Mumbai, the financial capital of India, is home to thousands of companies that are required to deduct and deposit Tax Deducted at Source (TDS) under the Income Tax Act, 1961.
Despite best efforts, even compliant companies may receive TDS default notices through the TRACES Portal (TDS Reconciliation Analysis and Correction Enabling System).
TDS defaults are not just an inconvenience — if left unresolved, they can attract penalties, interest, and even prosecution in extreme cases. This makes it crucial for every Mumbai-based business to know:
How to detect TDS defaults in TRACES
How to analyze the Justification Report
How to rectify errors & file correction statements
This step-by-step guide explains how Mumbai companies can handle TDS defaults efficiently while ensuring compliance.
A TDS Default on TRACES means that the TDS return filed by the deductor has discrepancies compared to the department’s records. Common defaults include:
| Type of Default | Meaning | Example |
|---|---|---|
| Short Payment | Deducted TDS but paid less to the government | Deducted ₹10,000, paid ₹9,500 |
| Short Deduction | Deducted at a lower rate than applicable | Deducted 1% instead of 10% |
| Late Payment Interest | TDS deposited after due date | Paid on 10th instead of 7th |
| Late Filing Fee (234E) | TDS return filed after the due date | Filed Q1 return in August |
| Challan Mismatch | Incorrect BSR code, challan date, or amount | Entered wrong challan in return |
| PAN Errors | Invalid or incorrect PAN of deductee | Used "ABCDE1234A" instead of correct PAN |
💡 Tip for Mumbai Companies: Many defaults happen due to data entry errors by accountants or payroll software. Always cross-verify challan details before filing returns.
Enter TAN (Tax Deduction Account Number), password, and captcha.
Go to ‘Defaults’ → ‘Request for Justification Report’
Select Financial Year, Quarter, and Form Type (Form 24Q for salaries, 26Q for payments to residents, 27Q for non-residents, etc.)
Submit request and wait for processing.
Once ready, download the ZIP file.
Extract it using your password (TAN in uppercase + Request Number).
Open in TRACES Justification Report Excel Utility.
Look for:
Type of Default – Short payment, short deduction, late payment, etc.
Challan Mismatch – Wrong challan linked to deductee.
PAN Issues – Invalid PAN or PAN not available (deduct at 20% in such cases).
Deposit the balance TDS + applicable interest under Section 201(1A) using Challan ITNS 281.
Interest rates:
1% per month – Delay in deduction to payment
1.5% per month – Delay in payment to government
Update challan details in a Correction Statement.
Pay calculated interest through Challan ITNS 281.
Update return to reflect payment.
Pay ₹200/day until filing date (subject to TDS amount).
Collect correct PAN from deductee.
File a correction return to update records.
Use RPU (Return Preparation Utility) & FVU (File Validation Utility) from the NSDL website.
Select correction type (Challan Correction, PAN Update, Deductee Addition, etc.).
Upload the correction file on TRACES.
After processing, re-check the defaults section in TRACES.
Keep:
Challan receipts
Correction acknowledgements
Justification Reports
✅ Check TRACES defaults quarterly
✅ Pay TDS before 7th of next month
✅ File TDS returns on or before due date
✅ Validate PANs & challans before filing
✅ Keep digital & physical proof
For Mumbai companies, TDS compliance is not optional — it’s a legal requirement.
By regularly monitoring TRACES and promptly addressing defaults, you can:
Avoid unnecessary penalties
Maintain good standing with the tax department
Protect your business from compliance disputes