Form 26A: How to Avoid a TDS Default for Non-Deduction or Short Deduction

When Form 26A applies

TRACES raises a short-deduction default when the TDS in your quarterly statement is lower than what the law requires: for example, a payment classified as contract work (2%) when it was a professional fee (10%), a missed threshold, or a vendor whose TDS was never deducted.

Normally you'd have to pay the missing TDS yourself. But if the payee has already paid tax on that income through their own return, the government isn't short of tax. The proviso to section 201(1) of the 1961 Act recognises this: the deductor isn't treated as in default for the tax, provided the payee:

• has filed the return of income under section 139,
• has included the payment in that return, and
• has paid the tax due on the income declared.

Form 26A (Rule 31ACB) is the accountant's certificate proving these three conditions.

For TCS, the equivalent is Form 27BA, for a buyer who has paid tax on the income. [VERIFY: whether a similar certificate is available for payments to non-residents, and which form]

What you still pay

Form 26A removes the tax demand, not the interest:

Form 26A also helps on the expense side: under section 40(a)(ia) of the 1961 Act, an expense on which TDS wasn't deducted is partly disallowed, but the disallowance doesn't apply when the payee meets the same conditions. [VERIFY: equivalent disallowance provision under the 2025 Act]

Information you need from the payee

Before the CA can certify, collect from the payee:

• PAN, name and address
• Acknowledgement number and date of filing of the return of income
• Amount of the payment received from you, and the head under which it's declared
• Taxable income and tax paid as per the return
• A copy of the ITR and computation, for the CA's working papers

This is the hardest part in practice: vendors often take weeks to respond, and some never do. Start as soon as TRACES shows the default.

How to file Form 26A: step by step

1. 1

   Log in to the e-filing portal

   Log in to incometax.gov.in with the deductor's TAN.

2. 2

   Assign a CA

   Go to Authorised Partners → My Chartered Accountant (CA) and add the CA's membership number, selecting Form 26A (or 27BA for TCS) and the financial year. [VERIFY: current menu names]

3. 3

   CA prepares the form

   The CA logs in, opens e-File → Income Tax Forms → File Income Tax Forms, selects Form 26A, and enters the deductor and payee details in Annexure A (one row per payee).

4. 4

   CA uploads with DSC

   The CA signs the form with their digital signature.

5. 5

   Deductor accepts

   The form appears under the deductor's Worklist; review and accept it. [VERIFY: whether deductor acceptance is still required]

6. 6

   Track the default

   Once the TDS assessing officer processes the certificate, the short-deduction demand for that payee is reduced or removed on TRACES. Check the justification report afterwards.

Form 26A under the Income-tax Act, 2025

From 1 April 2026, the consequences of failing to deduct or pay TDS move to section 398 of the Income-tax Act, 2025 (formerly section 201). [VERIFY: that section 398 keeps the same relief when the payee has paid tax, and the new form and rule number that replace Form 26A and Rule 31ACB under the Income-tax Rules, 2026]

Defaults for FY 2025-26 and earlier years stay under the 1961 Act, so Form 26A remains the form for those years. Many companies will be dealing with old-year short-deduction demands for several years.

Common mistakes

Preventing the default in the first place

Form 26A is a cure, and an expensive one in time: chasing every vendor's ITR is slow. It's far cheaper to catch the issue before the return is filed. TaxCPC runs a justification report before filing, so short deductions, wrong payment codes and PAN issues show up before TRACES raises a demand. For defaults already raised, NoticeCPC tracks TDS notices and demands across all your TANs in one place, with deadlines.