How to Correct Errors in TDS Reporting and Handle Section 143(2) Scrutiny Notices in Your Tax Filing

Errors in Tax Deducted at Source (TDS) reporting often lead to serious issues like delayed refunds, inaccurate assessments, or scrutiny notices under Section 143(2) of the Income Tax Act. These mistakes may stem from incorrect PAN entries, mismatched challans, or wrong assessment year reporting. Thankfully, the Income Tax Department provides several methods—like Form 71, ITR-U, and rectification requests under Section 154, to help correct these errors efficiently. Prompt action can minimize risk and ensure smoother processing. Expert-assisted platforms like TaxBuddy can help navigate this process seamlessly by automating checks and providing timely alerts.

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Table of Contents

• Common TDS Reporting Errors That Lead to Scrutiny

• Correcting TDS Reporting Errors: Available Tools and Processes

• Understanding Section 143(2) Scrutiny Notices

• Steps to Handle Scrutiny Notices from the Income Tax Department

• How TaxBuddy Helps with TDS Corrections and 143(2) Scrutiny

• Conclusion

• Frequently Asked Questions (FAQs)

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Common TDS Reporting Errors That Lead to Scrutiny

1. Incorrect PAN Details Linked to the Deductee

This is one of the most frequent and costly mistakes in TDS reporting. If the PAN of the deductee (the person whose tax is being deducted) is entered incorrectly, either due to a typographical error or mismatch with PAN records, the deducted tax amount does not get reflected in the deductee's Form 26AS. As a result, the taxpayer is unable to claim TDS credit, leading to a higher tax liability or a demand notice from the Income Tax Department.

2. Reporting TDS Under the Wrong Assessment Year

When TDS is reported against the wrong assessment year (AY), it creates a mismatch between the income and TDS credit reported. For example, if TDS deducted in FY 2023–24 is mistakenly reported under AY 2025–26 instead of AY 2024–25, the credit will not be available during return processing. This can result in refunds being denied or returns being flagged for scrutiny under Section 143(2).

3. Mismatch Between the Amount Deducted and Reported

At times, there’s a difference between the actual amount deducted by the deductor and the amount reported in the TDS return. This may occur due to manual data entry errors, incorrect challan bifurcation, or miscommunication between payroll teams and the accounts department. Even a small variance in the amount can cause the return to be flagged for further review, delaying refund or triggering scrutiny.

4. Missing TDS Entries Despite Deduction

There are cases where TDS is actually deducted and deposited by the deductor, but it doesn’t show up in Form 26AS because the deductor failed to file the TDS return or didn't include the deductee’s details. This omission can make it seem like the taxpayer has underreported income or falsely claimed TDS, which may result in a notice under Section 143(2) if not clarified with supporting documents.

5. Errors in Challan Identification Numbers or Late Filing of TDS Returns

Incorrect entry of Challan Identification Number (CIN), BSR code, or payment date in TDS returns leads to a failure in linking the tax payment with the taxpayer's records. Similarly, filing the TDS return after the due date can also result in provisional mismatches in Form 26AS, causing the system to raise red flags during return processing. These errors are particularly dangerous as they affect both the deductor and deductee and are often only caught after scrutiny is initiated.

Correcting TDS Reporting Errors: Available Tools and Processes

Fixing TDS Credit Mismatch with Form 71

Form 71 is a newly introduced correction facility that allows taxpayers to realign TDS credit when the deduction and income reporting fall in different years.

1. Eligibility: Available to taxpayers whose TDS was deducted in a year different from income recognition.

2. How to file:

3. Log in to the Income Tax e-filing portal.

4. Navigate to ‘Form 71’ and enter PAN, address, AY, TDS year, amount, and reason.

5. Submit with EVC or DSC.

6. Timeline: Must be filed within two years from the end of the financial year in which TDS was deducted.

Updating Returns Using ITR-U for Past TDS Errors

ITR-U allows taxpayers to revise past returns for missed or wrongly reported TDS.

• Eligibility: Useful when TDS credit is missed or reported with incorrect details.

• Filing steps:

  • Select ‘File Updated Return’ on the portal.

  • Enter updated income and corrected TDS info.

  • Pay applicable taxes and submit.

• Time limit: Within two years from the end of the relevant assessment year.

• Penalty: May attract an additional tax of up to 50% of the tax due.

  
  

Submitting a Rectification Request Under Section 154

Rectification under Section 154 helps correct apparent mistakes in processed returns.

1. Use case: Incorrect TDS matching, PAN, or other filing errors caught post-processing.

2. How to apply:

3. Go to the ‘Rectification’ section on the portal.

4. Submit revised details with appropriate justifications.

5. Time limit: Four years from the end of the financial year in which the order was passed.

Understanding Section 143(2) Scrutiny Notices

Section 143(2) of the Income Tax Act empowers the Income Tax Department to scrutinize returns for potential discrepancies, inconsistencies, or red flags. Unlike automated notices under Section 143(1), which are generated by system-based checks, a 143(2) notice is a more in-depth assessment and is often manually triggered based on risk profiling, data mismatches, or sampling.

Discrepancies in TDS Data and Form 26AS

When the TDS details provided in your ITR do not align with Form 26AS—the tax passbook maintained by the department, it signals a mismatch. For instance, if TDS is claimed in the return but not reflected in Form 26AS due to incorrect PAN by the deductor or missed reporting, it may raise suspicion. The department may issue a scrutiny notice to seek clarification or proof of tax deduction and credit eligibility.

High-Value Transactions Without Adequate Explanation

Unusually large transactions, such as substantial property purchases, credit card spending above ₹10 lakhs, or heavy mutual fund investments—attract attention when they don’t match the income profile declared in your return. If these are not supported by disclosed income sources, the department might investigate the source of funds under scrutiny proceedings.

Sudden Income Variations

If your income shows a sharp rise or drop compared to previous years without any supporting explanation, it could trigger a scrutiny notice. For instance, a salaried individual reporting zero income in a year despite TDS being deducted, or a professional suddenly showing massive profits, may be flagged for detailed review. The notice serves to verify whether the change is legitimate and documented.

Omission of Certain Income Sources

Failing to report specific income types, like interest from savings accounts, fixed deposits, rental income, or capital gains, can lead to scrutiny. The Income Tax Department cross-verifies details using multiple sources, including AIS (Annual Information Statement), TIS (Taxpayer Information Summary), and third-party reporting. A mismatch between disclosed income and reported figures could prompt a 143(2) notice for verification.

Mismatched Deductions or Exemptions

Claiming deductions under sections like 80C, 80D, HRA, or exemptions on long-term capital gains without proper documentation may also lead to scrutiny. For example, if deductions claimed exceed thresholds or don’t match income levels or investments reported by financial institutions, the department may demand proof through a scrutiny notice.

These triggers are part of the department’s risk-based assessment to detect underreporting, misreporting, or tax evasion. The objective of issuing a Section 143(2) notice is not to penalize, but to verify and confirm whether the income tax return filed is complete, accurate, and truthful.

Steps to Handle Scrutiny Notices from the Income Tax Department

Responding to TDS Discrepancy Under Scrutiny

Start by carefully reviewing the scrutiny notice and noting the discrepancies raised. Most scrutiny cases cite mismatches between Form 16/16A, Form 26AS, and the return filed.

Uploading Supporting Documents and Evidence

Prepare a comprehensive set of documents, including:

• TDS certificates (Form 16, Form 16A)

• Form 26AS summary

• Salary slips or contractor invoices

• Bank statements and relevant income proof

Upload these documents through the e-filing portal along with a clear explanation.

Monitoring and Following Up on Scrutiny Cases

After submission, track the notice status regularly on the e-filing portal. Be ready for further queries or document requests from the Assessing Officer. Delays in response can escalate the issue, so timely follow-up is crucial.

How TaxBuddy Helps with TDS Corrections and 143(2) Scrutiny

TaxBuddy offers comprehensive tax filing support, combining AI-powered checks with expert-assisted plans. Its automated platform flags potential mismatches in TDS, helps generate rectification requests, and simplifies Form 71 or ITR-U filing.

For scrutiny cases, TaxBuddy guides users on the document upload process, provides format-ready response letters, and helps track notice compliance timelines. Whether you're correcting errors or facing a Section 143(2) notice, TaxBuddy’s mobile app ensures that you're always on the right track with zero stress.

Conclusion

Correcting TDS errors and responding to scrutiny notices on time can save taxpayers from penalties and prolonged assessments. Tools like Form 71, ITR-U, and Section 154 rectification are designed to resolve mismatches efficiently. For those looking for a guided and expert-assisted filing experience, especially when dealing with sensitive scrutiny matters, it’s smart to use reliable platforms.

For a simplified, secure, and hassle-free experience, download the TaxBuddy mobile app and manage your tax filing with confidence.

FAQs

Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?

TaxBuddy provides both self-filing and expert-assisted tax filing plans. The self-filing option is ideal for salaried individuals with simple tax scenarios who want to file independently with real-time AI checks. For those with complex cases—like multiple income sources, capital gains, or scrutiny notices—the expert-assisted plan ensures personalized guidance, review by tax professionals, and complete support till return acceptance.

Q2. Which is the best site to file ITR?

The best platform to file an ITR depends on your requirements. While the official portal (incometax.gov.in) is suitable for experienced users, platforms like TaxBuddy are preferred by those looking for error-free filing, automated tax checks, and professional support. TaxBuddy, being an ERI recognized by the Government of India, is trusted by over a million users for its seamless interface and guided assistance.

Q3. Where to file an income tax return?

You can file your ITR through the official Income Tax e-filing portal or use a reliable intermediary like TaxBuddy. TaxBuddy is an authorized E-Return Intermediary (ERI) that simplifies the filing process with smart automation and live human support. Whether you prefer DIY or expert filing, TaxBuddy covers both through its mobile app and website.

Q4. What is Form 71 used for in TDS correction?

Form 71 is designed to correct mismatches where TDS was deducted in one financial year but the corresponding income is reported in a different year. This discrepancy often leads to missed credit in Form 26AS. Filing Form 71 helps ensure proper TDS credit gets reflected in the correct assessment year, minimizing tax liability and preventing refund delays.

Q5. How long do I have to file Form 71?

You must file Form 71 within two years from the end of the financial year in which the TDS was deducted. Missing this deadline can result in permanent loss of TDS credit, especially if no alternate correction method is available. Filing early also helps expedite refund claims and prevent notices under Section 143(1) or 143(2).

Q6. Can I fix a TDS error after the return filing deadline has passed?

Yes. If you’ve missed correcting a TDS error before the original or belated return deadline, you can still file an updated return (ITR-U). This facility is available for up to two years from the end of the assessment year. It allows you to report omitted income or rectify mismatched TDS details by paying the applicable tax and additional fees.

Q7. What is the penalty for not correcting TDS reporting errors?

Failing to correct TDS reporting errors may attract penalties under Section 271H. The penalty ranges from ₹10,000 to ₹1,00,000 and applies to late or incorrect TDS return filings. In addition to penalties, mismatches can result in loss of credit, delayed refunds, or even scrutiny notices, making early correction crucial.

Q8. How can I respond to a Section 143(2) scrutiny notice?

Start by reading the notice carefully and understanding the issues raised. Log in to the e-filing portal, collect necessary documents (Form 16, Form 26AS, bank statements), and respond by uploading your explanations and evidence. If required, use Form 71 or ITR-U to correct mismatches. You may also seek expert help through platforms like TaxBuddy for professional drafting and timely submission.

Q9. What documents are needed for scrutiny related to TDS?

To respond to scrutiny regarding TDS, you must keep the following ready:

• Form 16 / Form 16A (issued by employers or deductors)

• Form 26AS (showing tax credits)

• Income proof (salary slips, rent receipts, business invoices)

• Bank account statements for the relevant period

• Previous ITR copies and acknowledgement numbers

These documents help clarify the source and amount of TDS and justify your reported income.

Q10. What is the response time for rectification requests under Section 154?

Once a rectification request is filed under Section 154, the Income Tax Department generally processes it within six months. However, this can vary depending on the workload of the jurisdictional Assessing Officer. Regularly monitoring your e-filing portal for updates or responses is recommended to avoid delays or additional compliance steps.

Q11. Can I file ITR myself or do I need a professional?

If your return is straightforward—say, salaried income with standard deductions—you can file it yourself using TaxBuddy’s self-filing tool. However, if you deal with capital gains, business income, foreign assets, or scrutiny notices, it's safer to opt for expert-assisted plans. Professionals ensure that your ITR is filed accurately and respond to any issues proactively.

Q12. How does TaxBuddy simplify scrutiny response?

TaxBuddy streamlines the entire scrutiny process by:

• Notifying users instantly when a notice is issued

• Providing templates for replies and document formats

• Offering expert reviews of your response before submission

• Keeping track of response deadlines

Their mobile app ensures users can respond to notices and file rectification requests anytime, without delays or compliance gaps.