Received a TDS mismatch notice? It could be an error—here’s how to resolve it

Tech professional Samir (name changed) was shocked to receive a tax demand of about ₹1.98 lakh related to his income tax return (ITR) filed for the assessment year 2024-25. 

According to the intimation 143(1) sent to him, the tax deducted at source or TDS on his salary reported in his form 26AS is higher than the actual TDS credited to the tax department.

“The intimation says about ₹1.76 lakh is the outstanding TDS I’m required to pay. On top of it, the department has levied interest of about ₹22,000,” he said on condition of anonymity. 

This taxpayer is not a standalone case, as several of his colleagues have received similar intimations. Four chartered accountants Mint spoke to confirmed that some of their clients, too, have received TDS mismatch intimations demanding additional tax. 

Also Read: There's been a surge in income tax notices. Here's why, and how to respond.

Intimation sent to another taxpayer reviewed by Mint shows a tax demand of ₹2.14 lakh. “My form 16 is showing TDS of ₹9.39 lakh, whereas the intimation says their (IT department) records show ₹7.24 lakh TDS, which is resulting in this mismatch,” the assessee said on the condition of anonymity. 

What’s the issue

It could be a case of erroneous tax notices as the source of TDS information in Form 26AS and tax department’s records is the same.

“Information in the Form 26AS as well the IT department’s record is based on the details reported by employers or other TDS deductors. The information should be the same at both the places, which is strangely not the case in these cases,” said Prakash Hegde, a chartered accountant and principal consultant of direct taxation at Acer Tax & Corporate Services LLP. “It should be noted that in all these mismatch intimations the TDS with the tax department is lower than what is available in Form 26AS.”

In some cases, the TDS deductor files a rectification to the TDS return they have filed after July, due to which the corresponding information in the deductee’s Form 26AS gets updated and this also leads to mismatch when the ITR is processed. However, this doesn’t seem to be the case with the intimations being sent in the last two days as information in Form 26AS is still the same, Hegde said.   

The ITRs filed by taxpayers are processed by the tax system and the 143(1) intimations are sent automatically in case of any mismatch. These are not processed by tax officers manually. Since these intimations have been sent out in bulk, it seems like a case of erroneous processing by the IT system. 

What to do

When taxpayers receive such a tax demand, they can counter it by filing a rectification request on the IT portal. 

However, the rectification filing option on the IT portal has not been functioning since Tuesday, adding to taxpayers' difficulties. They are unable to submit their request due to a technical error. 

The other option is to file an appeal with the Commissioner of Income Tax (Appeals) or CIT(A).

However, in this case, CAs are advising against filing the appeal yet as they expect the IT department to resolve the technical issue. Taxpayers can file an appeal within a month of receiving the intimation.

“Taxpayers have to pay ₹1,000 fee to the tax department, the CAs fee and 20% of the outstanding tax demand in appeal. Instead of bearing these costs right away, I would advise waiting until the end of the one-month appeal filing window as the rectification error will be resolved by then,” said Hegde. 

The tax department may reprocess these ITRs once more, as per the communication sent by Tata Consultancy Services (TCS) to its employees, many of whom have received these TDS mismatch notices. Mint has seen the communication TCS sent to its employees. 

The company has informed its employees that the tax department will reprocess the ITRs after which the TDS discrepancy is expected to be solved. The company has also advised its employees not to pay additional tax demands yet. 

Also Read: There’s now a faster way to resolve tax disputes. But it has a huge red flag.