen and deepen the tax net, using tax analytics, the Finance Act, 2020 has substantially expanded the scope of TCS provisions to include the following transactions, w.e.f. 1 October 2020:

Sr No

Nature of transaction

Monetary thresholds*

Applicable TCS rate*

1

Sale of goods

  • Seller’s turnover exceeding INR100m in the preceding financial year.
  • Receipt of consideration from a single customer exceeds INR5m.

0.1%

2

Sale of overseas tour package

No threshold

5%

3

Remittance of funds outside India under the Liberalised Remittance Scheme

Remittance of INR0.7m or more in a financial year by a remitter.

5%[i]

*subject to additional conditions

[i]. In case of remittance of INR0.7m or more in a financial year, which is out of education loan taken from any specified financial institution, applicable TCS rate is 0.5%

This was followed by introduction of Tax Deduction at Source (TDS) on purchase of goods, resulting into interplay in applicability of TDS and TCS on transactions involving goods w.e.f 1 July 2021.

In order to ascertain applicability of TDS v/s TCS provisions, sellers are required to understand whether buyer’s turnover in previous year exceeded INR 100 mn.  Further, where TCS continues to apply, sellers are required to under due diligence of buyer’s tax return filing status for previous two years, on crossing of certain monetary thresholds.

Expansion of TCS provisions and subsequent interplay between TDS and TCS provisions for transactions involving goods requires businesses to review the impact, collate declarations from buyers, undertake compliance check validations, create robust framework backed by data extraction, reconciliation capabilities to effectively comply with the new Tax Collected at Source provisions.

EY-SAP survey: Key findings

The key findings of EY-SAP survey* on preparedness of industry to adopt this new regime are as follows:

80%

considered issues around applicability of the new TCS provisions and updating systems and processes as biggest challenges while gearing up for the new TCS regime, updating Enterprise Resource Planning (ERP)systems and internal processes at 75%.

85%

admitted that they are not fully ready to deal with the various legal/tax implications of TCS provisions on varied business scenarios.

65%

admitted that their ERP/Information Technology (IT) systems will not be fully ready for the expanded TCS regime within time and they will need to consider other alternatives.

81%

recognized that reconciling data and ensuring accuracy due to TCS compliances will increase manual intervention for their tax teams.

65%

felt that their organization needs a digital solution to automate the entire TCS compliance and reporting life cycle.

70%

revealed that the automated TCS platform should go beyond basic compliance. It should assist in proactive reconciliations, data preparation for tax assessments, tax credits matching, etc.

*The survey findings are a result of analysis of the feedback shared by over 110 tax heads and chief financial officers (CFOs) to a joint survey done by EY and SAP to gauge the industry’s prepared towards the applicability of the new TCS provisions on sale of goods, starting 1 October 2020. The survey was conducted in September 2020.

How EY can help?

EY provides a robust solution to assist businesses in handling the expanded TCS regime by:

  • Advising on tax technical positions
  • Assisting in reviewing tax processes and Standard Operating Procedures (SOPs)
  • Reviewing changes in ERP data output, and
  • Leveraging Tax Collection at Source Module of DigiTDS for automation of TCS life cycle.

The entire process is led by combination of Tax and Technology specialists as we assist businesses in planning, roll-out and stabilization phase. 

Tax Collection at Source Module of DigiTDS, is a cloud-based, scalable and integrated solution available on Microsoft Azure (under alliance with Microsoft).

Tax Collection at Source Module of DigiTDS

Tax Collection at Source Module of DigiTDS can assist in:

  • Triggering e-mails to customers for turnover confirmation
  • Undertaking customer’s tax compliance check with Government’s reporting portal
  • Validation of customer master data (PAN) or Lower Collection Certificate
  • Tracking Tax Collected at Source on advances as well as for subsequent adjustments
  • Validation of TCS applicability
  • Timely TCS compliance
  • Highlighting discrepancies in relation to data in TRACES
  • Aiding assessment readiness by enabling reconciliations under tax laws (the Income-tax Law and the GST)
  • Enabling clients to spend more time on value-added activities
  • Tax Collection at Source Module of DigiTDS empowers businesses to effectively manage their financial and reputation risks and be compliant for the Tax Collection at Source regime.

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