The first quarter of Tax Year 2026-27 marked the beginning of compliance under the Income-tax Act, 2025. Being the first quarter under the new framework, taxpayers, software providers and the Income Tax Department along with its associated agencies such as Protean/NSDL have all been adapting to the new systems and validations.

While the quarter was completed reasonably smoothly, there were a few important issues which affected many taxpayers:

1. Interest Allocation in Challans

The earlier facility for allocation of interest while entering challan details was removed under the new system. This resulted in interest defaults being reflected in several processed returns. The Department has now clarified that the allocation mechanism will be reintroduced and further guidance is expected soon.

2. Rounding-off of TDS Amount

The earlier provision of rounding TDS to the nearest rupee was also removed. Consequently, this has resulted in defaults owing to short deductions of a few paise. While corrective measures are understood to be under consideration, no formal relaxation has yet been announced. We therefore strongly recommend depositing the differential amount and filing the necessary correction statement wherever such short deductions are reflected.

3. Form 144 – Payments to Non-Residents

Form 144 (earlier Form 27Q), introduced new remittance codes and their mapping with TDS sections / tax codes. There has been considerable uncertainty regarding these mappings. The Department has now announced substantial changes which are expected to be implemented shortly, possibly sometimes in August 2026. The revised requirements may also have an impact on returns already filed for the first quarter and our analysis is that some of these returns may subsequently require filing of correction statements.

4. Correction Statement

The Department has enabled the specifications required for correction returns. However, online submission of these correction statements is presently not being accepted online by the IT Dept through their web portal which is still under development.

5. Online Challan Corrections

The facility for online correction of challan details is presently not activated under the new system. Consequently, where a default has arisen due to an error in the challan details, the same may continue to remain pending until the online challan correction facility is made available by the Income Tax Department.

6. Issues related to TDS Payment through BIN (Govt. Deductors)

In case of Government Deductors making TDS payments through Book Entry / BIN, instances have been reported where TRACES is reflecting Short Payment defaults, even though the BIN details have been correctly reported in the regular TDS Statement for the first quarter of Tax Year 2026-27.

The transition from the old Act to the new Act is still underway and further changes and clarifications can be expected over the coming weeks / months.