TDS Deduction Errors and Income Tax Notices: How TaxBuddy Helps Deductors and Deductees
- PRITI SIRDESHMUKH
- Dec 17, 2025
- 8 min read
TDS deduction errors often surface when tax is withheld at incorrect rates, not deducted on eligible payments, or deposited with mismatched challan details. These gaps create inconsistencies in Form 26AS and AIS, leading to income tax notices for both deductors and deductees. Frequent triggers include invalid PAN entries, 20 per cent deduction under Section 206AA, short deduction flagged under Section 201, and late filing penalties under Section 234E. With correction timelines tightening under recent updates, accurate compliance has become essential. TaxBuddy supports both deductors and deductees by simplifying reconciliation, corrections, and notice management.
Table of Contents
Understanding TDS Deduction Errors Under the Income Tax Act 1961
TDS errors usually emerge when tax is deducted at incorrect rates, deducted late, or not deducted at all on payments that cross prescribed thresholds. These lapses occur across sections governing salaries, contracts, rent, professional fees, interest, and other specified categories. Errors also appear when PAN details are invalid or not furnished, leading to a higher deduction rate under Section 206AA. In some cases, tax is deposited but linked to the wrong challan, creating gaps between what is deducted and what appears on Form 26AS or AIS. With digital systems now interlinked, even small inconsistencies are quickly flagged by the compliance architecture.
Why TDS Deduction Errors Trigger Income Tax Notices
TDS forms the backbone of the tax collection system, so mismatches automatically generate alerts within TRACES and the Centralized Processing Center. When tax is short-deducted or deposited against incorrect challans, deductors receive notices under Section 201 for default along with interest that accrues monthly until correction. Deductees face their own challenges when TDS does not appear in Form 26AS. This leads to adjustments in Section 143(1) intimations or demand notices for unpaid tax. Recovery proceedings under Section 226 may also be initiated when credits cannot be matched. Recent updates imposing stricter timelines for correcting past TDS returns increase the urgency of resolving errors early.
Common TDS Mismatches in Form 26AS, AIS, and TRACES
TDS data flows across multiple systems, and mismatches arise when even one entry is slightly off. The most frequent discrepancies include:
• TDS deducted under the wrong PAN • Challan numbers or dates not matching the deposit records • Wrong assessment year tagged during payment • TDS deposited but not reflected in Form 26AS • Salary TDS mismatches between Form 16 and 26AS due to payroll corrections • Interest TDS appearing twice because banks record it at accrual and maturity • AIS showing higher values than 26AS because of reporting duplication
When these mismatches occur, both deductors and deductees face compliance hurdles. Corrections must be routed through TRACES using the appropriate C1 to C9 categories, depending on the nature of the error.
How to Fix TDS Errors: PAN, Challan, and Rate Corrections
Most TDS errors can be resolved by revising TDS statements or updating challan and PAN details through TRACES. PAN errors require updates through C3 correction requests, ensuring that credits correctly map to the deductee. Challan mismatches—such as wrong serial numbers, dates, or amounts—are corrected using C9-level changes or online challan correction tools provided by the system. When tax has been deducted at a lower rate or not deducted despite eligibility, deductors must file revised returns like 24Q or 26Q and pay interest under Section 201(1A) along with late fees under Section 234E. Deductees may rely on ITR-U within the extended window of four years to correct return data when TDS becomes available after the original filing.
TDS Deduction Errors in Bank Accounts and FD Interest
Bank-related TDS errors mostly occur in interest payments under Section 194A. While tax is deducted only when annual interest exceeds Rs 40,000 (or Rs 50,000 for senior citizens), banks sometimes compute TDS on a cumulative basis, leading to double deduction at maturity. Another recurring issue arises during account opening. Incorrect PAN or KYC details get embedded into the bank’s TDS reporting system and eventually cause mismatches in Form 26AS. Customers with income below the taxable limit must submit Form 15G or 15H to avoid unnecessary deductions; if these are not filed or linked properly, TDS appears despite eligibility for exemption. These errors lead to refund delays and AIS mismatches until corrected at the branch or through revised bank filings.
How TaxBuddy Helps Resolve TDS Errors for Deductors
TaxBuddy assists deductors by streamlining TDS compliance and reducing the risks associated with incorrect filings. The platform guides users through challan validation, C1 to C9 correction workflows, and revision of quarterly statements such as 24Q, 26Q, or 27Q. Automated reconciliation identifies mismatches between books, challans, Form 26AS, and TRACES reports. TaxBuddy also helps validate TDS rates based on current amendments, ensuring accuracy for salary, contractor, professional, or interest payments. For deductors facing Section 201 notices, the platform prepares structured responses and calculates interest and penalties to bring statements into compliance before deadlines close for past-year corrections.
How TaxBuddy Helps Resolve TDS Errors for Deductees
Deductees often face problems when TDS does not appear in Form 26AS or AIS, leading to income tax adjustments or demands. TaxBuddy analyzes these discrepancies, identifies whether the issue lies with the deductor’s reporting or a data mismatch, and suggests the fastest path to resolution. If the deductor has incorrectly filed TDS details, the platform guides communication and assists with follow-up until the correction is reflected in the system. When the issue requires filing a rectification or ITR-U, TaxBuddy prepares the corrected return and ensures accurate credit is claimed. The app also tracks updated entries, refunds, and notice responses, reducing the stress typically associated with post-filing errors.
Preventing TDS Notices Through Accurate Filing and Cross-Verification
Preventing TDS issues begins with reviewing Form 26AS and AIS before filing returns. Deductors must verify challans, PAN entries, and deduction rates every quarter, ensuring returns are filed on time to avoid penalties. Deductees benefit from checking whether all salary, interest, and contractor payments match what appears on their statements. Early detection prevents demand notices, incorrect adjustments, and refund delays. Platforms like TaxBuddy simplify this process by offering automated checks, real-time alerts, and post-filing support that keeps filings aligned with the latest compliance framework.
Conclusion
Accurate TDS compliance protects both deductors and deductees from penalties, mismatches, and time-consuming notice responsefs. With correction windows narrowing and automated systems tightening scrutiny, timely reconciliation and expert support have become essential. TaxBuddy provides a structured, technology-driven solution for identifying mismatches, guiding TRACES corrections, managing notices, and ensuring accurate credit reflection during return filing. 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
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 plans to suit different types of taxpayers. Self-filing is ideal for individuals with uncomplicated income such as salary, basic interest, or single-house property details. The platform auto-imports Form 16, AIS, TDS data, and bank interest entries, reducing manual work. Expert-assisted plans are designed for those dealing with situations like TDS mismatches, multiple employers, capital gains, business income, foreign income, or tax notices. Under this option, a trained tax expert reviews documents, verifies all credits, responds to discrepancies, and completes the filing with precision.
Q2. Which is the best site to file ITR?
While the Income Tax Department’s portal remains the official platform, many taxpayers prefer platforms like TaxBuddy because they provide guided filing, automated data checks, and expert support. These tools minimize errors and help users understand issues related to TDS mismatches, incorrect deductions, or undisclosed income—common reasons for notices. For individuals who want accuracy and support, TaxBuddy enhances the filing experience with real-time validations and post-filing assistance.
Q3. Where to file an income tax return?
Income tax returns can be filed directly on the government’s e-filing portal or through trusted platforms such as TaxBuddy. Using a guided platform allows automatic import of Form 16, AIS, and bank data, reducing the chance of missing TDS entries or misreporting income. For taxpayers who prefer professional oversight, expert-assisted filing ensures correct tax computation, proper validation of deductions, and timely submission of returns.
Q4. What should be done if TDS deducted by an employer or bank is not visible in Form 26AS or AIS?
When TDS is missing in Form 26AS or AIS, it indicates a reporting mismatch by the deductor. The first step is verifying whether the PAN was correctly updated at the time of deduction. If the PAN is correct, the deductor must revise their TDS return to reflect accurate details. TaxBuddy assists by identifying the exact mismatch, guiding communication with the deductor, and ensuring the corrected TDS credit appears before filing the return or submitting a rectification request.
Q5. Why does a taxpayer receive a notice under Section 143(1) for TDS mismatch?
A Section 143(1) adjustment notice is triggered when the TDS claimed in the return does not match the TDS reported in Form 26AS or AIS. The system reduces the claim to the available credit, causing a sudden tax demand. This happens when deductors fail to deposit TDS, file incorrect challans, or enter the wrong PAN. TaxBuddy helps resolve these cases by reviewing AIS and 26AS discrepancies, coordinating with deductors, and filing corrected returns or responses to the notice.
Q6. How can deductors correct challan mismatches or PAN errors in TDS returns?
Deductors must use TRACES correction requests—C3 for PAN correction, C9 for challan addition, and other categories for structural errors. These corrections ensure the TDS deposited is correctly mapped to deductees. TaxBuddy supports deductors with step-by-step guidance, automated challan validation, and preparation of revised statements like 24Q or 26Q to eliminate mismatches and avoid penalties under Sections 201 and 234E.
Q7. What happens when TDS is deducted at a higher rate due to an invalid or missing PAN?
If a deductee does not provide a valid PAN, TDS is deducted at 20 percent under Section 206AA. Once a valid PAN is updated, the deductor must revise the TDS statement to ensure the excess deduction appears in Form 26AS. Only then can the deductee claim the credit in the income tax return. TaxBuddy helps track the correction status, ensuring the revised credit becomes available for claiming during filing or rectification.
Q8. How can taxpayers fix issues caused by double TDS deduction on bank FD interest?
Double deduction often occurs when banks deduct TDS at accrual and again at maturity. The taxpayer must verify the interest entries in AIS and compare them with the passbook or FD statement. After identifying the error, the bank must revise its TDS return. TaxBuddy assists with reviewing AIS data, communicating with the bank, and filing corrected returns or ITR-U if needed to claim accurate credit.
Q9. What should deductors do when they receive a notice under Section 201 for short deduction or non-payment?
A Section 201 notice requires deductors to pay the shortfall along with interest that accrues monthly until correction. Deductors must review their challans, validate deductions, and revise incorrect TDS statements. TaxBuddy prepares detailed responses, calculates liability, and ensures compliance within the permitted correction window to avoid further penalties.
Q10. Can TDS mismatches delay refunds, and how can they be resolved?
Refunds are delayed when TDS does not appear in the system or when AIS and 26AS values conflict with the return. Until the mismatch is resolved, the tax department cannot process the claim. TaxBuddy helps identify missing or incorrect entries, works with deductors to update data, and files rectifications or revised returns so that refunds are released without prolonged delays.
Q11. How does ITR-U help in fixing past TDS-related issues?
ITR-U allows taxpayers to update earlier returns within four years from the end of the assessment year. If TDS appears late in Form 26AS due to a delayed correction by the deductor, the taxpayer can use ITR-U to claim the credit. TaxBuddy guides users through determining eligibility, calculating additional tax, and preparing the updated return to secure the corrected benefit.
Q12. How does TaxBuddy ensure accurate TDS reporting and prevent future notices?
TaxBuddy provides automated reconciliation of AIS, Form 26AS, and TDS data. It identifies gaps early, highlights incorrect entries, and checks deductor filings before the user submits their return. Deductors benefit from structured filing tools, late fee calculators, and TRACES correction guidance. Deductees receive alerts for mismatches and support for notice responses, ensuring long-term compliance and fewer disruptions.
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