AIS/TDS Mismatches: Causes, Legal Framework, Remedies and Practical Compliance

Summary

AIS/TDS mismatches have emerged as one of the most common triggers for income-tax notices, adjustments under section 143(1), and scrutiny proceedings. With the introduction of the Annual Information Statement (AIS) and Taxpayer Information Summary (TIS), the Income-tax Department now has a consolidated, transaction-wise view of a taxpayer’s financial footprint. Any inconsistency between income reported in the return and TDS/TCS data reflected in AIS often results in automated additions or demands. This article explains why AIS/TDS mismatches arise, the relevant statutory provisions, judicial principles, and practical steps taxpayers should take to avoid or resolve such issues.

Background

Earlier, taxpayers primarily relied on Form 26AS for reconciling TDS. However, from AY 2021–22 onwards, AIS has significantly expanded the scope of information available with the department. AIS includes not only TDS/TCS but also interest income, dividend income, sale/purchase of securities, immovable property transactions, foreign remittances, and other high-value transactions reported by third parties.

Since AIS is auto-populated from multiple reporting entities, mismatches frequently occur due to timing differences, reporting errors, incorrect PAN mapping, or differences in accounting treatment. The challenge for taxpayers is that the system presumes AIS data to be correct unless contested, shifting the compliance burden squarely onto the assessee.

Relevant Provisions (Explained Simply)

Section 199 – Credit for TDS

This section allows credit for TDS only if:

• The corresponding income is offered to tax, and
• The TDS is reflected against the taxpayer’s PAN.

If income is not offered or is offered in a different year, credit may be denied.

Rule 37BA – Year of TDS Credit

Rule 37BA provides that TDS credit should be allowed in the same year in which the related income is assessable, even if TDS is deducted in a different year. This rule is crucial in cases of advance receipts, retention money, or year-end accruals.

Section 143(1) – Intimation and Adjustments

Under this section, CPC can make prima facie adjustments where:

• Income reported in AIS is not offered in the return, or
• TDS claimed does not match with Form 26AS/AIS.

Many AIS/TDS mismatch issues arise at this automated processing stage.

Section 139 – Correct Filing of Return

Taxpayers are required to file returns with true and correct particulars. Any omission or mismatch can invite adjustments, notices, or penalties.

Section 133C – Power to Call for Information

The department can seek explanations and documents if discrepancies between AIS and return data remain unresolved.

Common Reasons for AIS/TDS Mismatches

1. Income offered in a different year
   Example: TDS deducted in March but income recognised in the next financial year.

2. Gross vs net income reporting
   Taxpayer reports net receipts while AIS reflects gross amounts before expenses.

3. Incorrect PAN quoted by deductor
   Leads to income appearing in AIS but TDS not available for credit.

4. Duplicate or incorrect reporting by banks/employers
   Interest or salary reported twice or under wrong heads.

5. Exempt income reflected in AIS
   Such as exempt dividends or agricultural income reported by reporting entities.

6. Professional receipts reported as business income or vice versa
   Causing head-wise mismatch in AIS vs return.

Key Case Principles (Judicial Approach)

• TDS credit cannot be denied merely due to deductor’s default, if income has been offered to tax and identity of deduction is established.
• Substance prevails over form — income should not be taxed twice merely because of timing or reporting differences.
• Automated adjustments must be reasonable and taxpayers should be given opportunity to explain mismatches.
• AIS is a facilitative tool, not conclusive evidence; taxpayer explanations supported by documents must be considered.

(Principles distilled from multiple tribunal rulings without reproducing any headnotes.)

Practical Implications for Taxpayers

1. AIS reconciliation is now mandatory, not optional. Ignoring AIS almost certainly leads to notices.

2. Return filing has become evidence-driven, requiring alignment between books, AIS, TIS, and Form 26AS.

3. Professional judgment is required to decide whether to offer income, defer it, or dispute AIS entries.

4. Failure to respond to AIS feedback weakens the taxpayer’s defence during assessment.

5. Mismatches may also affect refund processing, delaying or reducing legitimate refunds.

How to Handle AIS/TDS Mismatches (Step-by-Step)

1. Download AIS and TIS before filing the return

2. Match each AIS entry with books of account or bank statements

3. Classify mismatches into:

• Income already taxed earlier/later
• Exempt income
• Incorrect reporting
• Duplicate entries

1. Submit feedback in AIS portal (Agree / Disagree with reason)

2. Maintain supporting documents such as invoices, agreements, bank statements

3. Offer income with disclosure, where dispute is uncertain, to avoid litigation

4. Rectify return under section 154 or revise under section 139(5) where required

Checklist for Professionals and Taxpayers

• Download AIS, TIS and Form 26AS
• Reconcile line-by-line with books/bank statements
• Identify year-wise income differences
• Verify head of income classification
• Submit AIS feedback with reasons
• Ensure Rule 37BA compliance for TDS credit
• Preserve reconciliation workings
• Track CPC intimations and respond timely

Conclusion

AIS/TDS mismatches are no longer minor compliance issues but central to return processing and assessments. The shift towards data-driven taxation means taxpayers must proactively reconcile, document, and explain discrepancies rather than react to notices later. A disciplined AIS review process, combined with correct income recognition and timely feedback, can significantly reduce disputes and unnecessary tax demands.