You can get a income tax notice if your TDS credit claim is rejected due to mismatch

Got tax notice to pay additional tax? Your TDS claim rejection could be the reason; know when it can happen

The tax department will flag your income tax return (ITR) and disallow tax deducted at source (TDS) credit if it detects any mismatch in TDS data reported by you in the ITR and by the TDS deductor. This is because when a TDS deductor deducts the tax, they need to file a TDS return, which the tax department reconciles with the data reported by you. For example, if you invested in FDs and the bank deducted Rs 10,000 as TDS, then the bank must report this transaction in their TDS return. If, for any reason, the bank makes an error in reporting this data, then the income tax department will disallow your TDS claim and may even issue a tax notice for this.

"It may be noted a taxpayer will not get a tax credit for tax deductions that are not reflected in the Form 26AS," said the income tax department. This implies that if you owe any taxes after submitting your ITR, you will need to settle the tax debt because you won't be able to offset TDS credit that doesn't show up in Form 26AS.

"Taxpayer information is presently captured in Form 26AS, AIS and TIS to facilitate verification of data and filing of ITRs. In all cases of (TDS) mismatch, it is likely that the taxpayer is served a communication by the tax department," says S. Vasudevan, Executive Partner, Lakshmikumaran & Sridharan (LKS).

Why mismatch in respect of TDS data in your ITR vs Form 26AS can happen

When your income tax return is successfully processed you will get an intimation order under section 143(1). In this intimation order document, you can see the calculations presented in the submitted ITR and the calculations accepted by the income tax department. If the TDS credit claim is disallowed, then the calculations accepted by the tax department will also change and show a higher tax liability.

The income tax department said, "Taxpayers are requested to ensure that TDS details mentioned in Sch TDS1 and Sch TDS2 of the ITR form are complete and consistent with details reflecting in Form 26AS/TDS certificate/Form16 issued by the deductor. Please ensure that the TAN of the deductor is correctly entered in the relevant fields in the ITR form. Errors or omissions in your Form 26AS may happen due to several reasons, such as:

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Non-filing of TDS returns by the deductor,
Non-payment of TDS by the deductor,
Quoting of wrong AY or wrong PAN (or no PAN),
Incorrect challan details in the TDS returns submitted,
Challan details wrongly quoted in the TDS return by the deductor or in details uploaded by the bank."

Experts say that if there are typographical errors in the PAN submitted by the taxpayer or recorded by the deductor, TDS may not be reflected correctly. "Data entry errors, such as incorrect amounts or incorrect financial year entries, can cause further mismatches. Additionally, technical glitches at the department's end can also sometimes result in discrepancies between the TDS reported by the deductor and displayed in AIS or Form 26AS," says Vishal Gehrana, Principal Associate, Karanjawala & Co. and Advocate on Record, Supreme Court.

What possible steps can be taken to correct the TDS data mismatch issue?

Vasudevan from Lakshmikumaran & Sridharan says that if a mismatch exists, then you need to file a revised ITR or ITR-U (updated ITR) if the time limit to do so exists. "Where the mismatch arises due to non-disclosure by the taxpayer, it is advisable for the taxpayer to furnish a revised return or an updated return as the case may be to address the mismatch," he says.

It goes without saying that if you manage to get the Form 26AS data corrected or updated with the correct amount of TDS, then you can surely claim its credit. Experts advise taking up the matter directly with the concerned TDS deductor. "Where the mismatch arises for any other reason due to non-deposit of tax or incorrect disclosure, it is advisable for such taxpayer to engage with the concerned counterparty to get the mismatch corrected to avoid prolonged litigation on this. If mismatch is for other reasons, the taxpayer should give appropriate responses," says Vasudevan.

Gehrana tells what happens after you request the TDS deductor to make the necessary corrections. "If there is an error on the deductor's part, he needs to file a correction statement or a revised TDS return. It is also crucial for the taxpayer to ensure that the correct PAN was provided to the deductor since an incorrect PAN can cause a mismatch. After the deductor files the corrected return, the updated information should reflect in Form 26AS within a few weeks. In cases where the discrepancy persists even after the deductor has made corrections, the taxpayer has the option to raise a grievance on the Income Tax Department's e-filing portal to seek assistance," he says.

"In terms of filing an Income Tax Return (ITR), taxpayers are often unsure whether to wait for corrections in TDS data or proceed based on their own records. Generally, it is advisable to file the ITR with the correct TDS data according to the taxpayer’s records, such as Form 16, Form 16A, or TDS certificates. Filing based on accurate records ensures that any discrepancies can later be clarified with the Income Tax Department, especially through the rectification process. In cases where the TDS mismatch is significant, taxpayers might consider waiting for the deductor to submit a revised return and ensure that both Form 26AS and AIS reflect the corrected data. However, if a taxpayer is facing a filing deadline and the deductor has not yet made the necessary corrections, they can file the return with the TDS data available in Form 26AS or AIS. It is important to be prepared for potential scrutiny or notices from the tax authorities if the mismatch persists," says Sujit Bangar, founder, TaxBuddy.com.

The income tax department says that you can take the following actions to correct the details in your Form 26AS:

"Provide a correction statement (via NSDL website) for only those records that require correction.
In case of a mistake made by the deductor (e.g. your employer) you should contact the deductor and request them to:
File the TDS return if it's still pending
Furnish a revised TDS return if they filed the return with incorrect details/wrong or no PAN
If there is a mistake made by the bank (e.g. in tax amount, PAN), you should request the bank to rectify it in the challan details uploaded by the bank."

This story originally appeared on: India Times - Author:Faqs of Insurances