Open Banking API integration for TDS compliance

Authored by Yogesh M Sharma, Director / Technology Products and Solutions / BDO Digital

In India, the intersection of Open Banking APIs and TDS (Tax Deducted at Source) is an evolving area with significant implications for both businesses and tax compliance. 

Open Banking APIs refer to the digital interfaces provided by banks and financial institutions that allow third-party developers to access financial data with the customer's consent. These APIs can include functionalities such as:

Account Information Services (AIS): Access to account balances, transaction history, and other account details

Payment Initiation Services (PIS): Initiating payments directly from a customer’s account

Fund Confirmation Services (FCS): Confirming the availability of funds before processing transactions

How open banking APIs can help TDS compliance 

Streamlined Compliance
•    Data automation: Open banking APIs can automate the collection and analysis of payee information, reducing the risk of errors and omissions.
•    Real-time Updates: Financial data can be updated in real-time, allowing for accurate TDS deductions based on the latest income and transaction information.

Enhanced Data Accuracy
•    Direct Access to Financial Data: APIs provide direct access to bank transaction data, improving the accuracy of income assessments and TDS calculations.
•    Reduction in Discrepancies: Real-time data minimises discrepancies that can arise from outdated or incorrect information.

Cost Efficiency
•    Reduced Administrative Costs: Automation lowers the need for extensive manpower to handle tax calculations and compliance, saving costs for businesses.
•    Lower Penalties: Accurate and timely TDS calculations reduce the risk of penalties for late payments or errors.

Challenges

Data Security: Protecting sensitive financial information is crucial. Strong cybersecurity measures must be in place.

Regulatory Landscape: Businesses must stay updated with evolving regulations related to both open banking and tax compliance.

Integration Complexity: Integrating APIs with existing systems may require technical expertise and investment.