The first quarter of FY 2025-26 has already highlighted several recurring issues in Tax Deducted at Source (TDS) compliance. Despite the wide adoption of automation and ERP integration, many businesses continue to face TDS defaults—errors that trigger penalty notices, late fees, and unnecessary cash flow blockages.

Understanding the top defaults flagged by CPC-TDS and knowing how to fix them quickly can save your business both time and money. Here’s a breakdown of the five most common TDS errors from Q1 filings and actionable remedies for each.

Decoding TDS Defaults: Top 5 Errors from Q1 FY 2025-26 Filings and How to Fix Them

Late or Non-Deposit of TDS

The Default:
Businesses deducted TDS from payments but failed to deposit it with the government within the stipulated deadline (7th of the following month). This led to interest charges under Section 201(1A) and late fees under Section 234E.

Why It Happens:

• Cash flow crunches or oversight by accounts teams
  
• Delayed approval cycles for challan payments
  
• Errors in challan preparation (challan mismatch, wrong assessment year)
  

How to Fix It:

• Immediately deposit pending TDS with applicable interest (1.5% per month from the date of deduction to the date of payment).
  
• Regularize challan entries via OLTAS reconciliation.
  
• Implement compliance calendars with automated payment alerts to prevent repeat lapses.
  

Short Deduction or Wrong Section Applied

The Default:
TDS was deducted at a lower rate than prescribed, or under the wrong section. For example, applying 1% under 194C (contracts) instead of 10% under 194J (professional fees).

Why It Happens:

• Misclassification of nature of payment
  
• Lack of updated knowledge of recent TDS rate changes
  
• PAN errors leading to higher default recognition
  

How to Fix It:

• Recompute liability under the correct section and deposit the shortfall with interest (1% per month from the date tax was deductible to actual deduction).
  
• Train accounts staff on section-wise applicability.
  
• Maintain a TDS applicability matrix for vendor payments.
  

PAN Errors and Invalid PAN Reporting

The Default:
Incorrect PANs or missing PANs in TDS returns led to higher deduction defaults. CPC systems automatically apply 20% TDS under Section 206AA for invalid or missing PANs.

Why It Happens:

• Vendors not updating PAN details on time
  
• Data entry errors while preparing Form 26Q/24Q
  
• Legacy vendor databases without PAN validation
  

How to Fix It:

• Correct PAN details and file a revised TDS return.
  
• Regularly validate vendor PANs using TRACES/Income Tax portal utilities.
  
• Mandate PAN collection during vendor onboarding.
  

Late Filing of TDS Statements (Form 24Q/26Q/27Q)

The Default:
Many companies delayed filing quarterly TDS statements beyond the due date (31st July for Q1). This resulted in a late fee of ₹200 per day under Section 234E, plus penalties under Section 271H.

Why It Happens:

• Delays in reconciliation of books and challans
  
• Lack of coordination between payroll, accounts, and compliance teams
  
• Technical glitches in RPU/FFI validation
  

How to Fix It:

• File pending TDS statements immediately to minimize additional late fees.
  
• Create an internal cut-off timeline at least 7–10 days before statutory due dates.
  
• Use ERP-integrated compliance software to generate error-free returns.
  

Challan Mismatch and CIN Errors

The Default:
Incorrect Challan Identification Number (CIN), BSR codes, or assessment year entries led to mismatch errors during TDS statement validation. This flagged defaults despite tax being deposited.

Why It Happens:

• Manual challan entry errors
  
• Use of outdated challan formats or incorrect accounting heads
  
• Lack of post-payment verification with OLTAS
  

How to Fix It:

• Correct challan details and file a correction statement on TRACES.
  
• Always verify challans in Form 26AS/OLTAS before filing returns.
  
• Adopt auto-fetch challan validation systems linked with net banking.
  

Key Takeaways for Businesses

The Q1 trends of FY 2025-26 clearly show that most TDS defaults arise from process gaps rather than intentional non-compliance. To avoid repeat errors in upcoming quarters:

• Automate compliance tracking: Use ERP-integrated TDS software.
  
• Centralize vendor data: Ensure PAN, section applicability, and payment details are verified upfront.
  
• Reconcile monthly: Match books with OLTAS and TRACES well before return filing deadlines.
  
• Train finance teams: Keep teams updated on TDS rate changes, due dates, and section-specific nuances.
  

By addressing these issues proactively, businesses can not only avoid penalties and interest but also maintain smooth credit of TDS in vendor accounts, strengthening trust and financial compliance.

Final Word

TDS compliance under the current scrutiny regime demands precision and timely execution. With defaults now being automatically flagged by CPC-TDS, even small errors can lead to large notices. Businesses that build robust processes, leverage technology, and stay updated with law changes will find themselves well-prepared for the rest of FY 2025-26. Get in touch with Pitchers Global today!