How to Handle a Notice for Tax Deducted but Not Deposited by Employer — TaxBuddy’s Solution
- Rajesh Kumar Kar
- Nov 17
- 9 min read
Taxpayers commonly face notices when TDS is shown as deducted on salary slips but never deposited by the employer, leading to mismatches in Form 26AS and automated tax demands. Such notices arise under the Income Tax Act, 1961, when the employer fails to remit deducted TDS to the government. The department then flags the discrepancy, placing the burden of clarification on the employee despite no fault on their part. Understanding why this happens, what documents are required, and how the response must be drafted is essential for avoiding further demands. Platforms like TaxBuddy simplify this process by offering expert-backed guidance from notice review to final resolution.
Table of Contents
Understanding Why This Notice Is Issued
A notice for TDS deducted but not deposited typically appears when the Income Tax Department identifies a mismatch between the tax shown as deducted on salary records and the actual tax remitted in the government’s system. Automated cross-checking through Form 26AS, AIS, and TIS highlights inconsistencies and triggers a communication requesting clarification. Since TDS collection is a statutory responsibility of the employer, any non-deposit is treated as a compliance lapse. However, the initial burden of responding falls on the employee because the system records incomplete TDS credit, resulting in a default calculation of unpaid tax.
What “TDS Deducted but Not Deposited” Means Under Income Tax Law
Under the Income Tax Act, 1961, employers must deduct tax at the time of salary payment and deposit it with the government within prescribed timelines. When this does not happen, the tax department marks the employer as a “defaulter” under Sections 201 and 276B. For employees, this creates a visible mismatch: Form 16 and salary slips show TDS deduction, but Form 26AS remains uncredited. Since Form 26AS is the legal proof of deposited TDS, the system assumes the tax is unpaid, resulting in a notice or tax demand. The law considers it a compliance failure by the employer, not the employee.
Documents Needed to Respond to the Notice
A clear and well-supported response relies on accurate documentation. Salary slips reflecting TDS deduction, Form 16 issued by the employer, bank statements showing salary credit after tax deduction, and the relevant portion of Form 26AS are essential. These records demonstrate that TDS was indeed withheld from salary but not transferred to the government account. Supporting communication with the employer, such as emails or HR correspondence acknowledging the issue, is often useful during follow-up. TaxBuddy typically helps in organising these documents and preparing a complete response pack.
How to Verify TDS Mismatch Using Form 26AS, AIS, and Salary Records
Verification begins by comparing the TDS figure on salary slips with the amounts appearing in Form 26AS. If the deducted tax does not show up in Part A of Form 26AS, it confirms non-deposit. AIS and TIS can then be checked to ensure no partial credits exist. A quick reconciliation of salary slips and Form 16 helps confirm that the employer has reported TDS in payroll records but failed to deposit it. TaxBuddy often uses automated checks and manual review together to confirm the extent of mismatch before drafting the response.
What to Do When the Employer Refuses to Deposit TDS
In many cases, employers ignore employee follow-ups or delay payments despite reminders. If the employer refuses to rectify the lapse, escalation becomes necessary. Filing a complaint with the jurisdictional Assessing Officer or the TDS Wing enables the department to initiate action against the employer. This may lead to penalties, interest, or even prosecution under Section 276B for willful default. Employees are protected under the law and can present documentary evidence to demonstrate that TDS was legitimately deducted. Expert platforms like TaxBuddy often guide this escalation when employer cooperation fails.
Legal Provisions Applicable: Sections 201, 271C, and 276B
Section 201 treats the employer as an assessee-in-default for not depositing TDS after deducting it. Section 271C imposes monetary penalties for failure to remit the deducted tax. Section 276B goes further, enabling prosecution for willful non-payment, which can attract imprisonment and fines. These provisions make it clear that the liability rests squarely on the deductor. When filing a response, quoting the correct sections helps strengthen the case and clarifies that the employee fulfilled all required obligations. TaxBuddy’s notice specialists often cite these provisions while preparing replies.
Can Employees Claim TDS Credit If the Employer Didn’t Deposit It?
Under present law, TDS credit is granted only when the employer deposits the amount and it reflects in Form 26AS. However, employees can still defend their position using salary slips, Form 16, and payroll proofs during departmental hearings. Once the employer deposits the missing amount, the credit becomes available automatically, and any previously paid tax can be refunded. Until then, the department may insist on clearing the mismatch to avoid additional notices. TaxBuddy generally guides taxpayers on interim steps while ensuring the credit is eventually reflected correctly.
How to Respond to a Tax Demand Raised Due to Non-Deposited TDS
A proper response involves explaining the discrepancy, attaching supporting documents, and requesting the department to direct recovery from the employer. The reply must highlight the employer’s statutory responsibility while demonstrating that the employee was not at fault. If the notice was issued under Section 143(1), a detailed clarification can be uploaded on the portal along with attachments. If the matter escalates, filing a rectification or requesting a hearing may be necessary. TaxBuddy assists in drafting these replies and tracking further communication.
When Paying the Shortfall Temporarily Becomes Necessary
In certain situations, the tax department may insist on clearing the outstanding amount to avoid penalties or further notices, even though the employer caused the lapse. Paying the tax temporarily ensures compliance and prevents additional interest from accruing. Once the employer deposits the original TDS or the department recovers it from the employer, the employee becomes eligible for a refund. Many taxpayers choose this route to avoid prolonged follow-ups. TaxBuddy usually advises when this approach is suitable and helps claim the refund at a later stage.
TaxBuddy’s Solution for Handling TDS Non-Deposit Notices
TaxBuddy simplifies the entire process by reviewing the notice, identifying the mismatch, collecting required documents, and drafting a detailed response citing relevant provisions of the Income Tax Act. The platform coordinates with tax authorities where required and assists in following up with the employer. Automated checks on the app help monitor TDS credits and prevent future mismatches. For notices under Section 143(1) or demand notices triggered due to missing TDS, TaxBuddy offers expert-backed assistance that reduces stress and ensures accuracy.
Preventing Future TDS Mismatches with TaxBuddy
Early identification of discrepancies reduces the likelihood of notices. TaxBuddy’s continuous monitoring tools flag any mismatch between salary records and Form 26AS. The platform also helps maintain accurate filing records, ensures correct bank details are linked, and alerts users if any employer-side reporting errors occur. This proactive approach protects taxpayers from last-minute surprises and promotes smoother compliance throughout the year.
Conclusion
Non-deposit of TDS creates confusion and unwarranted stress for employees, even though the responsibility lies with the employer. Proper documentation, timely response, and expert support ensure that the matter is resolved efficiently. TaxBuddy’s structured approach to notice handling, from verification to drafting replies, offers dependable support throughout the process. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options? TaxBuddy provides a dual model that suits different types of taxpayers. Those who prefer handling their own filing can use the self-filing system, which includes automated validations, pre-filled data imports from Form 16 and AIS, and real-time error detection. For individuals who want support from a trained professional, the expert-assisted plan assigns a tax specialist who reviews income details, recommends deductions, ensures compliance, and files the return on behalf of the taxpayer. This flexibility helps users choose a method that matches their comfort level and complexity of income.
Q. Which is the best site to file ITR? The government’s income tax portal remains the official platform for filing returns, but it may feel complicated for individuals dealing with multiple income sources or deductions. Many taxpayers prefer platforms that simplify the process with automation and expert checks. TaxBuddy is often chosen because it provides structured guidance, AI-driven validation, and human review. The combination of simplified workflow and expert assistance makes it a reliable platform for those seeking smooth and error-free filing.
Q. Where to file an income tax return? Income tax returns can be filed online through the government’s e-filing portal, which is suitable for individuals with straightforward financials. Many taxpayers, especially those with salary, business income, capital gains, or rental income, choose platforms offering guided workflows and expert oversight. TaxBuddy provides both self-filing and expert-assisted options, ensuring that the return is prepared accurately and filed in compliance with current tax rules.
Q. Can an employee be held responsible for TDS that the employer failed to deposit? Under the Income Tax Act, the responsibility to deduct and deposit TDS lies entirely with the employer. Employees cannot be penalised for the employer’s failure to remit deducted tax. However, until the issue is resolved, the tax department may issue demand notices because the TDS does not appear in Form 26AS. Once the employee submits documents proving deduction, any enforcement action is directed towards the employer. Employees remain protected as long as they can show genuine evidence of TDS deduction through salary slips and Form 16.
Q. Is it possible to claim TDS credit if the employer has not deposited it? TDS credit is granted only when the amount appears in Form 26AS, as this serves as the department’s official record. While employees cannot claim missing credit directly, they can submit evidence to the tax authorities during notice proceedings. The department may then pursue the employer for non-remittance. Once the employer deposits the amount, the TDS credit automatically reflects in Form 26AS, and the employee can claim a refund if any extra tax was paid temporarily.
Q. What documents are required to respond to a notice for non-deposited TDS? A clear response requires salary slips showing TDS deduction, Form 16 issued by the employer, bank statements reflecting net salary credit after TDS deduction, and copies of Form 26AS demonstrating the missing deposit. Additional communication with HR or payroll acknowledging the deduction can be included as supporting proof. These documents collectively establish that the employee is not at fault and that the employer deducted TDS but failed to deposit it with the government.
Q. What actions can the Income Tax Department take against the employer for non-deposit of TDS? The law allows strict action against employers who deduct tax but do not deposit it. They may be treated as assessees-in-default under Section 201, charged penalties under Section 271C, and even face prosecution under Section 276B. Interest on late payment also accumulates until the TDS is fully deposited. These consequences emphasize the seriousness of non-compliance and ensure that accountability remains with the deductor, not the employee.
Q. Can the employee be asked to pay tax again if the employer fails to deposit the deducted TDS? In some cases, the department may issue a tax demand because the missing TDS is not reflected in official records. To avoid accumulating interest or repeated notices, the employee may choose to pay the tax temporarily. This payment is not a loss; once the employer deposits the TDS or the tax department recovers it, the employee becomes eligible for a full refund. This approach is often taken to maintain compliance timelines and avoid additional complications.
Q. How does TaxBuddy assist in handling notices related to non-deposited TDS? TaxBuddy provides complete notice-handling support by reviewing the notice, identifying the exact mismatch, organising relevant documents, and drafting a structured response referencing the Income Tax Act. The platform also guides communication with the employer when cooperation is required. If a demand notice is issued, TaxBuddy assesses whether a rectification, revised return, or clarification is the best route. Its experts handle the complexities of notice correspondence while keeping the taxpayer updated.
Q. How long does it take to resolve a notice caused by TDS non-deposit? The resolution timeline depends on factors like employer cooperation, document availability, and departmental processing speed. If the employer promptly deposits the missing TDS, the credit may reflect within a few weeks. If departmental intervention becomes necessary, the process may extend further. With expert support from platforms like TaxBuddy, responses are prepared quickly and accurately, reducing delays and ensuring smooth follow-up.
Q. Will a notice for TDS non-deposit affect future tax filings? A notice does not create any long-term issues once properly resolved. However, repeated mismatches may increase the likelihood of scrutiny in future years. Using a platform that monitors Form 26AS, AIS, and income entries helps prevent such mismatches. TaxBuddy’s automated tracking system alerts users if discrepancies appear, ensuring that future filings remain clean and compliant.
Q. Is it important to check Form 26AS regularly to avoid such notices? Yes, checking Form 26AS periodically is one of the most effective ways to detect TDS mismatches early. It shows the exact amount of TDS deposited against a PAN, enabling taxpayers to identify issues before filing the return. Early detection allows timely follow-up with the employer or tax authorities. TaxBuddy’s system includes reminders and automated checks, helping users avoid late surprises and unnecessary notices.
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