1. Just a Hypothetical concern:

It was a sunny morning of the July month for Mr.X, an employee with one of the major IT companies of India. He walked into the office of his consultant for getting some assistance in filing his tax returns for the FY 2015-16. After a brief chat on the nature of income, Mr.X submitted the details of all the sources of income with all relevant documentary evidences, which he has precisely maintained.

After having the detailed look at all the documents, the consultant politely asked “Mr.X, you have earned Rs.150,000/- as interest from Y bank, but as per your records it’s just Rs.70,000/-. Can you please clarify us on this ??”. This question was a big shocker to Mr.X and he immediately replied “Sir, my income from Y bank for the FY 2015-16 is indeed Rs.70,000/-, from where you are referring the amount of Rs.1,50,000/- ??”. The consultant promptly replied “Mr. X it’s from your form 26AS statement for the AY 2016-17 (FY 2015-16)”

Now, it was even a bigger shock to Mr.X to hear this and he enthusiastically asked “Sir, what is this form 26AS statement and from where you got this ??”

Now, this may be a hypothetical situation, but certainly not isolated. It happens in many of the cases and before giving any answer to this question, let us understand what exactly is form 26AS, what is it’s relevance and how important is it to reconcile form 26AS and books of accounts to avoid any tax litigations.

2. What is Form 26AS statement?

• Form 26AS is a statement which consists of the details of the tax deducted by the payers, amount of income credited by the payers, details of the advance tax and self assessment taxes paid, etc.
• While making certain payments, the payer is under statutory obligation to deduct the tax at source and remit the same to the credit of the central government, within the prescribed time limit. 

• Additionally, on a quarterly basis the deductor is required to file a statement of TDS deducted, normally called as etds returns. Such returns filed by the deductor, will be linked to Form 26AS of the payee. 

• Further, once the etds returns are filed, the deductor has to issue form 16/16A to the payee. 

• Thus, form 26AS contains the details of various taxes deducted on behalf of the payee: may be assessee’s employer, bank, or even a tenant. 

• In addition to above, it also contains the details of any advance tax or self-assessment tax that you may have paid during the year. Apart from that, details of tax collected at source (TCS) are also mentioned in this statement. It will also state details of any income tax refund received from the tax department during the relevant financial year and it also reflects details of Annual Information Return (AIR), which is filed by different entities based on what an individual has invested or spent, mostly high-value transactions. 

• We can refer the following chart for the better understanding of Form 26AS:

 

                                                                       

 

                                                        

 3. Relevance of Form 26AS:

• Form 26AS statement is a very important document for all classes of the taxpayers, may be individual, partnership firm, Company, etc as it consists of the details of taxes deducted on account of the taxpayers from various parties, may be employers, tenants, service recipients, etc. 

• The taxpayer can download form 26AS from his Income tax efiling web portal and it is the responsibility of the taxpayers to check whether all the amounts appearing in form 26AS is matching with the books of accounts, if maintained by the taxpayers. 

• There may be various instances wherein the amounts appearing in form 26AS of the taxpayer will not match with the books of accounts maintained by the tax payers and some of such instances are summarized as follows:

 

                                            

In addition to above, there are certain common examples for mismatch of 26AS, which are captured in the following table. 

 

               

4. Reconciliation of Form 26AS with Books of accounts:

• Wherever there is a mismatch of the income as appearing in form 26AS and the numbers as per books of accounts, it becomes very critical for the tax payers to reconcile all such differences, before filing the return of income. 

• As form 26AS is the part of the data base of the income tax department, the income appearing in such form is expected to be declared in the income tax returns of the tax payers. 

• The differences, if any, have to be properly substantiated, with documentary evidences. 

• There may be certain cases wherein errors may have been committed by the payer and it would be the responsibility of the taxpayers to request the payers to revise the etds returns to get them corrected. 

• Further, while filing the return of income, it should be ensured that the no TDS is claimed, without declaring the income attributable to such TDS. 

• In case the income is partially considered in one FY and partially during the subsequent FY, the TDS should be claimed proportionately and suitable comment should be made in this regard in the tax computation statement.
• Most of the income tax returns Forms now permit for the carry forward of the TDS and this facility may be suitably utilized, wherever applicable. 

• In case if there is no proper reconciliation, the tax authorities may not allow the credit of certain portion of TDS, which is not appearing in Form 26AS. 

5. Tax auditor’s role in Form 26AS reco:

• Though, there is no specific reporting requirement in Form 3CD by the tax auditor on the taxes deducted on behalf of the taxpayer/client, yet it is always advisable to instruct the client to make proper reconciliation of form 26AS statement before filing the return of income. This helps to claim proper tax credit in the income tax returns. 

• It is further advisable that the tax auditor should compare the amounts as per Form 26AS with the TDS amount claimed by the client and instruct the client to make proper reconciliation of the differences, if any. 

6. Conclusion:

• From the above discussion, we can understand the importance of 26AS, its verification, it’s mapping with books of accounts and possible repercussions if no such matching is done. 

• Hence, it is always advisable to properly verify each and every entry in Form 26AS statement and take the necessary corrective actions, beforehand. 

• Now, coming back to the concern of Mr. X, the consultant analyzed the issue, explained the contents of Form 26AS, its importance and guided Mr.X to approach Y bank immediately and request for the revision of their etds returns, so that the correct amount will appear in Form 26AS statement.