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A deductor has a TDS demand on TRACES and does not know how to pay it so that it actually clears.
Each demand component (tax shortfall, interest, late fee) is paid by TDS challan against the TAN and then linked to the defaulting statement through a correction, so the processing engine can consume the payment.
Justification report, TAN, e-filing portal access for e-Pay Tax, TRACES login for the correction, and the challan identifiers (BSR code, date, serial number).
Demand paid, challan linked, demand cleared on TRACES and proof filed with the quarter's papers.
To pay a TDS demand online, create a TDS challan against your TAN on the e-filing portal, pay it, and then link that payment to the statement that has the default, usually through a correction statement on TRACES. Paying under the wrong head, such as the income tax challan for your PAN, leaves the demand open.
A TDS demand is the amount the Centralised Processing Cell says you owe after processing your return, raised through an intimation under Section 200A. It can include tax, interest and a late fee.
Should I pay or dispute it first?
Read the justification report before paying. It shows what each part of the demand is.
- Pay what is correct: real interest for late deposit, or a late fee.
- Correct what is wrong: a mistyped PAN, a challan linked to the wrong rows, or a deduction reported in the wrong quarter. These are fixed by a correction statement, not by paying.
How is each part paid?
| Demand component | How it is paid | Proof to keep |
|---|---|---|
| Short payment of tax | TDS challan, then link to the rows | Challan receipt and correction token number |
| Interest under Section 201(1A) | TDS challan, interest field | Challan receipt; justification report line |
| Late fee under Section 234E | TDS challan, fee field | Challan receipt; justification report line |
| Short deduction | Deduct or pay the shortfall, then report | Challan and corrected deductee row |
The Section 234E fee is ₹200 per day of late filing, capped at the TDS amount. Section 201(1A) interest is 1 percent per month for late deduction and 1.5 percent per month for late deposit.
Step by step
- Download the justification report from TRACES and note each component.
- Log in to the e-filing portal and use e-Pay Tax with your TAN.
- Choose the TDS challan, the right tax year and section, and the type of payment for a demand raised. Menu wording changes with the 2025 Act forms, so read each option.
- Enter tax, interest and fee in their separate fields, and pay by net banking or another listed mode.
- Save the challan receipt with the BSR code, date and serial number.
- On TRACES, request the conso file and file a correction statement linking the new challan to the defaulting statement.
- Watch the outstanding demand on TRACES until it clears.
A worked example: a ₹7,400 demand paid in two challans
Your Q1 demand is ₹7,400: ₹5,000 short payment, ₹1,400 interest and ₹1,000 late fee.
| Challan | Contents | Amount |
|---|---|---|
| A | Short payment of tax | ₹5,000 |
| B | Interest ₹1,400 plus late fee ₹1,000 | ₹2,400 |
| Total | ₹7,400 |
Check: ₹5,000 plus ₹2,400 equals ₹7,400. The late fee of ₹1,000 matches 5 days of delay at ₹200 a day.
You file one correction statement linking challan A to the deductee rows that were short, and challan B to the interest and fee lines of the statement. After processing, the demand shows as zero.
How long before it shows as cleared?
Typically a few days to a few weeks after the correction is processed. If the demand is still open after that, check that the challan was in the TDS head for the right TAN and tax year. An unpaid demand can attract interest at 1 percent per month under Section 220(2) after the due date in the notice.
What to read next
- TDS demand notice reconciliation: the full response plan.
- How do I fix a TDS return after filing?
- TDS reconciliation software: TransactIG reconciles TDS across books, challans and credit statements, with audit-ready exports to support a demand response.