TDS Compliance Mistakes That Can Snowball Into Bigger Problems

That one morning call — and the TDS lesson i’ll never forget

One day, while I was at the office, I got a call from Rohit, a former colleague who now works as a CFO at a fast-growing startup.

He sounded stressed.
“Hey Vijay, I just got a notice from the Income Tax Department. Something about short TDS deduction and late filing. Can you help me figure this out?”

I said. “Sure, let's start analyzing your data first and find what are the loopholes.”

We analyzed his data together. Within minutes, it became clear — this wasn’t about fraud or misreporting. It was just a few small TDS mistakes: a late deposit, a mismatched challan, and an expired lower deduction certificate.

Each mistake was small on its own. But together, they turned into a bigger problem — penalties, stress, and reputation risk.

That day reminded me: TDS compliance isn’t hard — but it’s easy to ignore until it’s too late.

Late TDS deposits — The first domino

Rohit’s first issue was a common one — depositing TDS late.
When you’re managing multiple things, it’s easy to miss the deposit date. But once you do, the interest starts right away:

• 1.5% per month for every delayed deposit
• TRACES flags even short delays
• Repeated delays attract notices

A few days’ delay across several months cost Rohit nearly ₹3.6 lakh in penalties.

CFO tips:

• Automate TDS deposits via ERP or net banking.
• Maintain a visible TDS calendar in your finance dashboard.
• Verify challans immediately after deposit.

PAN errors and form mismatches

The second issue was a PAN mismatch.
A single wrong letter in a vendor’s PAN caused the system to reject the entry. Their TDS credit didn’t show up, and the vendor raised a complaint.

It took days to fix, even though the actual deduction was correct.

How to avoid this:

• Verify every vendor PAN before onboarding.
• Reconcile Form 26AS and Form 16A every quarter.
• Always review the TDS file before submitting it.
  
  

The missed certificate that cost money

Rohit’s team also missed tracking a lower deduction certificate that had expired.
They continued deducting TDS at 2% instead of 10%.
When the tax department checked, they found a short deduction and charged interest on the difference.

CFO checklist:

• Keep a TDS certificate tracker with expiry dates.
• Recheck all certificates at the start of each quarter.
• Collect the renewed certificate before continuing lower-rate deductions.
  
  

The wrong TDS section

Another mistake — applying the wrong TDS section.
It happens often: paying a consultant under 194C instead of 194J, or confusing employees and contractors.

Even if total tax deducted is correct, the wrong section triggers a mismatch and a possible notice.

What CFOs should do:

• Tag vendors and expense heads correctly in ERP.
• Train HR and procurement teams on basic TDS rules.
• Review section mapping every quarter.

Delayed or incorrect TDS returns

Lastly, Rohit’s team filed a quarterly TDS return late.
It cost them:

• ₹200 per day in late fee (Section 234E)
• Plus penalty under Section 271H
  
  

Even small delays can lead to large cumulative fines — and waste hours in correction work.

CFO return tips:

• Lock internal review at least one week before the due date.
• Use a maker-checker system.
• Validate data using the TRACES tool before final submission.
  
  

Conclusion: Small errors, big consequences

After we fixed Rohit’s issues, I realized something:
TDS compliance is less about knowledge and more about discipline.
If you build good systems and automate small steps, you’ll stay ahead.

CFO’s 6-point TDS safety net:

1. Automate deposits.
2. Verify all PANs.
3. Track lower/nil deduction certificates.
4. Tag expenses under correct TDS sections.
5. Reconcile Forms 26AS and 16A quarterly.
6. File returns early, not at the last moment.
   
   

In finance, a quiet inbox is the best sign of success.
Because when no notices arrive — it means you’ve done your job right.