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May 19, 2011

Mistakes in TDS Returns

Now days, Income Tax department very frequently issuing Notices u/s 201(1) /206C (7).
These notices are mainly for Short Deduction & short Payment of Tax. If we ensure certain things, Notice from Income tax Department can certainly be avoided.
Short Deduction is reported mainly due to following reasons: -
1. While filing e- TDS returns we need to mention the rate of Tax. Here if we take 1% instead of 2% then, even though tax is deducted at 2% it will report in short deduction.
2. If we receive Certificates u/s 197 for lower deduction of tax then, without fail those parties are required to be marked as “A” for lower deduction of tax. If we fail to do so, system will calculate the differential amount & this will be termed as short deduction.
3. If we are using only multiple lines for one single transaction then, too short deduction is reported.
For example: Amount paid or credited to Mr A is Rs. 1000/- .Tax deducted is Rs. 110/-.
But while filing e-TDS return if two lines are used i.e. In first line Amount paid Rs. 1000/- Tax deducted Rs. 100/- .  In second line amount paid Rs. 1000/- & tax deducted Rs. 10/-.
Then, while filing revise TDS returns, the amount paid is required to be spitted to the extent of tax paid.
4. If section is wrongly quoted in challan then too, short deduction is reported.
For example, if Tax is deducted u/s 194C but in challan section is wrongly mentioned as 194A or 194J then system will apply  10% rate & differential amount will be treated as short deduction. Correction of Section in challan can be carried only by Assessing Officer.
5. Deductor has to make payment in different challan for different section. Further challan need to be bifurcated based on deductee type Company & Non company.
If deductee is individual & tax is deducted is Rs. 100/- then, in challan dedutee type should be non Company.
In TDS return we are supposed to give deductee code -1 for Company and 2 for Non Co.
In case, if any individual is given deductee code as 1 then, system will apply rate of tax for Company & accordingly short deduction will be calculated.
Short payment of Tax is reported due to following reasons :-
NSDL matches the data given by the deductor in TDS returns with data provided by the bank. If we make any mistake in TDS returns then, system cannot recognize the payment & hence, despite of making tax payment no credit will be given to the Deductor. Following could be the probable reasons for short deduction of Tax.
1. TAN mentioned in Challan is wrong. In that case, only Assessing officer can rectify the TAN.
2. Challan No or Challan tender Date or Amount is wrongly mentioned in e-TDS returns.
3. For Regular Tax payments Major head is to be taken as 200. If major head is taken as 400 then it will amount to tax paid on Assessment. In that case, no credit will be given to the deductor for the amount of tax deposited.  Deductor can approach the Bank & request to change the major head from 400 to 200.
Before filing the return, it is required to extract data in. With the help of various excel function one can easily come to know about the short deduction if any.
What is required to be done after receiving Notice u/s 201(1) / 206C(7) :-
In the Notice, Department just intimate us single amount of short deduction & short payment.  Considering the huge data in the return, it becomes difficult to find out under what transaction short deduction is reported. On written request to ITO, they provide us party wise details of short deduction. Hence, addressing those problems becomes little easy.
We need to revise the returns after making due corrections in the original e-tds return.
After filing TDS returns, one should check the status of quarterly statements uploaded on NSDL website. Status of challan must be shown as “Booked”. If still it is shown as matching Pending or Amount mismatch then, we should again find out where exactly we went wrong while filing e-TDS returns.
Many times due to change in software or due to ignorance, original FVU file is not available with the deductor. Then, filing revise return becomes impossible job. In such situation NSDL provides the FVU files after due registration of TAN on NSDL web site.
If returns are not revised then, Assessee will be termed as “Assessee in Default”   & then, order u/s 201(1) /201(1A) will be issued along with Notice of Demand by the officer. Then, only remedy available to an assessee is to file Appeal or to go for 154 Application.
But if we carefully file the returns then, surely Notice from Income tax department can be avoided and then TDS job will no more be Tedious.


  1. Replies
    1. Hi as you have mentioned:

      "........In TDS return we are supposed to give deductee code -1 for Company and 2 for Non Co.........."

      Is that also implies that: If 4rth letter in PAN is "P" then deductee code should be "2" otherwise "1".

      4rth letter in PAN has following meanings:

      "P" stands for Individual
      "C" stands for Company
      "H" stands for Hindu Undivided Family (HUF)
      "A" stands for Association of Persons (AOP)
      "B" stands for Body of Individuals (BOI)
      "G" stands for Government Agency
      "J" stands for Artificial Juridical Person
      "L" stands for Local Authority
      "E" stands for Limited Liability Partnership
      "F" stands for Firm
      "T" stands for Trust

      I am confuse because of 4rth letter value "B" -- deductee code for "B" should be Company (1) or Non-Company (2).

      Thanks, Grijesh

  2. i am a banker, while depositing tds deducted while paying rent I made a mistake by selecting company deductee instead of non company deductee. Now how can this be corrected.

    1. If you have made the transaction online, not much can be done else you can correct it in the return ignoring the challan.