143(1) Demand for TDS Mismatch - Software Engineer

The Problem

A software engineer at a Hyderabad IT company received an intimation under Section 143(1) with a tax demand of ₹82,000 for AY 2022-23. The Centralised Processing Centre (CPC) had processed his ITR and found that TDS credit of ₹82,000 claimed by him was not reflecting in Form 26AS.

The client had correctly declared his salary and claimed the TDS that had been deducted from his salary — but the amount was simply not appearing in his 26AS. He had received Form 16 from his employer showing the correct deduction, but the 143(1) intimation raised a demand for the full amount.

Why This Happens

Section 143(1) is a system-generated assessment by the CPC. It cross-checks the TDS credit claimed in the ITR against Form 26AS (which is populated from TDS returns filed by deductors — in this case, the employer). If the employer files the TDS return (Form 24Q) with an incorrect TAN number for any quarter, that quarter's TDS is either not credited to the employee's PAN or is credited under a different deductor — creating a mismatch.

This is entirely the employer's error, but under the current system, the demand falls on the employee.

What We Did

Identifying the Root Cause We pulled the client's Form 26AS for AY 2022-23 and compared it quarter-by-quarter against his Form 16. Q3 (October–December) showed zero TDS credit against his PAN, while Form 16 clearly showed ₹82,000 deducted for that quarter. This confirmed a TDS filing error in the employer's Q3 Form 24Q.

Coordinating with the Employer We contacted the client's payroll team and explained the issue in writing, providing the specific quarter and the TDS amount involved. The payroll team confirmed that Q3's Form 24Q had been filed with a typographical error in the company's TAN (one digit transposed).

TDS Correction Statement The employer filed a correction statement for Form 24Q — Quarter 3 — with TRACES (TDS Reconciliation Analysis and Correction Enabling System). This updated the records and credited the ₹82,000 TDS to the client's PAN in Form 26AS.

Grievance on Income Tax Portal While waiting for the TRACES update to reflect, we filed an online grievance on the Income Tax Portal explaining the situation and attaching the Form 16. This created a paper trail and paused any recovery action.

Rectification Under Section 154 Once Form 26AS was updated, we filed a rectification request under Section 154 asking the CPC to reprocess the intimation with the corrected 26AS data.

The Result

Within six weeks, the CPC issued a revised intimation reducing the demand to nil. The correction was accepted without any penalty or interest because the demand had arisen purely from a technical filing error — not from any income concealment by the taxpayer.

Key Takeaway: Before filing your ITR, always download Form 26AS and compare TDS quarter-by-quarter against your Form 16. Any mismatch should be flagged to your employer immediately — correction of a TDS return before assessment is simple; correcting it after a demand notice adds weeks of effort.