TDS Default Notice From TRACES: Reading the Justification Report and Clearing Each Default
The intimation shows only the total. Download the justification report from TRACES (Defaults menu) to see each default by deductee and challan. Data errors such as a wrong BSR code or PAN are fixed with a correction statement; real shortfalls, interest and late fees are paid by challan and then tagged in the correction. Corrections are allowed for two years.
An intimation from CPC-TDS says your quarterly TDS return was "processed with defaults" and shows a demand. It does not say which vendor, which challan or which date caused it. The justification report does, and once you read it, most demands split into two groups: errors you correct for free and amounts you actually owe.
What the intimation tells you and what it does not
The intimation gives totals under headings such as short payment, short deduction, interest on late deduction, interest on late payment and late filing fee. It is generated by matching your return against the challans in the bank's records and the rates and dates you reported.
The justification report breaks each total down to the deductee row and the challan. Without it, you are guessing.
Getting the justification report
- Log in to TRACES as deductor with your TAN.
- Go to Defaults, then Request for Justification Report Download.
- Select the financial or tax year, quarter and form (for 2026-27 quarters, Form 140, 138 or 144).
- Complete the KYC step: the token number of the original return, one challan's details (BSR code, date, serial number, amount) and PAN-and-amount combinations exactly as reported in the return.
- Note the request number. Check Downloads > Requested Downloads after a day or two.
- When the status is Available, download the zip. Open it with the TRACES justification report utility, which converts the text file into an Excel report.
If the status shows Not Available, the return has no defaults.
The default types and what each one means
| Default in the report | What it means | Usual cause | How to clear it |
|---|---|---|---|
| Short payment | TDS shown in the return is not covered by a matched challan | Wrong BSR code, date or serial number; challan overbooked; challan paid under the wrong year | Correct the challan details (online on TRACES where allowed, or a correction statement). If the tax was really not paid, pay it with interest |
| Short deduction | Rate applied is lower than the rate the system expects | Inoperative or invalid PAN, wrong payment code, missing lower deduction certificate | Correct the PAN or code if it was a data error; otherwise pay the difference with interest |
| Interest on late deduction | Tax deducted after the date it was due | Bill credited in one month, TDS deducted on payment later | Pay 1% a month or part of a month |
| Interest on late payment | Tax deposited after the due date | Deposit after the 7th of the next month | Pay 1.5% a month or part of a month |
| Late filing fee | Return filed after the due date | Late return | Pay ₹200 a day, capped at the TDS for the quarter |
Interest for late deduction and late deposit is now in section 398(3) of the Income-tax Act, 2025 (earlier 201(1A)). The late fee is in section 427 (earlier 234E).
Pay, correct or both
Errors you correct without paying. A wrong BSR code, a mistyped challan date, a PAN typo or the wrong payment code are data errors. Fix them through online correction on TRACES where the facility covers the error, or by downloading the consolidated file from TRACES and filing a correction statement with the return preparation utility.
Amounts you actually owe. Interest and late fee are paid through a TDS challan (minor head 200, for the right year and TAN). The challan must then be tagged to the return in a correction statement, with the amount shown in the interest or fee column. Payment alone does not clear the demand until the challan is linked.
Order of work. Correct data errors first, let the correction process, and download a fresh justification report. Many interest lines shrink once the challan is matched, so paying first can mean paying too much.
Time limits
- ✓A correction statement can be filed only within two years from the end of the tax year in which the original statement was due, under section 397(3)(f). For a 2026-27 quarter, that runs to 31 March 2029.
- ✓Older corrections were allowed only up to 31 March 2026 for periods up to FY 2023-24 Q3; those are now time-barred.
- ✓An unpaid demand keeps accruing interest, and it can be adjusted against your refunds.
A worked example
An Indore pharmaceutical distributor's Form 140 for April-June 2026 is processed with a demand of ₹47,600. The justification report shows three lines.
- Short payment ₹45,000. A July challan of ₹45,000 was entered with BSR code 0510308 instead of 0510380. The bank record does not match, so the whole amount looks unpaid. The tax was paid. Fix: correct the BSR code. Cost: nil.
- Interest on late deduction ₹200. A ₹1,00,000 professional fee was credited on 10 May 2026, but 10% TDS of ₹10,000 was deducted only on payment on 20 June. Months counted: May and June = 2. Interest: ₹10,000 × 1% × 2 = ₹200.
- Late filing fee ₹2,400. The return was filed on 12 August against a due date of 31 July. Days late: 1 to 12 August = 12. Fee: 12 × ₹200 = ₹2,400.
Check: ₹45,000 + ₹200 + ₹2,400 = ₹47,600, which matches the intimation.
The firm files a correction statement fixing the BSR code. It pays ₹2,600 (₹200 interest + ₹2,400 fee) by challan and tags that challan in the same correction. The revised processing shows nil demand. The real cost was ₹2,600, not ₹47,600.
Frequently asked questions
Can we reply to the demand without filing a correction?
Not usefully. CPC-TDS processes returns by matching data, so the demand clears only when the corrected data or the tagged challan is in the return.
Who pays the short deduction if the vendor has already been paid in full?
The deductor. You can try to recover it from the vendor, but the department will look to you, with interest.
Will the vendor see the default?
The vendor's annual tax statement, Form 168 (earlier Form 26AS), reflects what you report. A short payment against their PAN can mean their TDS credit does not show until you correct it.
Do we need a digital signature to download the report?
No. TRACES allows the request with normal KYC validation using the token, challan and PAN-amount details; a DSC is an alternative.
Sources
- ✓Section 427, Income-tax Act, 2025, Income Tax Department
- ✓Download the justification report on TRACES, Quicko
- ✓Two-year limit for TDS and TCS correction statements, Taxmann
- ✓Section 398: consequences of TDS defaults, TDSMAN
This is a summary, not legal advice. Confirm the defaults and correction options on TRACES (tdscpc.gov.in) for your TAN.
Written by
Founder, Airwix Technologies (Sleet)
Vatsal Sutariya is the founder of Airwix Technologies in Ahmedabad, the company that builds Sleet: SleetHR for HR and payroll, and Sleet Accounting for GST billing and books. He writes about GST, invoicing, business tax and choosing software for Indian businesses, and checks each rule against the official notification before it is published.
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