You missed a TDS deduction two years ago. The notice has arrived. But the vendor declared that income and paid tax on it — the government is not short a rupee.
The first proviso to section 201(1) exists for exactly that situation, and Form 26A is how you use it.
At a glance
- What it does
- Stops a deductor being treated as an assessee in default
- Provision
- First proviso to section 201(1), read with Rule 31ACB
- Form
- Form 26A, with the accountant’s certificate in Annexure A
- Who signs the annexure
- A Chartered Accountant in practice
- Filed through
- The TRACES portal, by the deductor
- Does not remove
- Interest under section 201(1A) up to the date the payee filed
- Under the 2025 Act
- Section 398
What the proviso says
A person who fails to deduct tax at source is normally treated as an assessee in default, and can be recovered from as though the tax were their own liability. That is harsh where the recipient has already paid.
The first proviso removes that treatment where the payee:
- is a resident,
- has furnished a return of income under section 139,
- has taken the payment into account in computing income in that return, and
- has paid the tax due on the income declared.
All four must hold, and the deductor must produce a certificate to that effect from an accountant, in the prescribed form. Rule 31ACB prescribes Form 26A.
Non-residents are outside this relief. The proviso is limited to a resident payee. If the short deduction was on a payment to a non-resident under section 195, Form 26A does not help — that is a different problem needing a different answer.
What it does not save you from
| Exposure | Does Form 26A help? |
|---|---|
| Being treated as assessee in default for the tax under section 201(1) | Yes |
| Interest under section 201(1A), from the date tax was deductible to the date the payee filed their return | No — still payable |
| Disallowance under section 40(a)(ia) in the deductor’s own computation | Addressed separately, though the same facts usually assist |
| Penalty for failure to deduct under section 271C | Not automatic relief; depends on reasonable cause |
| Late filing fee under section 234E for the TDS return | No |
The interest is the part clients do not expect. Form 26A stops the tax demand but not the interest for the period during which the tax was outstanding. That period runs to the date the payee furnished their return — so the later they filed, the more interest you carry.
How the filing actually works
- Identify the transaction — deductee, PAN, amount, section, and the year in which it was assessable.
- Get the payee’s cooperation. You need their return acknowledgement and computation showing the receipt included, plus evidence tax was paid.
- The CA prepares Annexure A to Form 26A, certifying the four conditions.
- The deductor initiates the request on TRACES and tags the CA by membership number.
- The CA logs in to TRACES, completes and digitally signs Annexure A, quoting the UDIN.
- The deductor approves, and Form 26A goes to the Assessing Officer.
You cannot do this without the payee. The certificate rests on their return and their tax payment. If the vendor relationship has ended badly, or the payee is untraceable, the relief is practically unavailable however strong the underlying facts. Approach them early and politely — they have no legal obligation to help you.
UDIN on Form 26A
Annexure A to Form 26A is a certificate signed by a practising Chartered Accountant, so it sits in the Certificates category, where UDIN has been mandatory since 1 February 2019.
Update within 60 calendar days. Where a form is uploaded without a UDIN and the number is not updated within that period, the CBDT treats it as invalid with all due consequences of law. An invalid certificate here means the proviso is not made out, and the original default demand stands. Revocation closes at 48 hours.
A separate UDIN is required for each certificate — a deductor with several deductees needs one per Annexure A, not one covering the batch. See our guide to UDIN generation.
Section 201 under the Income-tax Act, 2025
| Subject | 1961 Act | 2025 Act |
|---|---|---|
| Consequences of failure to deduct or pay, or collect or pay | Sections 201 and 206C | Section 398 |
| Deduction or collection at source, generally | Sections 190, 199, 206C | Section 390 |
| TDS on payments to non-residents | Sections 195, 195A | Section 509 |
Note that the new Act deals with the TDS and TCS default consequences in a single section — 398 — where the old Act split them between section 201 and section 206C(6A). The corresponding TCS relief is Form 27BA.
Frequently asked questions
What is Form 26A used for?
To show that a payee has already declared the income and paid the tax, so the deductor is not treated as an assessee in default under section 201(1).
Who certifies it?
A Chartered Accountant in practice completes and signs Annexure A to Form 26A.
Does it apply to payments to non-residents?
No. The first proviso applies only where the payee is a resident.
Do we still pay interest?
Yes. Interest under section 201(1A) runs from the date the tax was deductible to the date the payee furnished their return, and Form 26A does not remove it.
Where is Form 26A filed?
Through the TRACES portal. The deductor initiates the request and tags the CA, who then completes and signs Annexure A.
What if the payee will not cooperate?
The relief becomes impractical. The certificate depends on their return and tax payment, and they are under no obligation to assist.
Which rule prescribes the form?
Rule 31ACB of the Income-tax Rules, 1962.
Does Form 26A fix a section 40(a)(ia) disallowance?
Not directly — that is a separate provision — but the same facts generally support the position that the payee has accounted for the income.
Is UDIN required?
Yes, in the Certificates category, with the 60-calendar-day update rule after upload. A separate UDIN is needed for each Annexure A.
Which section replaces 201 under the new Act?
Section 398, which covers both TDS and TCS default consequences.
In short
Form 26A turns a potentially ruinous TDS demand into an interest liability, provided the payee is resident, filed, included the receipt and paid. The legal test is easy; the practical obstacle is getting documents from someone who has no reason to help you. Ask early, and budget for the section 201(1A) interest, because that part does not go away.
Micro Advisor assists deductors with TDS defaults, Form 26A certification and TRACES compliance.
References
Disclaimer. General information, not professional advice. Relief under the first proviso depends on the facts of the transaction and the payee’s own filing position.