Received notice to pay additional tax? How a TDS claim rejection can lead to extra payments

NEW DELHI: The income

tax department

will deny tax deducted at source (TDS) credit and flag your

income tax return

(ITR) if it detects any discrepancies between the TDS information reported in the ITR and the data provided by the TDS deductor. When a

TDS deductor

deducts the tax, they are required to file a TDS return, which the tax department then reconciles with the data reported.

“It may be noted a taxpayer will not get a tax credit for

tax deductions

that are not reflected in the

Form 26AS

,” said the income tax department, which means that if one has any outstanding taxes after filing the ITR, they will be required to pay the tax debt and won’t be able to offset TDS credit that is not reflected in Form 26AS, according to the Economic Times report.
For example, If the deductor makes an error in reporting the data, such as a bank deducting a certain amount as TDS on FD investment but failing to report it accurately in their TDS return, the income tax department will disallow the

TDS claim

and may even issue a

tax notice

.
According to the Executive Partner, Lakshmikumaran & Sridharan (LKS) S Vasudevan, “Taxpayer information is presently captured in Form 26AS, AIS and TIS to facilitate verification of data and filing of ITRs. In all cases of (TDS) mismatch, it is likely that the taxpayer is served a communication by the tax department,” which highlights the importance of ensuring that the TDS data reported and deducted is accurate and consistent to avoid any issues with the income tax department.

Tax credit mismatch in TDS data, ITR vs Form 26AS

Discrepancies between the TDS data in the Income Tax Return (ITR) and Form 26AS can occur for various reasons. Upon successful processing of the ITR, one will receive an intimation order under section 143(1), which presents the calculations submitted in the ITR and those accepted by the income tax department. If the TDS credit claim is disallowed, the calculations accepted by the tax department will change, resulting in a higher tax liability.

The income tax department outlines how to identify a tax credit mismatch

The income tax department said, “Taxpayers are requested to ensure that TDS details mentioned in Sch TDS1 and Sch TDS2 of the ITR form are complete and consistent with details reflected in Form 26AS/TDS certificate/Form16 issued by the deductor. Please ensure that the TAN (Tax Deduction and Collection Account Number) of the deductor is accurately entered in the appropriate fields of the ITR form.”

Discrepancies in your Form 26AS may arise due to various reasons, including:

According to the Economic Times, some experts, typographical errors in the PAN submitted by the taxpayer or recorded by the deductor can lead to incorrect reflection of TDS.
Like the Principal Associate, Karanjawala & Co. and Advocate on Record, Supreme Court Vishal Gehrana, said that “Data entry errors, such as incorrect amounts or incorrect financial year entries, can cause further mismatches. Additionally, technical glitches at the department’s end can also sometimes result in discrepancies between the TDS reported by the deductor and displayed in AIS or Form 26AS.”

How to correct the TDS data mismatch issue

According to Economic Times, Vasudevan said, “Where the mismatch arises due to non-disclosure by the taxpayer, it is advisable for the taxpayer to furnish a revised return or an updated return as the case may be to address the mismatch.” Filing a

revised ITR

or ITR-U (updated ITR) is an option if the time limit permits.
If the Form 26AS data is corrected or updated with the accurate TDS amount, one can claim its credit. Experts recommend directly addressing the issue with the relevant TDS deductor.
Vasudevan further said that, “Where the mismatch arises for any other reason due to non-deposit of tax or incorrect disclosure, it is advisable for such taxpayer to engage with the concerned counterparty to get the mismatch corrected to avoid prolonged litigation on this. If a mismatch is for other reasons, the taxpayer should give appropriate responses.”
According to the Founder of TaxBuddy.com, Sujit Bangar, “In terms of filing an Income Tax Return (ITR), taxpayers are often unsure whether to wait for corrections in TDS data or proceed based on their own records. Generally, it is advisable to file the ITR with the correct TDS data according to the taxpayer’s records, such as Form 16, Form 16A, or TDS certificates. Filing based on accurate records ensures that any discrepancies can later be clarified with the Income Tax Department, especially through the rectification process. In cases where the

TDS mismatch

is significant, taxpayers might consider waiting for the deductor to submit a revised return and ensure that both Form 26AS and AIS reflect the corrected data. However, if a taxpayer is facing a filing deadline and the deductor has not yet made the necessary corrections, they can file the return with the TDS data available in Form 26AS or AIS. It is important to be prepared for potential scrutiny or notices from the tax authorities if the mismatch persists.”

The income tax department outlines specific actions to correct Form 26AS details: