A default intimation from the TRACES system arrives with a total at the bottom and very little explanation. Before you pay it, work out which of the four categories each line belongs to — because the remedy differs, and paying a demand you do not owe is hard to unwind.
The four categories
Default | What it means | Usual remedy |
|---|---|---|
Short deduction | Deducted at a lower rate than required | Correction statement, or pay the difference with interest |
Short payment | Deducted correctly but deposited less | Pay the shortfall and tag the challan in a correction |
Late payment interest | Deposited after the 7th of the following month | Pay interest at the prescribed rate |
Late filing fee (234E) | Quarterly statement filed after the due date | Pay the fee — it is mandatory, not discretionary |
Diagnose before you pay
The PAN problem behind most short-deduction notices
Where a deductee's PAN is not furnished, is invalid, or has become inoperative for want of Aadhaar linkage, tax must be deducted at the higher rate prescribed under section 206AA. You deducted at 10%, the system expected 20%, and the difference lands on you as the deductor — not on the deductee.
The cost falls on the deductor
You cannot recover the shortfall from a vendor who has already been paid in full. Validate PAN status at onboarding and again before each payment run — it is a two-minute check on the income tax portal.
Fixing it in the right order
Download the justification report from TRACES — it explains each default line by line.
Reconcile challans: unconsumed challans from another quarter can often be tagged against the demand.
Correct genuine data errors — PAN, section code, amount, deduction date — via a correction statement.
Pay only what genuinely remains after correction, using the right challan type and assessment year.
Re-download the conso file and confirm the demand has closed.
Unconsumed challans are common
Businesses frequently overpay in one quarter and short-pay in another. Before paying a demand, check whether an unconsumed challan already sitting with the department can be tagged against it.
Preventing the next one
Validate PAN and its operative status at vendor onboarding.
Maintain a section-code map for recurring vendor categories so rates are not chosen ad hoc.
Deposit by the 7th, and diarise the quarterly statement dates with a named owner.
Reconcile Form 26AS/AIS against your books each quarter, not each year.
Received a TDS default notice?
Send us the justification report — we will tell you what is genuinely payable before you pay anything.
Get help with a notice
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