The Finance (No. 2) Act, 2024, has introduced a landmark amendment affecting Tax Deducted at Source (TDS) correction statements. Historically, there was no restriction on how long these corrections could be made, leading to frequent and, at times, questionable revisions. The recent amendment aims to enhance transparency and curb the misuse of this facility.
Key Amendment and Its Implications
Previously, while TDS and Tax Collected at Source (TCS) returns had specific filing deadlines, there was no defined time limit for correction statements. This resulted in multiple revisions—sometimes voluntarily or in response to tax authorities’ queries—causing administrative challenges and potential tax fraud.
New Time Limit Introduced
The Finance (No. 2) Act, 2024, has amended Section 200(3) and Section 206C(3B) of the Income-tax Act, enforcing a time limit for filing TDS correction statements:
Corrections must now be filed within six years from the end of the financial year in which the original statement was submitted.
This amendment ensures timely and accurate TDS data correction while minimizing opportunities for manipulation.
March 31, 2025: The Final Deadline for Past Financial Years
A critical deadline has been set for historical TDS corrections:
March 31, 2025, is the last date for filing correction statements for financial years 2007-08 to 2018-19.
This deadline also applies to rectifying TDS mismatches due to wrong demands, Aadhaar or PAN validation issues, and other discrepancies present on the TDS portal.
Why is March 31, 2025, Important?
March 31, 2025, marks the final opportunity for taxpayers and deductors to rectify any discrepancies in TDS filings for financial years 2007-08 to 2018-19. Post this date:
No further corrections will be allowed for these financial years.
Taxpayers will not be able to claim or correct TDS credits related to past years, potentially leading to tax demands and penalties.
Deductors will be unable to amend errors in TDS returns, which could result in unresolved compliance issues and disputes with tax authorities.
Any unresolved mismatches in Form 26AS could lead to financial liabilities for both deductors and deductees.
Given the significance of this deadline, taxpayers and deductors must act swiftly to review their past TDS statements and make necessary corrections before the cutoff date.
Procedure for TDS Correction
To comply with the new deadline and ensure accurate reporting, follow these steps to file a TDS correction statement:
Log in to TRACES Portal:
Visit https://www.tdscpc.gov.in and log in using your credentials.
Check Form 26AS and TDS Statements:
Download and review Form 26AS to verify TDS credits.
Identify any discrepancies in the deducted and reported amounts.
Select the Relevant Financial Year:
Go to ‘Statements / Payments’ > ‘Request for Correction.’
Select the financial year and quarter for which correction is needed.
Choose Type of Correction:
Modify PAN details, TDS amounts, challan details, or update deductee records.
Ensure that correct details are entered before submitting.
Validate & Submit the Correction Statement:
Use the Digital Signature Certificate (DSC) for authentication.
Submit the correction statement and track the processing status.
Verify Updated Records:
Once the correction is processed, re-check Form 26AS to ensure accuracy.
Inform deductees about updated credits if necessary.
The Loophole: Why a Time Limit Was Needed
For years, the lack of a correction deadline led to tax credit manipulations, where deductors exploited the system:
The deductor filed the TDS return, allowing the deductee to claim credit in their Income Tax Return (ITR).
The deductee received an income tax refund based on this TDS credit.
The deductor later revised the TDS statement, reallocating the credit to another deductee.
Major Consequences:
Once the tax refund was issued, there was no automated mechanism to verify if the TDS credit still existed in Form 26AS.
If the deductor deleted or modified the TDS entry, the tax department did not notify the deductee.
This resulted in taxpayers unknowingly facing tax demands, interest penalties, and prolonged litigation.
Is the Six-Year Limit Enough? A Stronger Safeguard Needed
While the six-year restriction is a step toward better compliance, it does not fully eliminate the risk of last-minute modifications and fraudulent reallocations. A more robust safeguard could be:
TDS Credit Lock Mechanism:
When submitting their ITR, the deductee should be prompted to confirm or dispute the TDS credit displayed in Form 26AS.
Once confirmed, the credit should be locked, barring any unilateral changes by the deductor.
If a correction is necessary, the deductor should seek deductee approval through an automated PAN-linked system.
To ensure fairness and efficiency, manual intervention by tax officers should be eliminated.
A similar approval mechanism is already in place for Form 26QB and 26QC, where modifications related to PAN, date, or amount require prior consent before processing.
Conclusion: A Positive Step, But More Safeguards Needed
The introduction of a six-year time limit for TDS correction statements is a welcome reform that will enhance tax compliance, reduce litigation, and improve transparency. However, to completely eliminate fraudulent reallocations and disputes, the government should consider implementing additional safeguards, such as a TDS credit lock-in mechanism.
Taxpayers should remain vigilant, ensuring their TDS credits are accurately reflected in Form 26AS before filing returns. With the critical deadline of March 31, 2025, approaching, it is imperative for deductors and deductees to act swiftly to avoid compliance issues.
