Demand Notice Mis-matching of TDS why ? what to do ? reply ! Preventive measures

There are many cases where demand notices have been issued by the Income Tax department due to mismatching of Tax deducted shown at income...

There are many cases where demand notices have been issued by the Income Tax department due to mismatching of Tax deducted shown at income tax department site and tax claimed by the assessee in his/her  Income Tax return. As per the present procedure, all payments of Direct Taxes, either by way of TDS / TCS, Advance-tax, Self-Assessment Tax and Regular Tax are uploaded to the credit of the concerned assessee in the computer systems known as Form 26AS. The Assessing Officers give credit to the taxes when they are uploaded to the account (Pan Ledger or Form 26AS) of the concerned assessee through the national network of the Income-tax Department. 

In the case of TDS / TCS, unless the deductors correctly upload the details of the deductions including the PAN and the amount, the taxes cannot be given credit in the account of the concerned deductee. In all cases where there is a mis-match, the tax credits cannot be given, resulting in withholding of refunds and also the creation of infructuous demand.

A few days back one of our reader (now Friend) Nitika Budiraja (IIT, Scientist)  has also asked us what to do in such cases ?, we have done a few exercises for her which are shared hereunder for the benefit of all.

1. What is Mis matching in Form 26AS and Form 16/Form 16A,
2. What are the reasons for Mismatching?
3. What Should We Do
1. Letter to Employer/ Deductor  to correct their TDS/TCS return
2. Letter To ITO CPC
3. Preventive measures 

Download complete post in PDF including a Draft reply to Income Tax Department 


1. what is Mismatching in Form 26AS and tax credit claimed

Form 26AS:is also called as PAN ledger or PAN Login. There are three ways to download /Check form 26AS (given here).

Form 26AS is prepared by Income Tax department .Income Tax Department facilitates a PAN holder to view its Tax Credit Statement (Form 26AS) online. Form 26AS contains

1. Details of tax deducted on behalf of the taxpayer by deductors
2. Details of tax collected on behalf of the taxpayer by collectors
3. Advance tax/self assessment tax/regular assessment tax, etc. deposited by the taxpayers (PAN holders)
4. Details of paid refund received during the financial year
5. Details of the High value Transactions in respect of shares, mutual fund etc.

The First three entries related to tax deposited /credited in Form 26AS .Forth is related to refund and fifth is related to High Value Transactions. 

First two entries reported by Employer /Deductor through TDS return filing to Income Tax department.The Tax Credit Statement (Form 26AS) are generated wherein valid PAN has been reported in the TDS return.

Third entry directly reported by Bank where advance tax /Self assessment tax has been deposited by the assessee.

when assessee file his/her Income Tax return he/she claim tax credit on the Basis of TDS certificate or communication sent by the deductor for tax deduction ,However Form 26AS is prepared on the Basis of return filed by deductor to Income Tax Department. There are chances of differences  in TDS claimed and TDS detail uploaded by the Deductor which is called mismatching of tax. 

Download complete post in PDF including Draft reply to Income Tax Department 

2.Reasons for Mismatching 


A.Incorrect/Non Filing of TDS return by Deductor/ Employer.

In First two cases where a particular Deductor deducts and if he either does not pay or if he fails to file the TDS return with full details in time, the assessee, from whom the tax is deducted, will not get credit for the tax deducted from him because this particular deduction will not find a place in the Form 26AS.

1.Deductor related reasons :

• Non filing of quarterly TDS statements 
• Omission to include details of challan in TDS statement 
• Quoting wrong CIN in challan details in the TDS statement 
• Entering wrong amount in challan details 
• Quoting of wrong TAN in the challan while remitting the TDS in the bank 
• Quoting of wrong minor head in the challan while remitting the TDS
• Omission to include details of a deductee in the challan wise annexure in the TDS statement 
• Non quoting of PAN of the deductee 
• Quoting of structurally invalid PAN of the deductee 
• Quoting of valid but non existent PAN of deductee
• Quoting of valid but incorrect PAN of deductee
• Entering incorrect amount in deductee details

2. Deductee related reasons :

1. Error in the TDS amount claimed in the return 
2. The claim of inflated TDS credit in the return 
3. Bogus claimed TDS credit in the return
4. The erroneous claim of TDS credit in the return
5. Amount paid/credited shown in the TDS certificate erroneously Claim of TDS credit pertaining to two years in the return of income for one year 
6. Quoting of incorrect TAN of the deductor in the return.
7. Quoting of the TAN of the last DDO only in case of salary drawn from different DDOs during the year  
8. Credit for TDS claimed in a different PAN and status  
9. Credit for TDS claimed for an assessment Year other than the assessment year relevant to the year of deduction 

3. Bank Related Reason :

 Some time Banks are uploading incorrect PAN/TAN , assessment year , Minor head,Section  incorrectly due to that  tax is not shown correctly in TAN account and it effect also PAN ledger.

B.Incorrect Data Given by Assesee Himself.

In third  Case entry in Pan ledger will not be reflected if assessee himself has filled his pan in Challan  or  Bank has reported incorrect pan to the income Tax department for self assessment Tax or Advance tax.

Download complete post in PDF including Draft reply to Income Tax Department 

3.What should we Do now  ?.

Confirm The differences from Form 16/16A and Form 26AS:

First step we should take that the reason for demand notice is mis matching of TDS/TAX .To confirm this we have to download our Form 26AS. After downloading the Form 26AS compare it with Form 16 Issued by employer and Form 16A issued by other deductor and pin point the differences in between them and note down the same .

1.Letter to your employer /Deductor for revision of TDS return : 

After confirmation of differences of tax deducted and deposited in Form 16/16A by deductor and form 26AA ,next step is to write a letter to deductor to revise the relevant TDS return so that the correct credit may be reflected.You should provide relevant details in your letter must Pinpoint the entries of differences.

Differences Due to Advance Tax / self assessment Tax .

If there Tax difference due to non reflection of Advance tax and Self assessment tax then you have to approach your assessing officer to correct the same (challan correction procedure is given here)    

Letter to ITO CPC

First of all, it needs to be examined whether the Assessing Officer has a power to deny credit of TDS for such a reason

Section 199, as it existed prior to its substitution by the Finance Act 2008 with effect from 1st April 2008, provides for the credit of TDS on the basis of production of the TDS certificate. Credit for TDS on the basis of Annual Tax Statement in Form 26AS was only for the deduction of TDS made on or after 1st April, 2008. Therefore, for A.Y. 2007-08 & 2008-09, TDS credit should have been granted on the production of TDS certificates.

Although it was mandatory on the part of the assessee to attach proof of TDS claim along with the return, as per provisions of Explanation to Section 139(9), Rule 12(2) read with section 139C, has specifically exempted assessees from submitting proof of TDS claimed along with the return. However, it was required to be produced before the Assessing Officer if demanded, as specifically spelt out in section 139C.

Therefore, if at all TDS credit was not matching with the data available with the department, it was obligatory on the part of the Assessing Officer to call for the proof of the TDS claim in the form of a TDS certificate, and to allow the credit if the claim was found to be proper. 

Without considering the legal position, the Assessing Officers have resorted to denial of TDS credit wherever there was a mismatch and that too even without explaining as to which TDS claim is not matching as per their database!

Further Income Tax department has issued Instruction to release refund without Matching of TDS with Form 26AS

1. For Assessement Year 2007-08 This view is further supported by Instruction No.6/2008, dated 18th June, 2008 whereby Assessing Officers were instructed that where the aggregate TDS claim does not exceed Rs 5 lakh, and where the refund computed does not exceed Rs 25,000, the TDS claim of the taxpayer should be accepted at the time of processing of returns; and in all remaining returns, the Assessing Officer shall verify the TDS claim from the deductor or assessee, as the case may be, before processing the return (Instruction was applicable for A.Y. 2007-08) 
2. Ay 08-09 http://www.simpletaxindia.net/2010/03/refund-ay-2008-09-without-matching-tds.html 
3. AY 9-10 http://www.simpletaxindia.net/2010/12/tds-matching-up-to-4-lakh-not-required.html 
4. AY 10-11 http://www.simpletaxindia.net/2011/02/refund-without-matching-tds-diff-up-to.html 
5. y 11-12 http://www.simpletaxindia.net/2012/02/tds-claim-without-matching-ay-2011-12.html

A Draft Reply to ITO CPC for Giving credit of TDS against Mismatching of TDS in Form 26AS on the basis of Form 16/Form 16A is given here under which I think it will be helpful for all concerned .

To: 

Income-tax Officer (CPC) 

Post Bag 1 Electronic City Post Office 

Bangalore - 560100 

Sir, 

Re: Your notice of demand for the A.Y. 2008-09 Communication Reference number: CPC/0910/_________________________ PAN: __________________- request regarding.

Sub: Request to allow credit of TDS/Advance/Self Assessment tax on the Basis of Form16/16A TDS certificate / Challan receipt.

I am in receipt of Demand Notice for Rs. ____________ for the A.Y. 2008-09.(Annexure-1 ) In this connection, I would like to mention that there appears to be an error in processing the return. I have claimed Rs ……….. as TDS Deducted by The Employer in my Income tax return furnished for the Assessment year ………….. but Partial/Full credit of TDS has not been given while processing the return by your office . As proof of Tax deduction at source copy of  Form 16TDS certificate (Annexure -2) is attached. 

Attention your good self is also invited on Section 199 of the Income Tax  Act which provides that any tax deducted at source under the provisions of Chapter XVII and paid to the Central Government shall be treated as payment of tax on behalf of the person from whose income the deduction was made and the credit shall be given to him for the amount so deducted on the production of the TDS certificate issued under section 203 of the Act.(For Notices issued up to  Assessment year 2007-08 the Assessment year 2008-09)

Attention your good self is also invited on Section 199 read with section 139(C) of the Income Tax  Act which provides that any tax deducted at source under the provisions of Chapter XVII and paid to the Central Government shall be treated as payment of tax on behalf of the person from whose income the deduction was made and the credit shall be given with due verification in pan ledger however Assessing Officer has the power to demand TDS certificate from assessee if credit is not matching.(For Notices issued for Asessment year 2009-10 ,2010-11,2011-12)

Further Section 205 of the Act provides that where tax is deductible at the source under Chapter XVII of the Act, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted by the employer/Deductor.

Download complete post in PDF including Draft reply to Income Tax Department 

It is also hereby mentioned that as per Form 16 (Annexure-2) issued by the employer M/s………………………..(Tan:………………………) and Corresponding ……………….. entries reflected in Form 26AS (Annexure-3)  it is very much clear  that the Rs ................. tax has been deducted at source from the my salary. However ……(no of entries) entry(ies) amounting to Rs.............., is/are not reflected in Form 26AS due to incorrect filing of ETDS returns  by Employer/ Deductor for which I should not be held responsible.

It is also submitted that as per instructions issued vide1/2010 dated 25.02.2010 related to processing of Income Tax return for Assessment year 2008-09 ,In all the returns filed in ITR-1 and ITR-2 for the A. Y. 2008-09, where the aggregate TDS claim does not exceed Rs four lakh and where the refund computed does not exceed Rs.25,000; the TDS claim of the tax payer concerned should be accepted at the time of processing of return and in my present case even there is no claim of refund (give relevant instruction as link given above)

Therefore it is requested to kindly rectify the mistakes and I further request your good self to withdraw the said demand notice/release refund for Ay ............. with interest which was wrongly adjusted against above said demand (copy of order Attached Annexure -4).

 I hope that you will take early and necessary steps in the matter please.

Download complete post in PDF including Draft reply to Income Tax Department 

Yours Nitika Budiraja 

PAN:...............

Annexure

1. Demand Notice
2. Form 16/16A
3. Form 26AS
4. Order of refund adjustment of next Year (if any)

Download complete post in PDF including Draft reply to Income Tax Department 


3.Preventive Measures.

1. Provide you Pan to Tax deductor like Bank ,Employer, principal  immediately where tax is to be deducted on payment made to you.
2. Fill your correct detail while depositing Self assessment Tax or advance tax Fill you pan correctly and check you tax payment receipt to confirm that bank have filled data correctly in computer.
3. Check your Form 26AS periodically and contact deductor where there are any discrepancies.
4. Before filing you Income Tax return for Assessment year 2012-13 please ensure that tax deducted by other and deposited by you has been fully incorporated in form 26AS. if not wait for few more days and before filing of return take necessary steps so that complete tax details reflected in form 26AS. Please note that due date to file last quarter return for TDS is 15 May,2012 so last quarter Tax can only be reflected in your form26AS only by 17 th May if not reflected earlier . So our advice is to file return only after Getting form 16/Form 16A from deductor and after confirmation of complete tax in Form 26AS for speedy refunds and painless return filing.Due date for filing of Income Tax return For Assessment year 2012-13 for non audit cases is 31.07.2012.

Download complete post in PDF including Draft reply to Income Tax Department