Why your 26AS never matches your books

Every year, finance teams reconcile the TDS their customers deducted against the credit shown in the department's annual statement. Every year, the two numbers disagree. The difference is usually written off as noise, or carried forward as a problem for next year.

It is rarely noise. TDS that a customer deducted but that does not appear against your PAN is tax you have paid and cannot claim. For a company with thousands of customers, it adds up to real money.

First, the new names

The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. For transactions on or after that date, salary TDS sits in section 392 and almost all other TDS, the old 194-series, is consolidated into section 393. Lower or nil deduction certificates (old section 197) are now issued under section 395. Forms have new numbers too: the non-salary TDS return (old Form 26Q) is Form 140, the TDS certificate (old Form 16A) is Form 131, and the annual tax statement (old Form 26AS) is Form 168.

Rates and thresholds are largely unchanged, and so are the mechanics. Credit still depends on the deductor filing a correct quarterly statement. Deductions made up to 31 March 2026 remain under the 1961 Act, so for FY 2025–26 you will still be reconciling against the familiar 26AS. We use "26AS" below for both.

The four causes

1. The deductor did not file, or filed late. Your customer deducted tax and paid you less, but never filed its quarterly statement, or has not yet filed it. Nothing appears in your 26AS until it does.

2. Wrong PAN. The statement was filed, but against a mistyped PAN, a group company's PAN, or no PAN at all. The credit exists, just not on your account.

3. Wrong section, year or amount. The deduction was reported under the wrong section, in the wrong quarter or financial year, or for a lower amount than you were paid net of. Credit is given in the year the income is offered to tax, so a year error can push credit where you cannot use it.

4. Timing and your own books. Some gaps are not errors. Income booked in March and deducted in April, provisions reversed later, or a lower deduction certificate that the customer applied (or ignored) all create differences that need explaining, not chasing.

A worked example

Take an illustrative services company with ₹400 crore of revenue from 600 corporate customers, most of whom deduct TDS at 2% or 10%. Its books show ₹18.6 crore of TDS deducted for FY 2025–26. Its 26AS shows ₹17.2 crore. The gap is ₹1.4 crore, and the first instinct is to treat it as one number.

Split by cause, it looks very different. About ₹55 L sits with eleven customers who have not filed a quarterly statement for one or more quarters. About ₹35 L was filed against the wrong PAN, most of it by two customers who used a group company's PAN. About ₹30 L was reported in the wrong quarter or year. The remaining ₹20 L is timing: March invoices on which customers deducted in April, and will show in next year's statement.

Only ₹20 L of that needs no action. The other ₹1.2 crore needs a named customer to file or correct a statement. Twelve or so conversations, well prepared, recover most of it. One annual total, sent to the whole customer list, recovers almost none.

Common mistakes

• Chasing everyone equally. A reminder to 600 customers gets ignored. A precise request to the fifteen largest gaps gets action.
• Waiting for the return. By the time the income-tax return is due, the previous year's corrections are months old and customers' teams have moved on.
• Treating timing as error. Chasing a customer for TDS that will show next quarter wastes goodwill you will need for the real gaps.
• Accepting a certificate as proof. A TDS certificate shows what the customer says it filed. Only the credit statement shows what the department has recorded.
• Ignoring the certificate rate. If you hold a lower deduction certificate under section 395 and a customer deducted at the full rate, the excess is cash locked up until your refund is processed.

26AS and AIS are not the same thing

Teams often compare their books to the Annual Information Statement (AIS) and find a third set of numbers. AIS is wider: it shows reported financial transactions, not just tax credits, and taxpayers can give feedback on entries they disagree with. For claiming TDS, the credit statement (26AS, now Form 168) is the one that matters. AIS is useful for spotting what customers have reported, but feedback on AIS does not create credit.

Where a customer deducted at a higher rate because it did not have your PAN on record, the higher rate now comes from section 397(2) of the 2025 Act (old section 206AA). The fix is the same: make sure every customer has your correct PAN before the first invoice, not after the first mismatch.

What a good TDS reconciliation looks like

• Match at the level of each customer and each quarter, not in one annual total.
• Value every gap and rank by size. Twenty customers usually account for most of the money.
• Classify each gap by cause, so you know whether to chase, explain or accept.
• Send customers a specific request: the quarter, the amount, the PAN and the section. Vague requests are ignored.
• Check again after the correction window, because a correction filed is not always a correction processed.

Where to start

Start with the last completed financial year, where the gap is largest and customers can still correct. Rank the gaps, contact the biggest deductors first, and track each one to closure. It is tedious work, but most of it is matching, which technology now does well.

This is what our TDS Recovery practice does, and reports results in a signed quarterly TDS statement (see what you receive). If you would like to see what your 26AS gap is worth, talk to us.

General information only, not tax advice. Check the current law and your facts before acting.