Income Tax · TDS Compliance
TDS Notices: 5 Costly Mistakes & How to Fix Them Fast
A plain-English guide to TDS Notices — why the Income Tax Department sends one, what each type of notice actually means, and the exact steps to close it out before it becomes a penalty.
- Focus keyword: TDS Notices
- Relevant sections: 156 · 200A · 271C · 234E
- Updated for AY 2026-27
TDS (Tax Deducted at Source) is the system that quietly moves a slice of every salary, contractor payment, or bank interest payout straight to the government before it ever reaches your account. It works smoothly — until it doesn't. When a return has an error, a challan is short, or a deposit is late, the Income Tax Department (via the TRACES portal) responds with one of several TDS Notices. This guide walks through every type, why each one lands, and the seven steps to close it out.
On this page
1. What is TDS?
2. What is a TDS Notice?
3. 5 types of TDS Notices
4. How a TDS Notice is triggered & resolved
5. FAQ
6. Official resources
What is TDS?
TDS stands for Tax Deducted at Source — tax that is pulled out of your income before
it's paid to you, by whoever is paying you, and deposited with the Government
of India on your behalf.
it's paid to you, by whoever is paying you, and deposited with the Government
of India on your behalf.
Example: Your employer pays you ₹50,000/month, deducts ₹5,000 as TDS, and hands you ₹45,000. That ₹5,000 goes to the Income Tax Department, credited against your PAN.
What is a TDS Notice?
A TDS Notice is an official communication from the Income Tax Department or the TRACES portal, sent to a deductor (employer/company) or a deductee (employee/payee) whenever there's a mismatch, error, default, or delay in TDS filing or payment. Most TDS Notices are preventable with a bit of quarterly housekeeping — which is exactly what the last section of this guide covers.
5 types of TDS Notices
Every notice is tied to a specific section of the Income Tax Act. Knowing which one you've received tells you exactly what went wrong — and how urgently it needs a response.
Demand Notice
Issued when TDS was deducted but not deposited with the government on time — or deposited short of the full amount.
Example: A company deducted ₹1,00,000 TDS in April but paid only ₹80,000 to the government. A demand notice follows for the ₹20,000 shortfall, plus interest.
Intimation After Processing
Sent once your quarterly TDS return (Form 24Q/26Q) is processed. It flags errors and mismatches picked up during processing.
Example: An employee's PAN was entered incorrectly in Form 24Q — that single typo is enough to trigger this intimation.
Penalty Notice
Issued when TDS wasn't deducted at all, or was deducted but never deposited. The penalty can equal the entire TDS amount.
Example: A company paid a contractor ₹5,00,000 without deducting TDS u/s 194C. A penalty notice for ₹50,000 (10%) may follow.
Late Filing Fee
TDS returns are due every quarter. File late, and this notice adds a fee of ₹200 for every day of delay.
Example: The Q1 return, due 31st July, was filed on 20th August — 20 days late × ₹200 = ₹4,000 in fees.
Short Deduction / Short Payment Notice
Raised on the TRACES portal when the TDS actually deducted is less than what was legally required, or when the challan amount doesn't tally with the return filed.
Example: Return shows ₹40,000 deducted, but the correct liability was ₹45,000 — TRACES flags the ₹5,000 gap automatically.
How a TDS Notice is triggered & resolved
The full lifecycle of a notice — from the moment a return is filed to the moment the case is closed on the portal.
1. Return is filed (Form 24Q/26Q)
The deductor submits the quarterly TDS return with all deductee PANs, challans, and deducted amounts.
2. TRACES/CPC processes the return
The system cross-checks challans against the return and validates every PAN entered.
3. A mismatch or default is detected
Short payment, short deduction, an incorrect PAN, or a late filing gets auto-flagged.
4. Notice is generated
One of the notice types above — 156, 200A, 271C, 234E, or a TRACES short-deduction notice — is issued to the deductor or deductee.
5. Notice is delivered
Sent via the registered email on TRACES and posted to the deductor's account on the income tax e-filing portal.
6. Respond online on incometax.gov.in
Either agree and pay the demand, or disagree and upload supporting proof — corrected challans, revised returns, or reconciliation statements.
7. Prevent the next one
File every return on time, double-check PANs before submission, and reconcile Form 26AS each quarter so nothing slips through.
Received a TDS Notice and not sure which box to tick? SNR Tax Care reviews the notice, checks your Form 26AS and challans, and files the correction or response for you.
Frequently asked questions
Quick answers to the questions we hear most often about TDS Notices.
How long do I have to respond to a TDS Notice?
Most notices carry their own deadline in the notice text — typically 15 to 30 days. Missing it can convert a correctable mismatch into a formal demand, so it's worth responding as soon as the notice is opened on the portal.
Can a TDS Notice be corrected without paying a penalty?
Often, yes. If the underlying default is a data error — a wrong PAN, a wrong challan tag, or a filing glitch — a correction statement usually resolves it without any penalty. Penalties u/s 271C or 234E apply when tax genuinely wasn't deducted, deposited, or filed on time.
Where do I check if I actually have a pending TDS default?
Log in to TRACES or the income tax e-filing portal and check the "Defaults" tab against your TAN. Reconciling Form 26AS every quarter, before it becomes a notice, is the cheapest way to stay ahead of this.
Official resources
Primary sources worth bookmarking alongside this guide.