TDS Return Filing for Q1 FY 2026-27 under the Income Tax Act, 2025 —
New Forms, and the Portal Issues Every Deductor Is Actually Facing

1. Introduction

Every transition from one statute to another produces a predictable pattern: the law itself changes very little, but the compliance machinery built around it takes a quarter or two to catch up. Q1 FY 2026-27 is that quarter for TDS. The Income Tax Act, 2025 came into force on 1 April 2026, and the statement covering deductions made between April and June 2026 is the first quarterly TDS return that had to be prepared, validated and filed entirely on the new framework — new form numbers, new section codes in the Return Preparation Utility (RPU), and a rebuilt TRACES portal on the back end.

The due date for this return — 31 July 2026 — has now passed. What this note is really about is not the filing itself, which most deductors managed to complete, but what has happened since: the online-correction facility that practitioners rely on every quarter to fix PAN errors, challan mismatches and deductee-row issues is still not functioning for Q1 FY 2026-27 statements as of the date of this note. Alongside that, three other portal-level gaps are creating real client-facing problems — an RPU field that has simply disappeared, a DSC re-registration process that is failing for a meaningful share of users, and no mechanism to attach a challan paid after the return was filed. None of these are law changes. All of them are operational, and all of them are costing deductors time, and in the interest-adjustment case, money that has already been paid once.

2. The Q1 FY 2026-27 Filing Framework — What Actually Changed

Quarterly TDS/TCS statements are now furnished under Section 397(3)(b) of the Income-tax Act, 2025, read with Rule 219 of the Income-tax Rules, 2026. The obligation itself — deduct, deposit, and report quarterly, deductee-wise and challan-wise — is unchanged from the corresponding scheme under Section 200(3) of the 1961 Act read with Rule 31A. What has changed is the form on which that obligation is discharged.

A related consolidation affects one-off, challan-cum-statement filings: the erstwhile Forms 26QB (property), 26QC (rent by individuals/HUF), 26QD (contractor payments by individuals/HUF) and 26QE (VDA/crypto) have been merged into a single Form 141, filed schedule-wise depending on the nature of the payment. The salary TDS certificate that employees expect is now Form 130 (in place of Form 16), the employee's investment declaration is now Form 124 (in place of Form 12BB), and the non-salary certificate is Form 131. None of this changes what tax is deductible, at what rate, or when it must be deposited — monthly deposit deadlines remain the 7th of the following month (30 April for March deductions). It changes only the labels on the paperwork, and the section codes that must be quoted against each payment inside the return.

The late-filing fee mechanism is carried forward without a change in substance — ₹200 for every day of delay, capped at the total tax deducted or collected for the quarter, now housed in Section 427 in place of the familiar Section 234E. The additional penalty for non-filing or for furnishing incorrect particulars — PAN errors, wrong challan details, incorrect amounts — also carries forward in substance from the erstwhile Section 271H, within the reorganised default-penalty chapter of the 2025 Act (Sections 448–468), retaining the same ₹10,000 to ₹1,00,000 range and the one-month grace window before the penalty (as opposed to the daily fee) is triggered.

3. The Portal Issues — What Is Actually Going Wrong, Past the Due Date

The due date has come and gone, and for most deductors the statement itself is filed. The friction that matters now is downstream — in getting a filed statement corrected, in reconciling interest already paid, in accessing the portal at all, and in adding a challan that was deposited after the original filing. As of 3 August 2026, four issues stand out in practice, none of which are a function of the deductor's own compliance but of the rebuilt e-filing infrastructure still catching up to the transition.

4. Issue 1 — Online Correction for Q1 FY 2026-27 Has Not Started

In every quarter under the old TRACES, deductors have relied on the online correction facility for routine work — a PAN correction on a deductee row, a challan-tag correction, a small amount mismatch flagged in the Justification Report. That facility is the first port of call precisely because it avoids the heavier route of an offline correction statement through the RPU. For Q1 FY 2026-27, that facility is simply not available yet on the rebuilt portal, even though the original due date for the statement closed on 31 July 2026.

This is consistent with the wider pattern seen elsewhere in the TRACES transition — for instance, deductors who deposited a challan under the wrong financial year while shifting from the old to the new Act have, as a stopgap, had to fall back on the legacy TRACES portal to correct financial-year tagging on OLTAS challans, because the new platform did not support that correction either at the time. The department has not withdrawn the correction facility as a matter of policy — it has not yet built it out for statements filed under the new Act, and deductors are effectively waiting on infrastructure to catch up to a due date that has already passed.

5. Issue 2 — RPU's Missing Interest-Adjustment Option Is Generating Avoidable Demand Notices

This is the issue with the most direct financial consequence for clients. Under the earlier RPU (used for Forms 24Q/26Q/27Q), a deductor who paid a challan that included interest — on account of late deduction or late deposit — could map that interest amount against the specific outstanding-interest default in the statement itself, so that the return correctly reflected the interest as settled. The RPU built for the new Form 138/140/144 filings does not currently carry an equivalent field to make that adjustment.

The practical result is that even where a client has already deposited the interest along with the principal TDS in a single challan, the statement as filed shows the interest liability as still outstanding, because there is no field through which to tell the return that the interest component of that challan has been consumed. CPC-TDS processing then raises a default, and the deductor receives an interest demand notice for an amount that has, in fact, already been paid — not because the tax was short-deposited, but purely because the return preparation utility has no mechanism to reflect the adjustment.

Until the field is restored, the safest practitioner workflow is threefold: first, retain clear challan-level evidence (BSR code, challan serial number, deposit date, and the interest component within the challan amount) for every case where interest was paid along with principal; second, where a default notice is received quoting interest that has already been paid, respond with a reconciliation statement referencing the specific challan rather than assuming the demand is correct or waiting for it to self-resolve; third, flag to clients in writing that a demand notice on interest already paid, for this quarter specifically, is a known infrastructure gap and not evidence of a fresh default — this matters because an unexplained demand notice, left unanswered, can otherwise escalate to recovery proceedings on paper even where the underlying tax position is fully clean.

6. Issue 3 — DSC Registration and Re-Registration Failures

A meaningful proportion of deductors and their authorised signatories — particularly those who last registered their Digital Signature Certificate on the old TRACES some years ago, or whose DSC has been renewed since their last registration — are finding that registering or re-registering the DSC on the rebuilt portal is failing, whether through validation errors, session timeouts, or the registration simply not being accepted on retry. Since DSC-based filing and verification is mandatory for companies and for several categories of other deductors, this is not a cosmetic inconvenience — it can stop a statement from being filed or a correction from being verified at all.

Where this is being encountered, the practical workarounds in use are: confirming the DSC's validity and USB token driver compatibility independently of the portal (to rule out a certificate-side issue before assuming a portal-side one); attempting registration through a different browser and with all portal-related cache cleared, since session-handling issues on newly deployed portals are common; and, where the deadline for a specific filing is genuinely at risk, keeping a dated record of the failed attempts (screenshots, error messages, ticket numbers if raised with the helpdesk) as contemporaneous evidence of a portal-side default, which is the kind of documentation that supports a reasonable-cause argument if a late fee or penalty is later sought to be levied for a delay genuinely caused by the portal rather than the deductor.

7. Issue 4 — No Option to Add a Challan to an Already-Filed Return

A recurring, entirely ordinary scenario: a deductor deposits the bulk of Q1's TDS on time, and a further challan — covering a late deduction, a short-payment top-up, or a transaction identified after the original filing — is deposited a few days or weeks later. Under the earlier system, this additional challan could be brought into the statement through a correction, adding it as a fresh challan against which deductee rows could then be tagged. On the new portal, there is currently no equivalent facility to add a challan to a statement that has already been filed for the quarter.

This compounds directly with Issue 1 above — since online correction for Q1 FY 2026-27 statements is not yet live at all, there is presently no functional route, online or through the correction-RPU, to bring a subsequently deposited challan into the filed return. Until this is resolved, the safest approach is to hold the additional challan details on file (deposit proof, BSR code, challan serial number, and the deductee rows it is meant to cover) and file the addition as a correction the moment the facility becomes available, rather than attempting a workaround that risks creating a fresh mismatch — such as trying to force the challan into the next quarter's statement, which would misstate the period to which the challan actually relates.

8. A Consolidated Approach While These Gaps Persist

The common thread across all four issues is that none of them arise from any change in the underlying TDS liability, the rate, or the due date discipline the Act itself imposes. They arise from a portal and utility build that has not yet caught up with the form and section-code changes it was built to support. That distinction matters for client communication: the tax position is not actually wrong in any of these four scenarios, but the paperwork trail that proves it is currently harder to complete than it should be — which is precisely the situation where a documented, contemporaneous record protects the client if a penalty or demand is later disputed.

9. Final Practitioner Takeaway

None of the four issues above reflect a defect in a client's tax position — every one of them is a gap between what the Income Tax Act, 2025 and the Income-tax Rules, 2026 require on paper and what the rebuilt TRACES/RPU infrastructure can currently process. That distinction is exactly what should be documented and preserved, because it is the difference between a client who is genuinely in default and a client who is compliant but currently unable to prove it through the portal.

The discipline that protects clients best through this transition quarter is the same discipline that protects them in any infrastructure gap: keep the underlying evidence — challans, deposit proofs, correction data — ready and dated, respond to every notice rather than assuming it will resolve itself, and file the fix the moment the relevant facility is confirmed working, rather than waiting for a reminder from the department.

CA Jatin Karda

Chartered Accountant  ·  LLB  ·  DISA  ·  AICA  ·  CCA  ·  B.Com
Founder, Jatin Karda & Co., Nagpur