TDS & TCS Compliance: Avoiding the Common Pitfalls

Stay 100% compliant with the correct mechanics for deduction, collection and filing

Published by: Revenue Dynamics Tax Advisory

Date: 12 November 2025

Category: TDS & TCS Compliance

Introduction - TDS/TCS

In India, both Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) act as built-in compliance mechanisms under the Income‑tax Act, 1961, that help ensure tax is captured at the source of certain payments.

Even experienced businesses, accountants, and professionals often trip up on simple but costly mistakes — leading to interest, penalties, and departmental scrutiny. This article examines the most common TDS/TCS mistakes and provides a practical roadmap to stay compliant.

Understanding the Basics

What is TDS?

TDS (Tax Deducted at Source) requires a payer — when making defined payments such as salary, rent, contractor fees, commission, etc — to deduct tax before making the payment to the recipient (the deductee).

After deduction, the payer must deposit the tax with the government on behalf of the deductee, who in turn is credited for that deduction.

What is TCS?

TCS (Tax Collected at Source) is the flip side: here, the seller (or collector) collects tax from the buyer at the point of sale of certain goods or specified transactions and remits it to the government.

It is not merely about sales tax — it is triggered by transactions where the law mandates a “collection at source” based on buyer/seller turnover or transaction value.

Key Differences in a Snapshot

Parameter	TDS	TCS
Who deducts/collects	Payer deducts before payment	Seller/collector collects at the time of sale
When is the tax taken	At the time of payment of the defined income/expense	At the time of the sale of defined goods/transactions
Primary intention	Capture tax when income is generated	Capture tax when certain transactions take place and reduce evasion.

Common TDS Mistakes & How to Avoid Them

Here are the typical errors businesses make — and how you can stay ahead:

1️⃣ Wrong Section or Rate Applied

– For example: Using section 194C (contractor payments) when 194J (professional fees) applies.

– Or neglecting threshold limits.

➡️ Tip: Always verify the correct section and rate before payment.

2️⃣ PAN Not Collected / Invalid PAN

– If PAN is not collected (or invalid), deduction has to be made at a higher rate under Section 206AA.

➡️ Tip: Obtain a PAN copy from the deductee and validate it before payment.

3️⃣ Late Deposit of TDS

– Failing to deposit the deducted tax by the due date generates interest liability under Section 201(1A) (1.5% per month or part thereof). ➡️ Tip: Deposit by the 7th of the next month (except when the deduction is in March — deposit by 30th April).

4️⃣ Delayed or Missed Return Filing

– Late filing can trigger a fee under Section 234E (₹200/day) and a penalty under Section 271H (₹10,000 to ₹1,00,000) for non-filing or incorrect filing.

➡️ Tip: File the required TDS returns (e.g., Form 24Q, 26Q) within the deadline via the TRACES portal.

5️⃣ Mismatch with Form 26AS / AIS

– Incorrect details in challan / CIN / PAN can lead to a mismatch in the deductee’s Form 26AS / Annual Information Statement (AIS).

➡️ Tip: Use TRACES validation tools and cross-check before return submission.

Common TCS Mistakes & How to Avoid Them

TCS compliance often gets overlooked, but the risks are real. Here are frequent pitfalls:

1️⃣ Not Collecting TCS When Applicable

– For example: Sales of scrap, motor vehicles, or when a buyer’s yearly turnover exceeds ₹50 lakh and transactions are to a specified buyer (u/s 206C(1H)).

➡️ Tip: Monitor your annual turnover and buyer-wise limits, and apply TCS when you cross thresholds.

2️⃣ Wrong Rate Due to Non-Availability of PAN / Aadhaar

– If the buyer's PAN is not furnished, TCS rate may jump to twice the applicable rate or 5% (whichever is higher) instead of the lower rates (eg. 0.1% or 1%).

➡️ Tip: Ensure buyer KYC details (PAN/Aadhaar) are updated before invoicing.

3️⃣ Not Aligning Return Filing with Actual Collection

– Failing to reconcile TCS collected vs TCS deposited can lead to mismatches and notices.

➡️ Tip: Verify challan details each month and upload the return (Form 27EQ) correctly.

Filing & Reconciliation Best Practices

To stay on top of TDS/TCS compliance, adopt these practices:

✅ File TDS/TCS returns each quarter:

• Q1 (Apr-Jun) → Due 31 July

• Q2 (Jul-Sep) → Due 31 Oct

• Q3 (Oct-Dec) → Due 31 Jan

• Q4 (Jan-Mar) → Due 31 May

✅ Download the Consolidated File & Justification Report from TRACES.

✅ After filing, cross-check the deductee’s Form 26AS / AIS for credit.

✅ Issue Form 16 and Form 16A (for TDS) promptly to deductees.

✅ Maintain a TDS/TCS register (challan-wise, section/collection, date-wise) to track your entries, payments, and filings.

Why This Matters for Your Business

Compliance with TDS/TCS isn’t just a procedural formality — it’s vital for preserving good governance, avoiding revenue leakage, and protecting your business from adverse consequences, including:

• Loss of credit to deductees (which can damage relationships)

• Disallowance of expense for your business (u/s 40(a)(ia) for TDS defaults)

• Interest, penalties, and unnecessary tax exposure

• Loss of reputation and possible scrutiny by the tax department

Conclusion

Getting TDS/TCS right is a fundamental compliance pillar for any business. By applying the correct section/rate, collecting valid PAN, timely depositing and filing returns, and diligently reconciling, you will reduce risk, maintain credibility, and protect your clients (if you are handling compliance for others). At Revenue Dynamics Tax Advisory, we help you stay ahead of these events so your focus remains on business growth — not firefighting tax issues.

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