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A deductor deposited more TDS than the law required, through a wrong rate, a duplicate challan or a challan under the wrong TAN, and wants the excess back.
If the excess was withheld from the payee, the payee claims it as credit in their own return. If the deductor paid from its own funds beyond what it deducted, the unused challan balance can be refunded through Form 26B or linked to later deductions.
Challan register with amounts consumed per statement, deduction register by vendor and rate, TRACES login with digital signature, and the processed statement for the quarter.
A clear decision per excess amount: payee credit, deductor refund via Form 26B, or reuse against a later deduction, with the challan balance tracked to zero.
If you deposited more TDS than you should have, who gets the extra back depends on one question: was the excess cut from the vendor’s payment? If you withheld it from the vendor, the vendor claims it as credit in their own return. If you paid more into the challan than you deducted, the unused balance is yours, and you can ask for a refund on TRACES or use it against a later deduction.
TDS (tax deducted at source) is the tax you keep back from a payment and deposit with the government on the payee’s behalf. Mistakes in the rate or the challan are common, and they are fixable.
How did the excess arise, and who claims it?
| How the excess arose | Was it cut from the vendor? | Who claims it | How |
|---|---|---|---|
| Deducted at a higher rate than the section requires | Yes | Vendor | TDS credit in the vendor’s income tax return |
| Challan amount larger than the TDS you deducted | No | You (deductor) | Form 26B refund on TRACES, or link to later deductions |
| Same challan paid twice | No | You | Form 26B refund, or reuse the second challan |
| Challan paid under the wrong TAN | No | Depends | Challan correction first, then refund or reuse |
The key point: TDS already cut from a vendor is not your money. If you deducted 5 percent instead of 2 percent and paid the vendor only the net amount, the correct fix is to report the deduction as made. The vendor gets the full credit. You could also settle the difference with the vendor commercially, but the tax credit itself stays with them.
How do I apply for a refund as the deductor?
A deductor refund applies only to money in a challan that has not been used in any TDS statement. The request is made on Form 26B through TRACES, the TDS portal run by the Centralised Processing Cell.
- Check the challan status on TRACES and confirm the unused balance.
- Confirm there is no outstanding demand against your TAN. A refund request is not accepted while a demand is open.
- Register a digital signature for the authorised person on TRACES if you have not done so.
- File the refund request (Form 26B) and download the acknowledgement.
- Send the acknowledgement and documents to your Assessing Officer, typically within 14 days.
TRACES allows refunds only where the unclaimed balance on the challan is above ₹100. The refund cannot be more than the lowest balance the challan has shown in its history.
What if the payee has already claimed the credit?
If your quarterly TDS return reported the higher deduction against the vendor’s PAN, the credit appears in the vendor’s TDS credit statement (Form 26AS, or Form 168 from tax year 2026-27). Once the vendor has used it in their return, you cannot pull it back as a deductor refund. The money was correctly credited to them.
If the return reported the correct 2 percent but the challan carried the full 5 percent, the vendor sees only 2 percent. The rest sits unused in your challan. That balance is what Form 26B is for.
A worked example: 5 percent deposited instead of 2 percent
You pay a commission agent ₹4,00,000. Section 194H commission TDS is 2 percent from 1 October 2024 (it was 5 percent before), so the correct TDS is ₹8,000. Your accountant used the old rate.
| Item | Amount |
|---|---|
| Payment | ₹4,00,000 |
| TDS deposited at 5 percent | ₹20,000 |
| TDS due at 2 percent | ₹8,000 |
| Excess | ₹12,000 |
Case A: you paid the agent ₹3,80,000 and reported ₹20,000. The ₹12,000 is the agent’s. They claim all ₹20,000 as credit.
Case B: you paid the agent ₹3,92,000 and reported ₹8,000, but the challan was for ₹20,000. ₹12,000 sits unused in the challan. You file Form 26B for it, or link it to next quarter’s 194H deductions.
Check: ₹8,000 plus ₹12,000 equals ₹20,000, and ₹4,00,000 times 2 percent equals ₹8,000.
A note on the new Act
From 1 April 2026 the Income-tax Act 2025 consolidates TDS into Section 393 and uses “tax year” in place of previous year. The refund mechanism on TRACES continues, but section references on challans change. The section mapping article shows old and new references side by side.
What to read next
- TDS refund reconciliation in India: how refunds are tracked once they are claimed.
- The TDS correction return process: how to fix the deduction details you reported.
- TDS reconciliation software: TransactIG reconciles TDS deductions, challans and credit statements, with an exception queue for items like an unused challan balance.