TDS Mismatch Income Tax Department Notice TAX CONCEPT

TDS Mismatch: Income Tax Department Notice – the Issue and How to Resolve It

In recent years, the Income Tax Department (ITD) has been focusing on improving the efficiency and accuracy of tax collection. One of the common issues taxpayers face is a TDS (Tax Deducted at Source) mismatch, which could lead to receiving a notice from the ITD. This article explains what TDS mismatch is, why it occurs, and how to resolve it.

What is TDS?

Tax Deducted at Source (TDS) is a method used by the Income Tax Department to collect taxes at the source of income. When an individual or entity makes a payment (for example, salary, interest, or professional fees) to another person or business, a certain percentage of that payment is deducted as tax and deposited with the government. This amount is then adjusted against the recipient’s total tax liability for the financial year.

TDS is applicable to various types of income, and the person making the payment (the deductor) is responsible for deducting the tax and depositing it with the government.

What is TDS Mismatch?

A TDS mismatch occurs when there is a discrepancy between the TDS claimed by the taxpayer and the TDS reported by the deductor (the person or organization who deducted the tax). In simpler terms, this means that the Income Tax Department has records showing a different TDS amount than what the taxpayer has reported in their return. This can happen for several reasons:

TDS not reflected in Form 26AS: Form 26AS is a statement that provides a consolidated record of all the taxes deducted or collected on behalf of a taxpayer. If the TDS deducted by the employer or any other deductor is not updated or reflected in Form 26AS, a mismatch may occur.
Incorrect Reporting in Tax Return: Sometimes, taxpayers might incorrectly report the TDS amount in their Income Tax Return (ITR), leading to a mismatch.
Late or Incorrect TDS Filing by the Deductor: If the deductor has made a mistake or delayed submitting the TDS payment to the government, the details will not be available in Form 26AS, leading to a mismatch.
TDS on Multiple Sources of Income: Taxpayers may receive TDS from multiple sources. If any source is left out or not reflected properly in the TDS return filed by the deductor, it can lead to a mismatch.

Why Does the Income Tax Department Issue Notices for TDS Mismatch?

When the Income Tax Department detects a mismatch between the TDS reported by the taxpayer and the TDS available in Form 26AS, it may send a notice to the taxpayer. The notice is typically issued under Section 143(1) or Section 245 of the Income Tax Act. The ITD may highlight the discrepancy and ask the taxpayer to rectify the mismatch.

This could also indicate that the taxpayer is either overreporting or underreporting their income, which could lead to an incorrect tax calculation. To address this, the department may request the taxpayer to:

Reconcile the TDS amount.
File a revised return.
Provide additional documents or clarification to resolve the mismatch.

Steps to Resolve TDS Mismatch and Respond to the Notice

If you receive a TDS mismatch notice, follow these steps to resolve the issue:

Verify the TDS Information in Form 26AS:
- Log in to the Income Tax Department’s e-filing portal and check your Form 26AS. This will give you a summary of all TDS entries made against your PAN. Ensure that the TDS amounts match the amounts you have reported in your Income Tax Return.
Cross-Check the TDS Details in Your Tax Return:
- Compare the TDS figures mentioned in your Income Tax Return with the details in Form 26AS. If there are any discrepancies, you should revise your ITR accordingly.
Check for Missing TDS:
- Sometimes, the TDS is not updated by the deductor. You can reach out to the concerned deductor (e.g., your employer or bank) and request them to update the TDS information on the government portal.
Rectify and File a Revised Return:
- If you find any error in the TDS claim or reporting, you can file a revised income tax return by submitting the correct TDS details. Ensure that the information is accurate before re-filing the return.
Ensure Timely Payment and Filing of TDS:
- In some cases, the mismatch happens because the deductor has not deposited the TDS to the government on time. If you suspect this, ask your employer or deductor for proof of TDS payment and confirmation that they have filed their TDS returns.
Respond to the IT Department’s Notice:
- If the Income Tax Department issues a notice, respond to it promptly. Provide any additional documentation or clarification as requested. If required, submit proof of TDS payment or the revised return.

Consequences of Ignoring the TDS Mismatch Notice

Ignoring the TDS mismatch notice from the Income Tax Department can lead to serious consequences, including:

penalty: If the mismatch is not rectified, the department may levy a penalty for incorrect reporting.
Interest Charges: Failure to report TDS correctly could attract interest charges for the underpayment of taxes.
Tax Liabilities: In some cases, if the mismatch is not corrected, the taxpayer may face a higher tax demand, leading to financial strain.

Conclusion

A TDS mismatch notice from the Income Tax Department can be a concerning issue for taxpayers. However, understanding the cause of the mismatch and following the appropriate steps to rectify it can help resolve the matter quickly. Taxpayers should ensure that their TDS details are accurately reported in both their income tax returns and Form 26AS to avoid any discrepancies and potential penalties. Regularly checking Form 26AS, cross-checking the TDS figures, and keeping open communication with deductors can go a long way in preventing such mismatches.

Raise Rectification Request FAQs

Q1. When do I need to submit a rectification request?

Ans. A request for rectification can be submitted on the e-Filing portal if there is any mistake apparent from record, in an Intimation issued u/s 143(1) or in an order u/s 154 passed by the CPC. A rectification request can be submitted only for returns that are already processed by CPC.

Q2. My e-Filed Income Tax Return has been processed by CPC raising a demand / less refund, whom should I approach for rectification?

Ans. If your Income Tax Return for the relevant Assessment Year is processed by CPC, you can file online rectification with CPC after logging in to your e-Filing account.

Q3. What kinds of errors can be corrected by submitting a rectification request?

Ans. You can submit a rectification request for errors in processing of your income tax return by CPC. Only mistakes apparent from record are considered for rectification.

Note– Do not use rectification request for any other mistake on your part which can be corrected with a revised return.

Q4. What are the different request types for income tax rectification available on e-Filing portal?

Ans. Three type of rectification request can be filed on e-filing portal

Reprocess the Return
Tax Credit Mismatch Correction
Return Data Correction (offline)

Note: For Return Data Correction (Offline), taxpayers needed to upload XML generated in the offline utility till AY2019-20 but can upload JSON and submit rectification online from AY2020-21.

Q5. When can I file Reprocess the return request?

Ans. It is advisable to select this option if you have furnished true and correct particulars in Return of Income and CPC has not considered the same during processing.

Examples-For below scenarios Reprocess the Return request can be filed-

Taxpayer has claimed deductions in original/revised return and same has not been allowed while processing of return.

Taxpayer has made correct claim of TDS/TCS/Self-assessment tax/Advance tax and same has not been allowed while processing of return.

Q6. When can I file Return Data Correction request?

Ans. Please re-enter all the entries in the schedules. All the corrected entries as well as remaining entries mentioned in the ITR ﬁled earlier are to be entered. Make the necessary corrections in the data. While doing corrections, make sure not to declare any new source of Income or declare additional deduction.

Examples – For below scenarios Return Data Correction request can be filed-

a) If Taxpayer has wrongly shown income in incorrect head of income.

b) Taxpayer can make changes in any other information, provided that these changes do not result in a variance in gross total income and deductions.

c) In this type of rectification request taxpayer is not allowed to make below mentioned changes –

i. Fresh claim and/ or Additional claim and/ or Reduction of carry forward losses.

ii. Fresh claim and/ or Additional claim and/ or Reduction of brought forward losses.

iii. Fresh claim and/ or Additional claim and/ or Reduction of MAT credit.

iv. Fresh deduction/Additional claim/ Reduction of deduction under chapter VI A.

Q7. When can I file Tax Credit Mismatch Correction?

Ans. It is advisable to use this option if you want to correct details in TDS/TCS/IT challans of the processed return. Please re-enter all the entries in the schedules. All the corrected entries as well as other entries mentioned in the ITR filed earlier are to be entered. Make the necessary corrections in the data. While doing corrections, make sure not to claim credits which is not part of the 26AS statement.

Examples-For below scenarios Tax Credit Mismatch Correction request can be filed-

a) Taxpayer can add new Self-Assessment tax challan which has been paid to nullify demand raised in original return.

b) If taxpayer has incorrectly provided any Self-Assessment tax/Advance tax challan details such as BSR code, Date of payment, Amount, Challan number while filing original return, they can correct the error in this category of rectification.

c) If taxpayer has incorrectly provided any TDS/TCS details such as TAN, PAN, Amount etc.

d) Taxpayer can only Edit/Delete TDS/TCS entry.

Q8. I want to file a rectification against an intimation u/s 143(1) from 5 years ago. Why is the system not allowing it?

Ans. You are not allowed to file rectification request after the expiry of 4 years from the end of the FY in which the intimation u/s 143(1) was passed.

Q9. Do I need to E-verify my rectification request?

Ans. No, there is no need to E-verify rectification request.

Q10. Can I rectify my previously filed ITR using the rectification request service?

Ans.. If you notice a mistake in your submitted ITR, and it has not processed by CPC, you can submit a revised return. You can use the rectification request service on the e-Filing portal only against an order/notice u/s 143(1) from CPC.

Q11. My previously filed rectification request is yet to be acted upon at CPC processed. Can I submit or file another rectification request for the same request type?

Ans.. No. You cannot submit a rectification request for an Assessment Year unless previously filed rectification request has been acted upon by CPC.

Q12. Where can I find my rectification reference number?

Ans. Once you submit your rectification request, you will receive a mail or a message notifying you of your 15-digit rectification reference number. You can also find your 15-digit rectification number under Rectification Status after logging in to your e-Filing account.

Q13. Can I check my rectification status offline?

Ans.. No, you cannot view the status offline. You will be required to log in to the e-Filing portal to view the rectification status.

Q14. Who can apply for rectification request?

Ans..Only these parties who get the order / notice u/s 143(1) from CPC can apply for rectification request on the e-Filing portal:

Registered taxpayers
ERIs (who have added client PAN)
Authorized Signatories and Representatives

Q15. Can I submit a rectification request on e-Filing in case of manual / paper filing of return?

Ans.. No, Rectification requests in paper form are NOT accepted at CPC. Every communication to CPC has to be made only in electronic form in the manner provided by the CPC.

Q16. Can I submit a rectification request on e-Filing portal in case rectification rights are transferred to AO?

Ans.. No, the Rectification Request service on the e-Filing portal currently does not cover rectification in case of rights transferred to AO. In such a case, you need to approach your AO with the rectification application.

Q17. Can a rectification request be withdrawn or filed again, once submitted?

Ans. No, you are not allowed to withdraw rectification requests already submitted. You can file another rectification request only after the submitted one is processed in CPC.

Q18. Can I claim exemptions/deductions when submitting a rectification request?

Ans. No. You are not allowed to claim new exemptions/deductions while filing a rectification request.

Q19. There is a change in my income/bank/address details, which I need to update in my ITR. Should I file a rectification request?

Ans. Rectification request is not applicable for a change in income / bank / address details. Your income/Bank/Address can be updated through a revised return.

Q20. Up to which AYs in the past can a rectification request be filed online?

Ans. There is no specific AY till when rectification can be submitted online, it depends on the particular case. Rectification request can be submitted within 4 years from the end of the financial year in which the order sought to be amended was passed.

Q21. I am required to be audited u/s 44AB. Is DSC compulsory for me when filing a rectification request?

Ans. No, DSC is not mandatory for filing a rectification request.

Q22. I uploaded the wrong details in my rectification request. How do I correct it?

Ans. You cannot submit a revision of the rectification request, neither can you withdraw it. Once submitted, you can file another rectification request after the submitted one is processed in CPC.

Q23. I have paid the demand raised by CPC. Do I have to file a rectification request to cancel the demand?

Ans. You can file Tax credit mismatch correction request with paid challan details.

Q24. I filed my original ITR post the due date (belated return). I need to revise the submitted ITR. Can I file a rectification request?

Ans. No , Rectification of ITRs are different from filing a revised return. You can revise your belated return (applicable only from FY 2016-17 onwards) either before the end of the following FY, or before the processing of the ITR by tax authorities, whichever comes first. A rectification request can only be filed in response to a notice / order / intimation from CPC for a specific e-Filed return.

Q25. I originally filed ITR-1. Can I use ITR-2 when responding to the CPC notice with a rectification request?

Ans. No, you will need to use ITR-1 if that’s what you filed originally.

Q26. Can an appeal be filed against a rectification order?

Ans. Yes, You can file an appeal directly to the CIT(A) against an order issued by CPC.