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A customer deducts TDS at a higher rate than the payment needs, and the business owner thinks the extra cash is gone.
Excess TDS is still tax paid against the deductee's PAN; it is set off against the year's tax and any balance is refunded through the return, with interest under Section 244A.
A TDS receivable line per customer with the expected rate, the actual rate, the excess, and a flag for a written correction request.
The excess is claimed in full in the return, the customer corrects future deductions, and cash-flow pressure is addressed with a lower-deduction certificate where justified.
Short answer: The extra TDS is not lost. It shows against your PAN in Form 26AS (Form 168 from tax year 2026-27) as tax already paid. When you file your income-tax return, it is set against your tax for the year, and any balance is refunded. If the deduction was clearly wrong, ask the customer to use the correct rate from the next payment.
Why do customers over-deduct?
| Cause | Example | What you can do |
|---|---|---|
| Wrong section or rate | 10% under Section 194J applied to a contract payment that needed 2% under Section 194C | Write with the correct section; claim the excess credit |
| No PAN or an invalid PAN on their records | 20% applied under the no-PAN rule (Section 206AA of the 1961 Act) | Send a PAN copy; check that your PAN is operative |
| TDS on the GST amount | Deduction on the full invoice instead of the value before GST | Issue invoices showing GST separately; see the GST-component article |
| Double deduction | TDS taken on an advance and again on the final bill | Share a ledger statement showing both |
| Threshold ignored | TDS on a small payment below the section’s limit | Usually minor; claim the credit |
Note that the separate higher rate for non-filers (Section 206AB) was omitted from 1 April 2025, so that is no longer a valid reason for a higher rate.
Does the customer have to refund me directly?
Usually not. Once the customer deposits the tax and reports it in the quarterly return, the money is with the government against your PAN. The customer has nothing left to refund. Your route is:
- Confirm the full amount shows in Form 26AS.
- Claim the whole credit in your income-tax return for that year.
- Let the excess reduce your tax payable, or come back as a refund.
If the customer spots the error before depositing, they can deposit the correct amount and pay you the difference. Ask quickly if you notice the mistake within days.
Worked example: ₹24,000 excess on a ₹3,00,000 invoice
You invoice a company ₹3,00,000 plus GST for a fabrication job (contract work). You are a company, so Section 194C needs 2%: ₹6,000. The customer treats it as a professional fee and deducts 10%: ₹30,000.
- TDS needed: ₹3,00,000 × 2% = ₹6,000
- TDS deducted: ₹3,00,000 × 10% = ₹30,000
- Excess: ₹30,000 − ₹6,000 = ₹24,000
You book the full ₹30,000 as TDS receivable (that is what the customer paid on your behalf), and claim all ₹30,000 in your return. If your tax for the year is ₹1,10,000 and total TDS credits are ₹1,40,000, the ₹30,000 balance comes back as a refund, with interest under Section 244A at 0.5% per month.
Then write to the customer: “Our invoice is for contract work under Section 194C; please deduct at 2% from the next payment.”
How long does the refund take, and what proof helps?
Refunds come after your return is processed, which typically takes a few weeks to a few months. Keep:
- the invoice showing the nature of work and GST separately,
- the payment advice showing the rate used,
- the Form 26AS entry, and the certificate (Form 16A, or Form 131 from tax year 2026-27).
If excess TDS is a regular cash-flow problem, a lower-deduction certificate (Section 197 of the 1961 Act) lets customers deduct at a lower rate. Your CA can advise if it fits.
What to read next
- TDS refund reconciliation: claiming and tracking excess TDS
- TDS on GST component: handling GST-inclusive invoices
- My customer paid less than my invoice: is the difference TDS?
Spotting wrong-rate deductions across many customers is easier when every receipt is checked. TransactIG reconciles TDS and flags deductions that do not match the expected rate in an exception queue; see TDS reconciliation software.
Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →