TDS demand notice – short deduction
Overview of TDS Notice: Short Payment and Short Deduction.
This post will explore Short Payment and Short Deduction raised on TDS returns filed-Problems and Solutions.
Let’s look at each section in more detail:
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Explore Saral TDSDefaults on Short Deduction of TDS
Short Deduction defaults occur for a variety of reasons, including the following:
1.Due to PAN Errors
Using the incorrect PAN is a significant cause of short deduction defaults:
It is important to provide a valid PAN in your TDS Return. An incorrect PAN results in a TDS demand of 20% of the payment amount, and the deductee still will not receive the TDS credit.
This makes it challenging to provide TDS certificates issued through the TRACES website. An incorrect PAN leads to several defaults for the deductor and more issues for the deductee.
Another issue is that CPC (TDS) cannot fix PAN errors that contain more than two letters and two numeric characters, even typographical errors. To correct these PAN errors:
- File a correction statement by changing the incorrect PAN entry to zero (since the deductee record cannot be deleted) and creating a new deductee record with the correct PAN.
- Appeal to the CIT (TDS) about the implication under section 200A.
Requirements:
- Copy of PAN card of the deductee.
Deduct TDS at 20% in the absence of the deductee’s PAN.
2.Due to the wrong quote of Lower Deduction Certificate U/s 197 of the Income Tax Act’1961
Another reason for short deduction defaults is incorrectly quoting facts on the certificate of lower tax deduction.
When filling out the TDS Return, make sure to verify that the following are correctly stated in the Certificate:
- TAN of the deductor
- Duration of validity of the certificate
- Amount subject to lower deduction
- The certificate specifies the rate at which tax will be deducted.
Certificate Number: The number is a ten-digit alphanumeric number that appears alongside the TAN and the deductee’s name. Note that the certificate number listed at the top is different from the one to use when filing the TDS Return, which is a common mistake.
Period: Each lower deduction certificate is valid for the term mentioned on the certificate. TDS should only be deducted at the reduced rate for transactions during this period. Transactions outside this period must be taxed at the standard rates established in the Act.
Amount: Each lower deduction certificate is valid for the amount stated on the certificate. If the total amount of transactions exceeds this limit, tax will be deducted at the standard rates specified in the Act.
Rate: TDS at the lower rate needs to be deducted as specified in the certificate.
3.Due to a mistake in the deduction of Tax at the Source
The assessee may deduct TDS at a lower rate than the Act’s rates because of ignorance or other reasons.
When completing the return, ensure that the amount of tax deducted from each payment is at least what would have been deducted if tax had been deducted at the prescribed rate.
If this is the case, a new challan should be issued to deposit the unpaid tax quickly.
4.Due to the wrong quotation of 15G and 15H number
Many people must be aware that obtaining Forms 15G and 15H does not guarantee a tax deduction, especially when banks complete their TDS returns.
Incorrect mention of 15G/H details can result in short deductions of tax, inturn leading to defaults.
Defaults due to Short Payment of TDS
Defaults under Short payment of TDS happen for the following reasons:
2.Due to Challan errors
Incorrectly reporting the challan details used to pay the tax might cause reporting mistakes.
The TDS Return must correctly include the following challan information:
- Challan number and BSR code of the bank where the tax is deposited.
- Tender date of Challan.
- Tax payment amount and method.
Let’s examine these particulars one by one:
1. Challan Number:
- The receiving banker gives a five-digit challan number during the clearing process.
- If the challan number needs to be clarified, the bank should re-verify it.
- You can also confirm the challan number by logging into the income tax portal where the payment was done.
2. Tender Date of the Challan:
- This is the day the challan is delivered to the bank for payment, as documented by the bank’s stamp on the challan.
- It can also be viewed through the website mentioned above.
3. BSR Number:
- Each bank branch has its own seven-digit BSR Code.
- You can get the BSR Code online or by contacting the relevant bank branch.
4. Challan Amount:
- The amount on the challan should include the tax paid and any extra payments made under Section 234E, such as penalties and fees.
Additional Points:
- When you create a TDS Return, it downloads a challan file (CSI file). This file shows if the challan details were accurately entered.
- If incorrect data is submitted, a warning file will appear stating that ‘challan details are missing in the challan file downloaded.’
- If the TDS Return is filed on the same day or the day after the Challan is deposited, it may only appear in the Challan file if the bank has cleared the Challan.
- If you have time to file the return, wait until the challan has cleared the bank and appears in the downloaded challan file before filing. This ensures that the return is completed correctly and that CPC (TDS) does not demand a partial tax payment.
Points to remember :-
To correct any errors in the Challan, use the online correction facility at www.tdscpc.gov.in. Online Correction can be utilised with or without the digital signature of the authorised individual.
In rare cases, the deductor makes a mistake and pays more than the required TDS amount. This excess can be utilised for Future tax deductions.
For this reason, extra consideration must be given when making payment of TDS or utilising the unconsumed challan.
We have completed our blog post about the TDS demand notice – short deduction. If you have any further questions or concerns, please share them in the comments space.
FAQs
1.What are the causes of short deduction defaults in TDS?
Ans: PAN errors, one of the leading causes of short deduction defaults is quoting the incorrect PAN. Other than this, wrong certificate details, wrong rate of tax will also lead to short deduction defaults.
2. What causes short payment defaults?
Ans: Short Payment generally occurs due to mismatch of challan details or not paying the required amount of tax.
