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. 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.

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: interest at 20%, royalties and technical fees at 10% (post-amendment) or applicable treaty rate. 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.