Direct Taxation

October 2025

Introduction

by Anjali Darak

Manager - Direct Tax

Tax Deducted at Source (TDS) is a key mechanism in India’s tax system, aimed at ensuring timely tax collection. However, frequent defaults such as late deduction, non-deposit or incorrect filings can lead to penalties and interest. To improve compliance, recent amendments have been introduced, strengthening the rules and tightening enforcement. This article highlights the common TDS defaults and the latest changes impacting deductors.

Coming to this month’s, Taxation Times, here’s what we have:

An article on “Understanding Tax Deducted at Source (TDS): Common Defaults and Recent Amendments”.
Case Laws from various courts & jurisdictions.
Tax Compliance Calendar – October 2025;
Circulars & Notifications – September 2025;
Tax News from around the world

We hope that you find this month’s edition of the Taxation Times useful. In case you have any feedback or need us to include any information to make this issue more informative, please feel free to write to us at info@uja.in.

Best Regards,
UJA Tax Team

Understanding Tax Deducted at Source (TDS): Common Defaults and Recent Amendments

Tax Deducted at Source (TDS) is a key mechanism in India’s tax administration, aimed at facilitating timely and efficient tax collection at the source of income. Introduced to minimize tax evasion and improve the flow of revenue to the government, TDS places the onus of tax deduction and payment on the deductor, such as employers, banks or businesses making specified payments.

While the system is designed to be seamless, frequent defaults such as late deduction, non-deposit, incorrect PAN quoting and delayed or erroneous filings of TDS returns continue to disrupt the compliance ecosystem. Recognizing the gravity of such issues, the Income Tax Department has tightened regulations and introduced recent amendments to enhance compliance and penalize defaulters more effectively.

Common TDS Defaults

Here are the most frequently observed defaults in TDS compliance:

Failure to Deduct TDS
This occurs when the deductor does not deduct tax at the time of payment, despite the transaction being liable for TDS. It can lead to disallowance of expenses under Section 40(a)(ia) and attract interest under Section 201(1A).

Late Deduction of TDS
TDS must be deducted at the time of credit or payment, whichever is earlier. Delayed deduction leads to interest at 1% per month (or part thereof) under Section 201(1A).

Non-deposit of TDS
After deduction, TDS must be deposited to the government within the prescribed timelines. Failure to deposit leads to interest at 1.5% per month and in some cases, prosecution under Section 276B.

Late Filing of TDS Returns
Quarterly TDS statements must be filed within the due dates. Delayed filing attracts a late fee of ₹200 per day under Section 234E, up to the amount of TDS.

Incorrect PAN or Form Details
Quoting incorrect PAN or mismatched data in TDS returns can lead to higher deduction rates (20%) under Section 206AA and make TDS credits unavailable to deductees.

Short Deduction
Deducting TDS at a lower rate than prescribed leads to a shortfall and potential consequences similar to non-deduction, including interest and disallowance of expenses.

Recent Amendments and Regulatory Changes

As per CBDT Circular No. 9/2025, the last dates to clear TDS/TCS defaults due to inoperative PANs (i.e., PANs not linked with Aadhaar) are as follows:

Key Deadlines for Clearing Defaults

Transaction Period	Deadline to Link PAN with Aadhaar	Relief Granted
1st April 2024 to 31st July 2025	On or before 30th September 2025	No higher TDS/TCS rate; defaults waived
On or after 1st August 2025	Within 2 months from the end of the transaction month	No higher TDS/TCS rate; defaults waived

If PAN is made operative within these timelines, the deductor/collector will not be treated as assessee-in-default under Sections 206AA/206CC and normal TDS/TCS rates will apply.
If PAN is not linked within the deadline, higher rates (20%) will apply and defaults will be upheld.

To curb defaults and strengthen compliance, several key amendments have been introduced in recent years:

Enhanced Penalties for Non-Compliance

Provisions under Section 271H now allow for stringent penalties for incorrect or late TDS returns, ranging from ₹10,000 to ₹1,00,000.
Repeat defaulters may face prosecution and blacklisting in government tenders or contracts.

Increased Use of Technology

TRACES portal and Annual Information Statement (AIS) have been enhanced to track TDS defaults and mismatches.
Pre-filled ITRs based on TDS data make discrepancies more visible, ensuring tighter monitoring.

Higher TDS Rates for Non-Filers (Section 206AB)

From FY 2021-22, a new section mandates higher TDS rates (twice the specified rate or 5%) for persons who haven’t filed their income tax returns for the past two years and whose aggregate TDS/TCS is ₹50,000 or more.

Form 26QB and 26QC for Individual Deductors

To widen the TDS base, individuals making certain high-value transactions (e.g., rent > ₹50,000/month or property sale > ₹50 lakh) must now comply with simplified TDS return filing mechanisms like Form 26QB/26QC.

Best Practices for TDS Compliance

To avoid penalties and ensure compliance, deductors should adopt the following practices:

Verify PAN and other details before making payments
Deduct and deposit TDS on time (monthly deadlines)
File accurate quarterly TDS returns within due dates
Conduct regular internal audits of TDS transactions
Use automated accounting or ERP software to integrate TDS processes

Consequences of Non-Compliance

Failure to deduct or deposit TDS can lead to:

Disallowance of Interest Expense: Up to 30% of the interest may be disallowed under Section 40(a)(ia).
Penalties & Interest: Under Sections 201(1A) and 234E.
Prosecution: In extreme cases of willful default.

Case Study: Business Loan from NBFC

Scenario: A company borrows ₹50 lakh at 12% interest.

Annual Interest: ₹6,00,000
TDS @10%: ₹60,000

If TDS is not deducted:

Penalty: ₹60,000
Interest: 1–1.5% per month
Disallowance: ₹6,00,000 may be disallowed, increasing tax liability

Conclusion

TDS is not just a procedural obligation but a legal and financial responsibility for deductors. With the government’s increasing emphasis on digital tracking, data integration and stringent enforcement, lapses in TDS compliance can lead to serious consequences. The recent amendments underscore the importance of timely and accurate compliance and businesses must adapt to these changes proactively to avoid legal and financial setbacks.

Case Laws

SEPTEMBER 8, 2025

[2025] 178 taxmann.com 207 (Delhi) HIGH COURT OF DELHI. Woodland (Aero Club) (P.) Ltd. vs. Assistant Commissioner of Income-tax

Section 43B, of the Income-tax Act, 1961 - Business disallowance and Section 36(1)(va), read with section 43B, of the Income-tax Act, 1961

Fact I :

The assessee, a partnership firm, was engaged in the business of manufacturing, supply and export of leather products. The assessee filed its return of income.
The Assessing Officer disallowed the deduction claimed under section 36(1)(va) in respect of employees’ contribution towards Provident Fund (PF) and Employee’s State Insurance (ESI) on ground that the payment was made after the due date as prescribed under the relevant fund acts.
On appeal, the Commissioner (Appeals) allowed the appeal holding that employees’ contribution deposited before the due date under section 139(1) was allowable.
On further appeal, the Tribunal allowed the appeal of the revenue, restoring the disallowance based on the Supreme Court’s decision in Checkmate Services (P) Ltd. vs. CIT [(2023) 6 SCC 451], which had placed reliance upon the amendment made to the Act by the Finance Act, 2021 which added Explanation 5 to section 43B with effect from 1-4-2021.

Held I:

From a reading of the judgment of the Supreme Court in Checkmate Services (P) Ltd. vs. CIT [2022] 143 taxmann.com 178/[2023] 290 Taxman 19/[2022] 448 ITR 518 (SC), the following becomes apparent:

Employer’s contributions under section 36(1)(iv) and employees’ contributions covered under section 36(1)(va) read with section 2(24)(x) are fundamentally different in nature and must be treated separately.
Employees’ contribution deducted from their salaries are deemed to be income under section 2(24)(x) and are held in trust by the employer. The employers can claim deduction only if they deposit these amounts on or before the statutory due date under section 36(1)(va).
The non-obstante clause in section 43B cannot be applied to employees’ contributions governed by section 36(1)(va).
Alom Extrusions Ltd. vs. CIT [2009] 185 Taxman 416/319 ITR 306 (SC) has been distinguished as the same has not considered sections 2(24)(x) and 36(1)(va).
Explanation 5 to section 43B was not considered at all while arriving at the decision that employees’ contribution must be deposited on or before the due dates under relevant statutes. [Para 38]

It can also be seen that the Supreme Court has upheld the impugned judgment of the Gujarat High Court, wherein, in similar facts to the present case, the High Court had refused relief to the assessee, in view of its earlier judgment in titled CIT vs. Gujarat State Road Transport Corporation [2014] 43 taxmann.com 249/227 Taxman 121/367 ITR 466 (SC). [Para 39]
The above mentioned judgment of the Gujarat High Court is of the year 2014, which pre-dates the 2021 amendment by several years. As such, the interpretation of the sections 2(24)(x), 36(1)(iv), 36(1)(v)(a) and 43B by the Gujarat High Court was before the introduction of Explanation 5 to section 43B. This would further show that Explanation 5 is clarificatory in nature, elucidating the position of law/provisions of the Act, as existed. Therefore, the contention of the assessee that Explanation 5 shall be prospective and would not have any bearing on earlier assessment years, i.e., assessment year 2019-20 in this case, is clearly misconceived. [Para 40]
In fact, it is clear from the observations of the Supreme Court that while examining the issue whether for the benefit of deductions to be made available to the assessee, the employees’ contributions have to be deposited on or before the due date, there was no occasion to even consider Explanation 5 to section 43B. As such, the plea of sub silentio, is totally misplaced. The Tribunal is justified in relying upon Checkmate Services (P) Ltd. (supra) while dismissing the appeal filed by the assessee. [Para 41]
In fact, the Supreme Court in Checkmate Services (P) Ltd. vs. CIT [2022] 143 taxmann.com 178/[2023] 290 Taxman 19/[2022] 448 ITR 518 (SC) had also considered Alom Extrusions Ltd. (supra) and distinguished the same by observing that the judgment had not considered sections 2(24)(x) and 36(1)(va) and also the separate provisions for employers’ and employees’ contributions under section 36(1). [Para 42]
The Supreme Court in Checkmate Services (P.) Ltd. vs. CIT [2023] 6 SCC 451 had conclusively interpreted the provision of section 43B. [Para 43]
Insofar as the submission of the assessee that the Assessing Officer under section 143(1) could not have passed the order dated 28-5-2020 is concerned, it is to be noted that at the time when the Assessing Officer proposed the deductions, the judgment of the Gujarat High Court in CIT vs. Gujarat State Road Transport Corporation [2014] 41 taxmann.com 100/223 Taxman 398/366 ITR 170 (Gujarat) was in existence, which has been affirmed by the Supreme Court in Checkmate Services (P) Ltd. vs. CIT [2022] 143 taxmann.com 178/[2023] 290 Taxman 19/[2022] 448 ITR 518 (SC). If that be so, it cannot be now said that the Assessing Officer had erred in passing the order. In fact, the Tribunal had rightly upheld the same by relying upon the judgment in Checkmate Services (P.) Ltd. (supra). As such, this submission of the assessee cannot be accepted. [Para 44]
In view of the above discussion, it is held the Tribunal is justified in passing the order dated 9-1-2023. There is no infirmity in the same. [Para 45]

In Favour of: The assessee

Insofar as the issue whether the Tribunal erred in law in not upholding the assessee’s claim for deduction under section 36(1)(va) for an amount of Rs. 44.28 lakhs pertaining to PF and Rs. 72,151 pertaining to ESI which was deposited on 16-8-2018, as the due date fell on a National Holiday i.e., 15-8-2018, is concerned, though the assessee has not pressed the issue, since the question of law has been already framed, the same can be decided. This issue has been settled by a co-ordinate Bench of this Court in Pr. CIT vs. Pepsico India Holding Pvt. Ltd. [IT Appeal No. 12 of 2023] by holding that the deposit could have been made by the assessee only on the date which followed the National Holiday. [Para 46]

178 taxmann.com 169 (Visakhapatnam - Trib.) IN THE ITAT VISAKHAPATNAM BENCH Nandigam Veerabrahmam vs. Income-tax Officer SEPTEMBER 3, 2025

Section 151, read with sections 68 and 148, of the Income-tax Act, 1961

Facts II :

The assessee was flagged in accordance with the Risk Management Strategy formulated by the CBDT, based on the fact that he had made substantial cash deposits in bank accounts during relevant assessment year.
The Assessing Officer noted that the assessee had not filed his return. He, thus, issued notice under section 148A(b). Thereafter, the Assessing Officer passed an order under section 148A(d) and issued the consequential notice under section 148.
In compliance, the assessee filed his return declaring certain income.
Thereafter, the Assessing Officer in the absence of any plausible explanation filed by the assessee, rejected his books of account under section 145(3) and framed the assessment to the best of his judgment, wherein the net profit of the assessee was estimated at the rate of 8 per cent of his declared turnover. Accordingly, the Assessing Officer vide his order passed under section 147 read with section 144 read with section 144B, determined the income of the assessee at Rs. 39.39 lakhs.
On appeal, the Commissioner (Appeals) dismissed the appeal of the assessee.
On appeal to the Tribunal.

Held II:

The assessee has assailed the validity of the jurisdiction assumed by the Assessing Officer for issuance of notice under section 148 dated 4-4-2022, i.e., without obtaining any approval from any of the authorities specified under section 151 (as was applicable at the relevant point of time). [Para 13]
Admittedly, it is a matter of fact discernible from the record that the notice under section 148 dated 4-4-2022, had been issued by the Assessing Officer after obtaining the prior approval of the Principal Commissioner, dated 2-4-2022. [Para 14]
At this stage, it may be observed that nothing has been placed on record by the revenue to rebut the aforesaid factual position as has been brought to notice. [Para 15]
Apropos the challenge thrown by the assessee regarding the validity of the jurisdiction assumed by the Assessing Officer for initiating proceedings under section 147, i.e., without obtaining the approval of the specified authority under section 151(ii), substance is found in the same. Admittedly, the reassessment proceedings under section 147 had been revamped vide the Finance Act, 2021 with effect from 1-4-2021. [Para 16]
The CBDT vide Instruction No.01/2022 while directing implementation of the judgment of the Supreme Court in the case of Union of India vs. Ashish Agarwal [2022] 138 taxmann.com 64/444 ITR 1/286 Taxman 183 (SC), while laying down the procedure that is required to be followed by the jurisdictional Assessing Officers/Assessing Officer had, inter alia, held, that if it is a fit case to issue notice under section 148, the Assessing Officer shall serve on the assessee a notice under section 148 after obtaining approval of the specified authority under section 151 of the new law. [Para 18]
Thus, in terms of aforesaid observation, the Bench concurs with the assessee that in the instant case for assessment year 2018-19, wherein notice under section 148 was issued on 4-4-2022, i.e. beyond a period of three years from the end of the assessment year, the Assessing Officer was statutorily obligated to have obtained the approval from either of the authorities specified under section 151(ii) of the extant law, viz. Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General. However, as the Assessing Officer had obtained the approval from the Pr. Commissioner, i.e. an authority who was not vested with any jurisdiction as per the mandate of section 151 (as made available on the statute with effect from 1-4-2021), therefore, the assessment so framed by him under section 147 read with section 144 read with section 144B dated 31-1-2024 being devoid and bereft of valid assumption of jurisdiction, is liable to be quashed. Accordingly, the assessment framed by the Assessing Officer under section 147 read with section 144 read with section 144B dated 31-1-2024 is quashed in terms of aforesaid observations. [Para 19]
As the assessment framed by the Assessing Officer under section 147 read with section 144 read with section 144B dated 31-1-2024 for want of valid assumption of jurisdiction for issuing notice under section 148 is quashed, therefore, other contentions based on which the validity of the assessment order has been challenged, are left open. [Para 20]

Conclusion: In favour of assessee

Circulars and Notifications August 2025

Circulars

PARTIAL MODIFICATION OF CIRCULAR NO. 3 OF 2023, DATED 28-3-02023 REGARDING CONSEQUENCES OF PAN BECOMING INOPERATIVE AS PER RULE 114AAA OF THE INCOME-TAX RULES, 1962 CIRCULAR NO. 9/2025 [F. NO. 275/04/2024-IT(B)], DATED 21-7-2025

The Central Board of Direct Taxes (hereinafter ‘the Board’) vide Circular No. 03 of 2023 dated 28th March, 2023 had specified that the consequences of PAN becoming inoperative as per Rule 114AAA of the Income-tax Rules, 1962 shall take effect from 1st July, 2023 and continue till the PAN becomes operative. Further, Circular No. 06 of 2024, dated 23.04.2024 issued by the Board, provided relief to deductors/collectors from the applicability of higher TDS/TCS rates under section 206AA/206CC of the Income-tax Act, 1961 (hereinafter ‘the Act’) for transactions entered into up to 31.03.2024, where the PAN becomes operative (as a result of linkage with Aadhaar) on or before 31.05.2024.
Several grievances have been received from the taxpayers that they are in receipt of notices intimating that they have committed default of ‘short-deduction/collection’ of TDS/TCS while carrying out the transactions where the PANs of the deductees/collectees were inoperative. In such cases, as the deduction/collection has not been made at a higher rate, demands have been raised by the Department against the deductors/collectors while processing of TDS/TCS statements under section 200A or under section 206CB of the Act, as the case maybe.
With a view to redressing the grievances faced by such deductors/collectors, the Board, in partial modification and in continuation of the Circular No. 3 of 2023, hereby specifies that there shall be no liability on the deductor/collector to deduct/collect the tax under section 206AA/206CC of the Act, as the case maybe, in the following cases:
- Where the amount is paid or credited from 01.04.2024 to 31.07.2025 and the PAN is made operative (as a result of linkage with Aadhaar) on or before 30.09.2025.
- Where the amount is paid or credited on or after 01.08.2025 and the PAN is made operative (as a result of linkage with Aadhaar) within two months from the end of the month in which the amount is paid or credited.
In the above-mentioned cases, the deduction/ collection as mandated in other provisions of Chapter XVII-B or Chapter XVII-BB of the Act shall be applicable.

Notifications

INCOME-TAX (TWENTY-FOURTH AMENDMENT) RULES, 2025 – AMENDMENT IN RULE 21AIA

NOTIFICATION G.S.R. 566(E) [NO. 136/2025/F. NO. 370142/29/2025-TPL], DATED 21-8-2025

In exercise of the powers conferred by section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:

These rules may be called the Income-tax (Twenty-Fourth Amendment) Rules, 2025.
They shall come into force on the date of their publication in the Official Gazette.
In the Income-tax Rules, 1962, in rule 21AIA,
(a) sub-rule
shall be omitted;
(b) for the Explanation, the following Explanation shall be substituted, namely:

“Explanation—For the purpose of this rule, the expression “specified fund” shall have the same meaning as assigned to it in sub-clause (i) of clause (c) of the Explanation to clause (4D) of section 10 of the Act.”

Tax Calendar September 2025

07th October 2025

Equalization Levy Deposit Due Dates:
Collection and recovery of equalization levy on specified services in September 2025.
TDS/TCS Deposit: Due date for the deposit of Tax deducted/collected for September 2025. However, all sum deducted/collected by an office of the government shall be paid to the credit of the Central Government on the same day on where tax is paid without production of an Income tax Challan

15th October 2025

Due date for issue of TDS Certificate for tax deducted under section 194S/194-IA/194-IB/194M in August 2025
Form 15G/15H: Upload declarations received from recipients in Form No. 15G/15H during the quarter ending September, 2025

30th October 2025

Event	Description
Form 26QB	Due date for furnishing of challan-cum-statement in respect of tax deducted under section 194-IA in the month of September, 2025
Form 26QC	Due date for furnishing of challan-cum-statement in respect of tax deducted under section 194-IB in the month of September, 2025
Form 26QD	Due date for furnishing of challan cum statement in respect of tax deducted under section 194M in the month of September, 2025
Form 26QE	Due date for furnishing of challan cum statement in respect of tax deducted under section 194S in the month of September, 2025

31st October 2025

All income tax returns except ITR-1, ITR-2 and ITR-4: Due date for filing of return of income for the Assessment Year 2025-26 if the assessee (not having any international or specified domestic transaction) is (a) corporate assessee or (b) non corporate assessee (whose books of account are required to be audited) or (c) partner of a firm whose accounts are required to be audited) or the spouse of such partner if the provisions of section 5A applies to such spouse.
Form 3CA_CD Form 3CB_CD: Audit report under section 44AB for the Assessment Year 2025-26 in the case of an assessee who is also required to submit a report pertaining to international or specified domestic transactions under section 92E.
Form 3CEB: Report to be furnished in Form 3CEB in respect of international transactions and specified domestic transactions
Form 3CEAB: Intimation by a designated constituent entity, of an international group in Form No. 3CEAB for the accounting year 2024-25
Form 10-IC: Application for exercise of option under sub-section (5) of section 115BAA of the Income-tax Act, 1961 (if due date of submission of return of income is October 31, 2025)
Form 10-ID: Application for exercise of option under sub-section (7) of section 115BAB of the Income-tax Act, 1961.
Form 29B: Report under section 115JB of the Income-tax Act, 1961 for computing the book profits of the company (if the due date of submission of return of income is November 30, 2025)
Form 24Q/26Q/27Q: Quarterly statement of TDS deposited for the quarter ending September 30, 2025

Tax News from Around the World

US Bill Could Disrupt India’s Outsourcing Sector via Tax Changes

A proposed US law — the Halting International Relocation of Employment (HIRE) Act 2025 — may impose a 25% tax on payments made by US companies to foreign service providers (when services consumed in the US). This could make outsourcing to India more expensive

British Horse Racing Industry Protests Proposed Tax Changes

The British racing industry staged a strike (causing cancellations at major tracks) in response to a proposed increase in tax on race betting — from 15% to 21%. The British Horseracing Authority warns the change could cost the industry £66 million and numerous jobs.

Asia’s Tax Transparency Efforts Yield Substantial Revenue

A report by the OECD’s Global Forum showed that Asian countries’ implementation of tax transparency—including automatic exchange of information—led to identifying €1.9 billion in additional annual revenue in 2024.