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A business paid a vendor without deducting TDS that was due, and found the miss months later.
Deduct or pay the TDS now, deposit it with interest at 1 percent per month for the deduction gap, and check whether the vendor has already paid tax on the income so that an accountant's certificate can remove the default.
Vendor master with TDS section flags, payment register by vendor with running yearly totals, challan register, and the vendor's return and tax payment details if certificate relief is sought.
The missed TDS deposited with interest, the payment reported in the next quarterly return, and any disallowance risk closed before the return due date.
If you forgot to deduct TDS on a vendor payment, deduct and deposit it as soon as you notice. Take it from the next payment to that vendor, or pay it from your own funds. Pay the interest for the delay and keep the proof. If the vendor has already paid tax on that income, an accountant’s certificate can remove the default for the tax itself.
TDS (tax deducted at source) is the tax a payer keeps back and deposits on the payee’s behalf. Missing it does not end the obligation. It just adds cost the longer it runs.
Why was TDS missed, and what can you still do?
| Likely cause | What you can still do | Cost if left |
|---|---|---|
| Vendor not flagged for TDS in the vendor master | Deduct from next payment, update the master | Interest, disallowance risk |
| Annual threshold crossed mid-year | Deduct on the payment that crossed it and on later ones | Interest on the missed part |
| Advance paid but not tracked | TDS applied on credit or payment, whichever is earlier | Interest from the advance date |
| Wrong section chosen (contract vs professional fee) | Top up the shortfall at the right rate | Interest on the difference |
Can I simply deduct from the next payment to the same vendor?
Yes, if there is a next payment. Agree it with the vendor, deduct the missed amount, and deposit it using the TDS challan (ITNS 281). Report it in the quarterly TDS return with the actual deduction date.
If there is no further payment, you still pay the TDS. It comes from your own funds and you can ask the vendor to reimburse you.
The interest under Section 201(1A) of the Income-tax Act 1961 runs in two parts. 1 percent per month or part of a month applies from the date tax was deductible to the date you deduct it. Then 1.5 percent per month applies from the date of deduction to the date of deposit. Normally TDS is deposited by the 7th of the following month (30 April for March deductions), under Rule 30.
What does the vendor’s own tax payment do to my liability?
If the vendor has included the income in their own return and paid the tax, you are not treated as being in default for the TDS amount. The first proviso to Section 201(1) allows this. Proof is a certificate from a chartered accountant in Form 26A, filed online.
Interest still applies, but only up to the date the vendor filed their return. That can be a large saving when the miss is found late.
There is a second cost to watch. Section 40(a)(ia) disallows 30 percent of the expense in your own return if TDS was not deducted or not deposited by your return due date. Depositing before that date avoids it. The Income-tax Act 2025 carries these rules under renumbered sections from 1 April 2026; check the section mapping article for references on later payments.
A worked example: a ₹2,40,000 fee missed in April
You paid a consultant ₹2,40,000 on 10 April and did not deduct TDS. You spot it on 20 July. Assume a 10 percent rate for this professional fee.
| Item | Amount |
|---|---|
| Fee paid | ₹2,40,000 |
| TDS due at 10 percent | ₹24,000 |
| Interest at 1 percent per month, 10 April to 20 July (4 months, part months counted in full) | ₹960 |
| Total to deposit if deducted and deposited on 20 July | ₹24,960 |
Check: ₹24,000 times 1 percent is ₹240 a month; 4 months is ₹960. If you deducted on 20 July but deposited in August, a further 1.5 percent for that month (₹360) would apply.
Steps:
- Recover ₹24,000 from the consultant’s next invoice or pay it yourself.
- Deposit ₹24,960 by challan, with the interest shown separately.
- Report the deduction in the Q2 return with the actual deduction date.
- Update the vendor master so the next bill is caught.
What to read next
- Why does my TDS default notice say short payment when I paid in full?
- The TDS penalty and interest regime in India
- Why is there interest showing on my TDS challan?
- TDS reconciliation software: TransactIG reconciles TDS across the books, challans and credit statements, and puts missed deductions in an exception queue.