TDS / Withholding Tax Compliance (TAN, Returns, Corrections)

TAN — Tax Deduction Account Number — is a 10-character alphanumeric number issued by the Income Tax Department under Section 203A. It is mandatory for every person who is required to deduct TDS or collect TCS. This includes all companies and LLPs (irrespective of size), individuals and HUFs who are subject to tax audit, and individuals and HUFs not subject to audit who are required to deduct TDS under specific sections such as 194IB (rent above ₹50,000/month). Sections 194IA (property purchase above ₹50 lakh) and 194IB (rent by individual/HUF not subject to audit) are exceptions — these allow deposit via Form 26QB/26QC without a TAN. Quoting a wrong TAN or using PAN in lieu of TAN is a ₹10,000 offence under Section 272BB.

TDS deducted during a month must be deposited to the Central Government by the 7th of the following month — using Challan 281 on the NSDL portal or through authorised bank branches. The only exception: TDS deducted during March must be deposited by 30 April (not 7 April). Government deductors (DDOs) must deposit the same day the deduction is made if using their own account, or the next working day. Interest under Section 201(1A) for late deposit is 1.5% per month (or part of month) from the date of deduction to the date of actual deposit.

These are two distinct interest charges under Section 201(1A). Interest for late or non-deduction runs at 1% per month (or part of month) from the date on which TDS should have been deducted to the date it is actually deducted. Interest for late deposit runs at 1.5% per month (or part of month) from the date of deduction to the date of actual deposit to the government. Both can apply simultaneously — for example, if TDS on an April invoice was not deducted until June (1% for April and May) and deposited in July (1.5% for June). The interest is computed on the TDS amount and is not deductible in computing income.

For Form 24Q (salary TDS) and Form 26Q (non-salary resident TDS) and Form 27Q (non-resident TDS): Q1 (April–June) by 31 July; Q2 (July–September) by 31 October; Q3 (October–December) by 31 January; Q4 (January–March) by 31 May. The Q4 deadline is 31 May — not 30 April — because employers need time after year-end to finalise salary computations. For Form 26QB (property TDS, Section 194IA) and Form 26QC (rent TDS, Section 194IB): filed within 30 days from the end of the month in which deduction was made — these are challan-cum-statement forms, not quarterly returns.

Form 16 is the annual TDS certificate issued by an employer to every salaried employee from whom TDS was deducted under Section 192 during the financial year. It has two parts: Part A (generated and digitally signed from TRACES — contains employer TAN, employee PAN, assessment year, and TDS deposited per quarter linked to challan) and Part B (the detailed salary breakup, perquisites, deductions, and tax computation — prepared by the employer). Form 16 must be issued by 15 June after the end of the financial year — i.e., Form 16 for FY 2025-26 must be with employees by 15 June 2026. Every employee who had TDS deducted is entitled to a Form 16. Failure to issue attracts ₹100 per day per certificate.

Under Section 206AA, if a deductee does not provide a valid PAN, TDS must be deducted at the higher of the prescribed rate, 20%, or the rate in force. If a PAN is provided but is incorrect, the TDS credit does not reflect in the deductee's Form 26AS — because credit is credited to the wrong PAN. The deductee complains of non-credit; the deductor receives a TRACES short-credit notice. A correction to the TDS return must be filed to update the PAN. TRACES allows online corrections for PAN errors within prescribed timelines. PNPC validates all PANs against the IT portal before filing every quarterly return.

Under Section 206AA, if the deductee does not furnish a valid PAN, TDS must be deducted at the highest of: the rate specified in the applicable TDS section; 20%; or the rate in force. In practice, 20% is almost always the result for non-PAN situations. For non-residents, an additional provision applies: TDS cannot be less than 20% even if the DTAA rate is lower, unless a PAN is provided and a lower Section 197 certificate is obtained. The rule is strict — no exception for deductees who claim they have applied for PAN but not yet received it.

TRACES (TDS Reconciliation Analysis and Correction Enabling System) at tdscpc.gov.in is the portal maintained by the Income Tax Department for TDS-related functions. Deductors use it to view their TDS return status, download Form 16/16A certificates (which must be generated from TRACES to be valid), view and respond to defaults and demands, file correction statements for errors in filed returns, and access their TAN ledger. Deductees use TRACES to view Form 26AS TDS credits, download Form 16A, and check if their TDS credit is correctly reflected. PNPC requires TRACES login access to file quarterly returns, generate certificates, and reconcile credits.

A valid Form 15G (or Form 15H for senior citizens) is a self-declaration by the deductee that their total income for the year is below the taxable threshold and TDS need not be deducted. It is accepted only from individuals and HUFs — not from companies, LLPs, or firms. For 15G: the declarant must not have paid income tax in the preceding year and must be below 60 years of age. For 15H: for senior citizens (60+), the condition is simply that tax on estimated total income is nil. If the conditions are met and the form is duly completed with PAN, you may not deduct TDS. However, you must retain the 15G/15H, report it in your quarterly return, and upload it on TRACES. If the form is later found to be invalid — wrong PAN, conditions not met — you as deductor remain liable for the TDS.

Section 194J requires TDS on fees for professional services and fees for technical services paid to a resident, once aggregate payments to that payee exceed ₹50,000 in the financial year (this threshold was raised from ₹30,000 effective 1 April 2025). The rates differ: professional services at 10%; technical services at 2%. Professional services include: doctor, lawyer, architect, engineer, accountant, interior decorator, consultant, and any profession notified. Technical services means any consideration (other than construction, assembly, mining or like project) for rendering any managerial, technical or consultancy services — including provision of technical know-how or services requiring technical skills. Call-centre services, back-office processing, and software maintenance have been held to be technical services at 2%. The distinction matters — misclassifying a technical service as professional (and applying 10% instead of 2%) does not create a default, but misclassifying a professional fee as technical (2% instead of 10%) creates a demand for the 8% shortfall. Under the Income Tax Act 2025 (effective 1 April 2026), this provision is carried forward as Section 393(1) with technical and professional fees listed as separate table items — the rates and the ₹50,000 threshold are unchanged; only the citation changes.

No. Under Section 194IA, any buyer of immovable property (land or building or both) whose total consideration exceeds ₹50 lakh is required to deduct TDS at 1% from the sale consideration — including stamp duty surcharges if part of the agreement value. This applies to individuals, HUFs, and all other buyers — not just companies. The deduction is made at the time of payment of each instalment (not just the final payment). Form 26QB is the challan-cum-statement for this deduction — no separate TDS return filing is needed, but 26QB must be filed within 30 days from the end of the month in which deduction was made. Form 16B (downloaded from TRACES) is then issued to the seller as the TDS certificate.

Section 195 applies to any payment to a non-resident (or foreign company) that is chargeable to income tax in India — including royalties, interest, dividends, technical service fees, capital gains, and other income. The rate depends on the nature of income and is governed by either the Income Tax Act rates or the applicable Double Taxation Avoidance Agreement (DTAA) rate — whichever is more beneficial to the deductee (if the deductee provides a valid Tax Residency Certificate and Form 10F). Act rates under Section 115A: royalties and fees for technical services at 20% (doubled from 10% by the Finance Act 2023, effective 1 April 2023) plus applicable surcharge and cess; interest income rates vary by category (5% to 20%) depending on the type of borrowing/instrument. Most India treaty partners provide a lower royalty/FTS rate (commonly 10-15%), so the DTAA rate is usually claimed once a valid TRC and Form 10F are on file. If the exact taxability is in doubt, the payer can make a Section 195(2) application to the assessing officer for a determination of the appropriate TDS rate. Non-deduction on Section 195 payments attracts disallowance of the expense under Section 40(a)(i) in addition to TDS demand.

The TDS amount itself (the tax withheld) is not an expense — it is part of the government's tax collection mechanism. It does not reduce your taxable income. The interest paid for late deposit of TDS (Section 201(1A)) is also not deductible — it is a statutory charge. However, the payment on which TDS was deducted — the salary, professional fee, rent, or contractor payment — is deductible as a business expense under the applicable section of the Act, subject to the condition under Section 40(a)(ia) that TDS has been deducted and deposited. If TDS is not deducted or deposited, 30% of the payment is disallowed as a business expense under Section 40(a)(ia).

TDS demand notices are generated by TRACES/the assessing officer when there is a discrepancy between TDS deducted, TDS deposited, and TDS returns filed. Common triggers: short deduction (rate applied was lower than required), non-deduction on a payment subject to TDS, mismatch between challan amounts and return data, late deposit (interest computed and demanded), PAN errors leading to credit mismatch. The intimation or demand specifies the section, the default type, and the amount. The response must be filed on TRACES (for online corrections) or through the jurisdictional assessing officer (for written explanations). Each demand has a response deadline — missing it converts the demand to a certificate for recovery.

The Income Tax Act 2025 took effect from 1 April 2026, replacing the Income Tax Act 1961 for transactions from that date. Any amount paid or credited on or before 31 March 2026 continues to be governed by the 1961 Act's provisions (Sections 192, 194A, 194C, 194H, 194I, 194J, 195 etc.); amounts paid or credited on or after 1 April 2026 fall under the corresponding withholding provisions of the 2025 Act. The 2025 Act consolidates the roughly 60 separate TDS sections of the 1961 Act into a small number of tabular provisions — broadly Section 392 for salary TDS and Section 393 for all other TDS on residents and non-residents, each payment category referenced by a table item and numeric code rather than a standalone section number. Deductors filing for periods from 1 April 2026 onward must quote the corresponding 2025-Act table item; continuing to cite the old section number for post-transition transactions can cause validation errors on the return-filing utility.

Section 194C requires any specified person (company, firm, individual/HUF under tax audit, and several other categories) making a payment to a resident contractor for carrying out any work — including supply of labour — to deduct TDS. The rate is 1% where the payee is an individual or HUF, and 2% for all other payees (companies, firms, etc.). TDS applies only if a single payment exceeds ₹30,000, or the aggregate of payments to that contractor in the financial year exceeds ₹1 lakh. No TDS is required if the contractor is engaged purely for the sale of goods without any works element, subject to conditions. Transporters owning ten or fewer goods carriages who furnish a declaration with PAN are exempt from TDS under Section 194C(6).

Tax Collected at Source (TCS) under Section 206C is a mirror mechanism to TDS — instead of the payer withholding tax, the seller/collector collects tax from the buyer at the time of sale for specified goods and transactions: scrap, minerals, timber and forest produce, motor vehicles above ₹10 lakh, overseas tour packages, and remittances under the Liberalised Remittance Scheme above the prescribed threshold. Form 27EQ is the quarterly TCS return, filed on the same due dates as Form 26Q. A person can simultaneously be a TDS deductor (on payments made) and a TCS collector (on sales made) and must maintain separate TAN-linked compliance for both.

If a deductor has a valid TAN but made no TDS-liable payments in a quarter, filing a Nil TDS return is not mandatory, but it is strongly advisable to file a 'Nil Statement' declaration on TRACES. Without this, TRACES may still flag the TAN as a 'defaulter' for the quarter it expected a return, and the deductor may receive a non-filing notice requiring an explanation. Filing the Nil declaration proactively avoids this back-and-forth.

A correction (or revised) TDS return is filed when errors are discovered in an already-processed original return — incorrect PAN, incorrect challan details, incorrect amount, or a missed deductee record. Corrections are categorised (C1 through C9 in RPU terminology) depending on what is being corrected — deductor details, challan details, deductee details, or adding/deleting records. Corrections are filed using the original return's provisional receipt number and processed acknowledgement, using updated RPU/FVU software. Multiple corrections can be filed against the same original return, but each correction should be based on the immediately preceding accepted statement to avoid rejection.

Section 192 requires the employer to deduct TDS on salary based on the employee's estimated total taxable salary for the entire financial year, at the average rate of income tax applicable to that estimated income — not a flat percentage. This requires the employer to collect the employee's declared tax regime (new or old), investment declarations, other income disclosures, and previous employer's salary and TDS details (if applicable) at the start of the year, and recompute the estimate each time salary or declarations change. Unlike most other TDS sections which apply a fixed rate, Section 192 TDS is inherently an estimation exercise reconciled at year-end when Form 16 is issued.

Section 194A requires TDS at 10% on interest other than interest on securities, paid by any person other than an individual/HUF not subject to tax audit — this covers interest on fixed deposits, unsecured loans, inter-corporate deposits, and similar interest income paid to residents. The threshold is ₹40,000 in a financial year for banks/cooperative banks/post offices (₹50,000 for senior citizen depositors), and ₹5,000 for other categories of payers such as companies paying interest on deposits or loans. No TDS applies if a valid Form 15G/15H is furnished by an eligible depositor within the threshold conditions.

This almost always traces to one of three causes: (1) the TDS return for that quarter has not yet been filed, so the deposited challan has not been linked to the deductee's PAN yet; (2) the return was filed but the deductee's PAN was quoted incorrectly, so TRACES credited a different PAN; or (3) the challan itself was tagged to the wrong assessment year or a different TAN. The fix depends on the cause — filing the pending return, filing a PAN correction statement, or filing a challan correction. TRACES processing of a correction typically takes some weeks after filing, and the deductee's 26AS updates only after the correction is processed.

As clarified by the CBDT, TDS under Chapter XVII-B should generally be deducted on the amount excluding GST, where the GST component is indicated separately in the invoice or agreement — because GST does not represent income of the payee, it is a pass-through tax collected on behalf of the government. This applies to most TDS sections including 194J, 194C, 194I, and 194H. If GST is not separately indicated in the invoice, TDS must be deducted on the gross (GST-inclusive) invoice amount.

Non-deposit of TDS after deduction is treated far more seriously than a late deposit. Beyond the 1.5% per month interest under Section 201(1A), a deductor who deducts TDS but fails to deposit it can face prosecution under Section 276B — rigorous imprisonment of three months to seven years, plus fine. This is a serious criminal provision, not a civil penalty, because deducted-but-undeposited TDS is treated as government money wrongfully retained. The department pursues 276B prosecution particularly in cases of habitual or large-scale default, though smaller genuine delays are typically resolved through interest and compounding.

Yes. If a deductor deposits TDS in excess of what was actually deducted, deposits against the wrong TAN, or deposits a duplicate challan, a refund claim can be filed with the jurisdictional TDS assessing officer, supported by challan details, return records, and a reconciliation showing the excess. Refunds of excess TDS deposits are processed by the department after verification and can take a significant processing period. Alternatively, in some cases the excess deposit can be adjusted against a future quarter's liability rather than claiming a cash refund, which is often faster.

Retain, for at least the statutory limitation period: TAN allotment proof, all quarterly TDS returns filed with acknowledgements, all deposit challans (BSR code, challan number, date, amount), Form 16/16A issued to each deductee, any lower/nil deduction certificates (Section 197) or 15G/15H declarations relied upon, correspondence with TRACES for any correction filed, and a reconciliation of total TDS deducted per the books against total TDS reported in the 24Q/26Q/27Q filings. This reconciliation is specifically required for Clause 34 of the Form 3CD tax audit report.

It depends on whether you are subject to tax audit under the applicable turnover/receipts thresholds in the preceding financial year. Individuals and HUFs not subject to tax audit are generally not required to deduct TDS under most sections (194C, 194H, 194J, 194A etc.) — except specifically under Section 194M (payment to contractors/professionals above ₹50 lakh in a year, even if not tax-audited) and Section 194IB (rent above ₹50,000/month). Once your proprietorship crosses the tax audit threshold, the full suite of TDS obligations (194C, 194H, 194I, 194J and others) applies exactly as it would for a company.

Section 194M requires individuals and HUFs who are not otherwise liable to deduct TDS under Sections 194C, 194H, or 194J (because they are not subject to tax audit) to deduct TDS at 5% on payments to resident contractors or professionals where the aggregate amount exceeds ₹50 lakh in a financial year. This closes a gap where high-value payments by non-audited individuals — for example, a large home renovation contract or a substantial professional consultancy — would otherwise escape TDS entirely. TAN is not required; deposit is made using Form 26QD, similar in structure to Form 26QB/26QC.

PNPC sets up a consolidated monthly TDS calendar covering every payment category the client has — salary (192/24Q), resident non-salary payments (194A/C/H/I/J via 26Q), and non-resident payments (195 via 27Q) — with a single deposit tracker so nothing is deposited late regardless of which section it falls under. We separately track Section 197 certificates, 15G/15H declarations, and DTAA documentation (TRC, Form 10F) for cross-border payments, and reconcile TRACES data across all three forms every quarter rather than treating each return as an isolated filing.

Beyond the Section 206AA consequence (20% deduction rate applied where PAN is invalid or missing), Section 272B provides for a penalty of ₹10,000 for failure to comply with PAN-quoting requirements — this can apply per instance of default in serious or repeated cases, distinct from the return-filing penalty under Section 271H. In practice, the department's primary enforcement mechanism for PAN errors is the automatic 206AA higher-rate deduction and the resulting short-credit flag on TRACES, with Section 272B penalties reserved for more egregious non-compliance patterns.

TDS software automates form preparation but does not exercise professional judgment on rate classification (194C vs 194J vs 194I), does not proactively catch a 194IB annual deduction that was missed because rent fell just under an informal internal radar, and does not represent the deductor before the assessing officer when a demand is raised. PNPC combines the same RPU/FVU-based filing infrastructure with a Chartered Accountant's review of every payment category, quarterly TRACES reconciliation, and direct handling of notices and corrections — the software is a tool we use, not a substitute for the judgment a live TDS practice requires.