Common TDS Mistakes and Best Practices for Error-Free Compliance
Introduction
Most TDS defaults do not arise due to tax evasion, but because of basic compliance mistakes such as wrong section selection, delayed actions, or poor internal controls. These errors often result in interest, late fees, penalties, notices, and loss of professional credibility.
This blog highlights the most common TDS mistakes made by deductors and explains best practices to ensure smooth, error-free, and sustainable TDS compliance.
Topics covered include:
- Wrong section selection
- Late deduction vs late payment
- PAN-related issues
- Non-reconciliation of TDS
- Best internal control practices
This module is especially important for business owners, accountants, HR teams, and professionals.
Wrong Section Selection under TDS
Nature of the Mistake
Applying an incorrect TDS section is one of the most frequent errors. This usually happens due to:
- Misunderstanding the nature of payment
- Using old practices without reviewing current provisions
- Confusion between similar sections
Impact
- Short deduction of TDS
- Interest and demand notices
- Requirement to revise TDS returns
Best Practice
- Always analyse the nature of payment, not the vendor name
- Refer to the Income Tax Act section-wise applicability
- Maintain an internal payment-to-section mapping chart
Late Deduction vs Late Payment of TDS
Late Deduction
- TDS is not deducted at the time of credit or payment
- Attracts interest at 1% per month or part thereof
Late Payment
- TDS is deducted but not deposited on time
- Attracts interest at 1.5% per month or part thereof
Common Mistake
Many deductors focus only on payment due dates and ignore the date of deduction, leading to additional interest.
Best Practice
- Deduct TDS immediately at the time of booking or payment
- Automate reminders for monthly TDS payments
Ignoring PAN Issues of Deductees
Nature of the Mistake
- PAN not collected
- Incorrect or invalid PAN
- PAN not verified before payment
Impact
- Higher TDS rate (as per law)
- PAN mismatch defaults
- TDS credit not reflecting for deductees
Best Practice
- Collect PAN before releasing payment
- Verify PAN through authorised tools
- Do not process vendor payments without valid PAN
Non-Reconciliation of TDS Data
Nature of the Mistake
- No regular matching of challans, returns, and Form 26AS
- Ignoring TRACES defaults
- Annual reconciliation instead of quarterly
Impact
- TDS credit mismatch
- Demand notices under Section 200A
- Delay in issuing TDS certificates
Best Practice
- Reconcile TDS every quarter
- Resolve defaults immediately
- Match data before issuing Form 16 / 16A
Lack of Proper Internal Control Practices
Common Control Failures
- No maker-checker system
- Inadequate documentation
- Overdependence on a single person
- No compliance calendar
Impact
- Repeated defaults
- Compliance risk escalation
- Poor audit trail
Best Internal Control Practices
- Maintain a TDS compliance calendar
- Implement maker-checker review for filings
Standardise processes for:
- Section selection
- Challan payment
- Return filing
- Maintain proper records and backups
Strong internal controls reduce long-term compliance risk.
Practical Compliance Checklist
- Verify section applicability before every payment
- Deduct and deposit TDS on time
- Validate PAN before processing payments
- Reconcile challans, returns, and Form 26AS regularly
- Address TRACES defaults without delay
Consistency is the key to TDS compliance.
Conclusion
Most TDS issues can be avoided by paying attention to fundamentals. Wrong section selection, delays in deduction or payment, PAN-related lapses, and lack of reconciliation are preventable mistakes. Implementing robust internal controls and following best practices ensures smooth compliance, reduces penalties, and builds trust with stakeholders.
A proactive and disciplined approach to TDS compliance is far more effective than reactive corrections.
Need Expert Guidance on TDS Compliance?
Identifying mistakes and implementing best TDS practices requires experience and structured processes.
Verotus Finlegal Solutions LLP provides professional support for:
- TDS compliance review and health check
- Process improvement and internal controls
- Default correction and notice handling
- End-to-end TDS advisory and compliance management
📞 Contact Verotus Finlegal Solutions LLP
to strengthen your TDS compliance framework and avoid costly mistakes.
