My vendor has already paid tax on the amount I failed to deduct on. How do I get out of assessee-in-default status?
File the accountant's certificate — Form 26A under the 1961 Act, now Form 149 under the Income-tax Rules, 2026 — certifying that the resident payee filed a return, included the sum in it, and paid the tax due. Once accepted, you are not treated as an assessee in default, but you still pay interest under section 201(1A) up to the date the payee furnished his return.
The first proviso to section 201(1) is a complete answer to a TDS demand where the money has already reached the Treasury through the other side. It applies where the payee is a resident and that resident (i) "has furnished his return of income under section 139", (ii) "has taken into account such sum for computing income in such return of income", and (iii) "has paid the tax due on the income declared by him in such return of income" — and the deductor "furnishes a certificate to this effect from an accountant in such form as may be prescribed". The prescribed form is Form 26A under rule 31ACB. The Supreme Court in Hindustan Coca-Cola Beverage Pvt. Ltd. v. CIT had already held, before the proviso was enacted, that once the recipient has paid the tax the department cannot recover the same tax again from the deductor.
All three conditions are cumulative and all three are about the payee, not about you. If the payee did not file a return at all, or filed but did not offer the receipt, the proviso is unavailable — however honest your mistake. It is also confined to resident payees; there is no equivalent route for a section 195 default.
Form 26A has two halves. Part 1 is the deductor's statement that he paid or credited a sum to the payee without deducting the whole or part of the tax, together with the interest paid under section 201(1A). Annexure A is the accountant's certificate: he certifies that he has examined the payee's accounts and records, gives the date, mode and acknowledgement number of the payee's return, the total taxable income returned and the tax due and deposited, confirms that the payment was taken into account in computing that income and under which head, certifies the information is true and correct, and confirms that neither he nor his partners are in employment with the entities involved.
The route covers short deduction as well as non-deduction. The procedure runs across two portals: the deductor raises the Form 26A request on TRACES and uploads the transaction file (payee PAN, date, amount, section, tax deducted and the shortfall); assigns a chartered accountant on the e-filing portal by membership number; the accountant certifies Annexure A after verifying the payee's return particulars; the deductor submits with DSC or EVC; and TRACES then recomputes the short-deduction interest and updates the default status.
The relief is from default status, not from interest. The proviso to section 201(1A) provides that where the resident payee has filed a return as described, interest under the 1% limb is payable "from the date on which such tax was deductible to the date of furnishing of return of income by such resident". So the interest period is capped at the payee's filing date, but it must still be paid — and the department expects it paid before the form is processed.
Section 398 of the Income-tax Act, 2025 reproduces the exception in the same terms: a person is not deemed to be in default if the payee, buyer or lessee has furnished a return, included the amount in income and paid the tax, provided an accountant's certificate to that effect is furnished. The certificate is now Form No. 149 under the Income-tax Rules, 2026, which replaced Form 26A.
This is the single most valuable defence a deductor has, because in most short-deduction cases the vendor is a compliant taxpayer who has already paid. It converts a full tax demand into an interest-only liability. It also has a second effect: the second proviso to section 40(a)(ia) treats the deductor who escapes default this way as having deducted and paid, which brings the disallowed expenditure back.
We sell prepaid SIMs and vouchers to distributors below list price. Is that margin commission under 194H?
I have paid the short-deducted tax and the interest to close the matter — can the department still levy penalty under section 271C?
We pay interconnect and port charges to another telecom operator — is that fees for technical services on which we must deduct tax under section 194J?
The TDS officer says I under-deducted under s.192. If my estimate was made honestly, does that answer the demand, the interest and the penalty?
My employees exercised stock options but the shares are locked in and non-transferable. Was I supposed to deduct tax on the market value less what they paid?
As an employer, must I collect bills and tickets from employees before treating leave travel concession or conveyance allowance as exempt while deducting tax under section 192?
My advertising agency bills the advertiser, remits the money to me, and I pay it fifteen per cent back as its margin. The agreement calls it commission. Is that section 194H?
My Indian payer did not deduct tax at source and paid me gross. The Assessing Officer says I should have paid advance tax and has charged s.234B interest. Which years can he do that for?
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