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TDS reconciliation fails when finance teams work from an incomplete vocabulary. A challan that shows one section code in accounting software and a different code in TRACES creates a mismatch that blocks credit for the deductee. This glossary covers every term your team will encounter when managing TDS deductions, returns, and reconciliation in India.
Core TDS Terminology
TAN (Tax Deduction Account Number) — A 10-character alphanumeric number issued by the Income Tax Department to every entity required to deduct or collect tax at source. TAN is mandatory on all TDS challans, returns, and certificates; deductions made without quoting TAN attract a penalty of Rs 10,000.
PAN (Permanent Account Number) — A 10-character identifier issued to every taxpayer in India. In TDS, the deductee’s PAN is the key that links a deduction to the correct credit in Form 26AS. An incorrect PAN quoted in a TDS return means the credit does not appear for the deductee.
TDS (Tax Deducted at Source) — A mechanism under the Income Tax Act where the payer (deductor) deducts a specified percentage of tax from payments made to the payee (deductee) and deposits it with the government. The deductee then claims this amount as advance tax credit when filing their return.
Deductor — The entity responsible for deducting TDS before making a payment. This includes companies, firms, individuals subject to audit, and government bodies. The deductor is liable for depositing deducted amounts, filing returns, and issuing certificates on time.
Deductee — The person or entity from whose payment TDS is deducted. The deductee’s right to claim credit depends on the deductor having deposited the amount and quoted the correct PAN in the return.
Form 26AS — An annual tax statement maintained by the Income Tax Department that consolidates all TDS deducted and deposited against a taxpayer’s PAN, advance tax paid, and self-assessment tax. Finance teams use Form 26AS as the authoritative ledger for verifying that deductions taken by customers have actually reached the government.
Annual Information Statement (AIS) — Introduced as an expanded version of Form 26AS, AIS includes additional financial information such as interest income, dividend, securities transactions, and GST turnover. For TDS reconciliation, AIS provides more granular data than 26AS alone.
TRACES (TDS Reconciliation Analysis and Correction Enabling System) — The Income Tax Department portal (tdscpc.gov.in) through which deductors file TDS returns, generate Form 16 and 16A, view challan status, and raise correction requests. It is the primary interface for resolving TDS mismatches.
TCS (Tax Collected at Source) — A tax collected by the seller from the buyer at the point of sale for specified goods and transactions — such as sale of scrap, tendu leaves, and foreign remittances under the Liberalised Remittance Scheme. TCS operates similarly to TDS but is collected rather than deducted.
Form 27D — The TCS certificate issued by the collector (seller) to the collectee (buyer), analogous to Form 16A in TDS. It confirms the amount of TCS collected and deposited, enabling the collectee to claim the credit.
Filing and Compliance
Challan 281 — The government challan form used to deposit TDS and TCS amounts with the bank. Each challan has a unique BSR code, date, and serial number (collectively called the challan identification number or CIN), which must be correctly mapped in the TDS return for the deductee’s credit to appear.
TDS Return (Form 24Q, 26Q, 27Q, 27EQ) — Quarterly statements filed by deductors reporting all deductions made during the quarter. Form 24Q covers salary payments; 26Q covers all non-salary domestic payments; 27Q covers payments to non-residents; 27EQ covers TCS. Each return must be filed within the due dates prescribed by the CBDT.
Form 16 — The TDS certificate issued by an employer to an employee for salary income deducted under Section 192. It is generated from TRACES and must be issued by 15 June each year for the preceding financial year.
Form 16A — The TDS certificate for all non-salary deductions, issued quarterly. Vendors and contractors use this certificate to reconcile TDS credits in their books and file their income tax returns correctly.
Lower Deduction Certificate (Form 13) — A certificate issued by the assessing officer to a deductee whose total tax liability is lower than the standard TDS rate. When this certificate is furnished, the deductor must deduct at the lower rate specified. Non-compliance results in short deduction liability.
Correction Return — A revised TDS return filed to rectify errors in a previously filed return — such as wrong PAN, incorrect challan mapping, or section code errors. Correction returns are processed through TRACES and can be filed online or via authorised intermediaries.
Reconciliation Terms
TDS on GST Component — TDS is deductible on the total payment amount. However, per a CBDT circular, TDS is not required to be deducted on the GST component if GST is separately charged in the invoice and the supplier’s GSTIN is mentioned. Finance teams must configure their systems to handle this correctly to avoid excess deduction and vendor disputes.
Section 194C — Governs TDS on payments to contractors and sub-contractors. The rate is 1% for payments to individuals/HUFs and 2% for others, applicable when a single contract exceeds Rs 30,000 or aggregate payments exceed Rs 1 lakh in a financial year.
Section 194J — Covers TDS on professional and technical services, royalties, and non-compete fees. The standard rate is 10%; for purely technical services (not professional), it was reduced to 2% from FY 2020-21. This distinction is a frequent source of section code mismatches in reconciliation.
Section 194A — Requires TDS deduction on interest income paid by banks, cooperative societies, and post offices when interest exceeds the prescribed threshold per financial year. Finance teams at NBFCs and corporates must track this for fixed deposits and inter-company loans.
Section 195 — Mandates TDS on any payments to non-residents that are chargeable to tax in India — including royalties, technical fees, interest, and capital gains. The rate depends on the applicable Double Taxation Avoidance Agreement (DTAA). Finance teams require Form 15CA/15CB filings in conjunction with Section 195 transactions.
Section 206AB — Requires deduction of TDS at twice the applicable rate (or 5%, whichever is higher) if the deductee has not filed income tax returns for the two preceding assessment years and the aggregate TDS or TCS in each year exceeded Rs 50,000. Deductors must verify compliance status before processing payments.
Section 206CCA — The TCS equivalent of Section 206AB. It applies when a collectee has not filed returns for two preceding years with aggregate TCS or TDS exceeding Rs 50,000 per year. The collection rate doubles in such cases.
Short Deduction — Occurs when a deductor deducts TDS at a rate lower than the rate prescribed for that section and payee type. The deductor is treated as an assessee-in-default for the shortfall and is liable to pay interest under Section 201(1A) at 1.5% per month from the date of deduction to the date of actual deposit.
Late Deduction Interest (Section 201) — Interest payable when TDS is deducted late or not at all. The rate is 1% per month (or part thereof) from the date the amount was due for deduction to the date of actual deduction, and 1.5% per month from the date of deduction to the date of deposit.
Deduction Rate Mismatch — A reconciliation exception where the TDS rate applied by the deductor does not match the rate expected by the deductee based on the applicable section, nature of payment, or lower deduction certificate. This is among the most common TDS reconciliation issues flagged in TRACES justification reports.