Clarification on TDS Demand Raised for Financial Year (FY 2010-11), Income Tax

[Ramanathan Seshan]

Dear Members,

As you're aware, the recent amendment introduced through the Finance Act has made TDS filings up to FY 2018–19 time-barred, meaning we can no longer file correction TDS returns for those years.

We had filed a correction TDS return for FY 2010–11, which initially showed a demand of ₹10,000 towards interest on short deduction. There were no other outstanding demands at the time. However, after the correction TDS return was filed on 29th March 2025 and got processed on 31st March 2025, a new demand of ₹15 lakhs has been raised under "short deduction." This did not exist previously.

Given that we are now unable to file any further correction TDS returns due to the time bar, we would like to seek clarity on the following points:

1. Is there any way to rectify or dispute this new demand under the current circumstances?

2. Can the authorities initiate recovery proceedings for a time-barred TDS matter?

3. Can we meet/write a request letter to jurisdictional AO or contact CPC for manual submission of return ?

Regards,

S Ram

Posts / Replies

[YAGAY andSUN]

Professional Note on Time-Barred TDS Returns and Demand Raised Post-Correction

Background:

A correction TDS return for FY 2010–11 was filed on 29.03.2025, and processed on 31.03.2025, post which a new demand of ₹15 lakhs was raised under the head "short deduction." At the time of filing, only a ₹10,000 interest demand was reflected. However, subsequent amendments introduced through the Finance (No. 2) Act, 2024, have barred the filing of TDS returns/corrections for FYs up to 2018–19, effective from 1st April 2025.

 

Issue 1: Can the new demand of ₹15 lakhs be rectified or disputed, given the time-bar?

Legal Position:

• As per the CBDT Notification and NSDL/Protean guidelines, filing or correction of TDS returns for periods up to FY 2018–19 has been disabled prospectively from 01.04.2025.
• However, since the correction was filed before the cut-off date (i.e., 29.03.2025), and the demand arose only post-processing on 31.03.2025, you have a valid ground to dispute the demand as being erroneous or arising from an automated system inconsistency.

Available Remedies:

1. Filing a Rectification Request under Section 154:
   • You may file an online rectification request through the TRACES portal or CPC-TDS system citing error apparent from record.
   • If portal-based options are blocked due to time-bar, proceed with manual rectification application to the Jurisdictional TDS AO with detailed computation and evidence.
2. Legal Basis:
   • The AO retains inherent powers under section 154 for rectifying mistakes apparent from the record, especially if the demand is due to system-based error and not from actual default.
   • A TDS demand does not attain finality merely because the return is time-barred; the procedural bar cannot override the substantive right to fair computation.

 

Issue 2: Can the Department initiate recovery proceedings for a time-barred TDS matter?

Key Considerations:

• The bar is on filing or correction of TDS returns; it does not affect the recovery rights of the department where a valid demand exists.
• However, in your case, the demand did not exist prior to the correction, and the correction itself was filed within the permissible window.
• Recovery proceedings for a demand that arises from a correction return should follow due process, including intimation and opportunity to respond.

Remedial Action:

• You may submit a stay/rectification request with the AO-TDS and also request deferment of recovery until the issue is examined and resolved.
• If recovery is initiated without giving opportunity of being heard, you may approach the CIT (TDS) or even file a writ petition challenging arbitrary recovery for a disputed and system-generated demand.

 

Issue 3: Can a manual representation or letter be made to the AO or CPC?

Yes. Recommended Steps:

1. Draft a detailed representation letter addressed to the Jurisdictional AO (TDS) explaining:
   • The chronology of events.
   • The original status of the demand.
   • The details of the correction return.
   • The basis on which the new demand is erroneous or inflated.
   • The inability to file further corrections due to statutory amendments.
2. Enclose supporting documents:
   • Acknowledgement of original and correction TDS returns.
   • Intimation/demand notice from TRACES/CPC.
   • Screenshots, if any, of the TDS-CPC demand ledger before and after correction.
3. Simultaneously escalate the issue to CPC-TDS through the TRACES helpdesk (ticket system) and by email.

 

Conclusion and Recommendation:

• The newly raised demand post-processing of a valid correction return can be disputed, and a rectification request u/s 154 should be filed, preferably in writing to the jurisdictional AO.
• Department can technically initiate recovery, but in disputed and potentially erroneous demands, the assessee can seek a stay and rectification.
• A detailed manual representation is strongly advised, supported by all relevant documents and calculations, highlighting the system inconsistency and procedural bar on further corrections.