Set Up TDS Ledgers in Tally So 26AS Matches at Year-End

TDS goes wrong at year-end in two predictable ways. On the payable side, the books, the challans and the quarterly statement each show a different figure, and nobody can say which is right. On the receivable side, a single "TDS Receivable" ledger has collected five years of balances, and only part of it appears in Form 26AS. Both are ledger problems, and both are easier to prevent in April than to sort out in September. This is the TDS ledger setup in Tally we would give a client's accountant, with a 15-minute monthly check and the year-end formats. One change matters this year: TDS on payments from 1 April 2026 falls under the Income-tax Act, 2025, while FY 2025-26 is still governed by the Income-tax Act, 1961. The law is stated as at 31 October 2026, and the figures are illustrative.

What changed on 1 April 2026

The Income-tax Act, 2025 puts almost all TDS on payments to residents into one section, section 393, with a table of payments (salary is in section 392). The forms have been renumbered under the Income-tax Rules, 2026 as well. FY 2025-26 accounts, the tax audit and the return are still under the 1961 Act, and so are revised statements for quarters up to March 2026. The ledgers carry across both years, so the accountant needs both sets of names.

The rates for the common payments are unchanged: contractors 1% (individual or HUF) or 2% (others), professional fees 10%, and rent of land, building or furniture 10%. Check the threshold for each payment in the Table for the year concerned.

TDS payable: one ledger per nature of payment

Create the TDS ledgers under Duties & Taxes with Type of duty/tax = TDS, after enabling TDS for the company. Tally will run with one common TDS ledger (Nature of Payment "Any"). For audit, a ledger for each nature of payment is more useful: each one then ties to a section in the quarterly statement and to its challans.

The masters do the rest. In TallyPrime, a Nature of Payment is created at Alt+G (Go To) → Create Master → TDS Nature of Payments, where Alt+H (Helper) lists the natures with their section and payment code. The expense ledger has Is TDS Applicable set with its Nature of Payment. The party ledger has Is TDS Deductable, the deductee type and the PAN, and should have bill-by-bill details kept. A party without PAN suffers TDS at the higher rate, so keep the Ledgers without PAN report (under TDS Reports) empty.

The 2025 Act switch. Tally Solutions advises not to change the section or payment code in the existing Nature of Payment masters, because that would affect earlier payments and returns. Instead, create a new Nature of Payment with the section and payment code under the 2025 Act (for example, payment code 1027 for fees for professional services). Then alter each expense ledger to select it with a Revised Applicability Date of 01-Apr-2026. If your TDS ledgers are tagged to a specific nature, as recommended above, create new TDS payable ledgers for the new natures too. The old ledgers then run down to nil once the March 2026 TDS has been paid by 30 April 2026. From May onward, any balance left in an old ledger is FY 2025-26 TDS that has not been paid, or has been booked wrongly.

The 15-minute monthly reconciliation

TDS deducted in a month is due by the 7th of the following month, and TDS deducted in March by 30 April (rule 30 of the Income-tax Rules, 1962 for FY 2025-26; rule 218 of the Income-tax Rules, 2026, with the same dates, from April 2026). The quarterly statements are due on 31 July, 31 October, 31 January and 31 May. Do this check before the challan is paid each month, so the quarter-end only adds up three months that already agree.

Pass the TDS payment as a payment voucher debiting the TDS payable ledger, never an expense. If the challan includes interest or late fee, split it to the interest and fee ledgers.

Year-end: books vs statement vs challans

At year-end, the auditor needs one sheet per TAN: TDS per books, per the statements and per the challans, section by section. Here is the fourth quarter of FY 2025-26 for a company paying professional fees and contractors.

The challans agree with the books, but the statement is ₹5,000 short. The fix is a correction statement for Q4 that adds the deductee row and uses the unconsumed challan balance. Until it is filed, the professional does not see the credit in Form 26AS and will ask for it. Had the ₹5,000 not been deducted at all, or deducted but not paid by the due date of the return, 30% of the ₹50,000 (₹15,000) would be disallowed in FY 2025-26 under section 40(a)(ia), and allowed in the year the tax is paid.

Interest runs at 1% a month or part of a month from the date TDS was deductible to the date it is deducted, and 1.5% from deduction to payment. Interest runs from the date of deduction, not from the 7th, and a part of a month counts as a whole month, so even a challan paid two days late costs at least 1.5%. The TRACES statement processing shows any interest or fee demand, and the auditor should see it before signing.

TDS receivable: one ledger per year, matched to Form 26AS

TDS deducted by customers, banks and tenants is the company's tax paid, not a statutory due. Keep it out of Duties & Taxes: that group sits under Current Liabilities in Tally, so a debit there quietly reduces the liabilities instead of showing as an asset. Create a sub-group under Loans & Advances (Asset), and within it one ledger per year, for example "TDS receivable — FY 2025-26" and "TDS receivable — TY 2026-27". When the return for a year is filed, the ledger is set off against that year's provision, and only refunds actually due are left behind. A ledger that holds every year's balance cannot be matched to anything.

Book the receivable from the customer's TDS certificate or the TDS part of Form 26AS, not from the short receipt. A customer who pays ₹90,000 against a ₹1,00,000 invoice may have deducted TDS of ₹2,000 and disputed ₹8,000. Credit in the return goes by what the department shows, so match it customer by customer:

The ₹14,000 is recoverable only if the customers file or correct their statements. Write to both. Whatever is still not in Form 26AS when the accounts are finalised is a judgement: recover it from the customer or write it off. Don't carry it forward without a note on the file. For FY 2025-26, credit is given for the year in which the income is assessable (rule 37BA of the 1962 Rules). A March invoice on which the customer deducts in April therefore needs watching across the two years. From tax year 2026-27, the same matching is done against Form 168, which the department uploads to the e-filing account and which replaces Form 26AS.

Year-end classification in the accounts

Division I of Schedule III has no "current tax assets" line. TDS and advance tax go under other loans and advances, short-term or long-term depending on when they will be realised. Unpaid TDS is a statutory due under other current liabilities. Offset the tax asset against the provision for tax only where AS 22 (para 27) requires it: a legally enforceable right of set-off and an intention to settle net. In practice, that means the same year's advance tax and TDS against that year's provision.

Interest on late TDS is not current tax. The ICAI Guidance Note on Division I treats interest on a shortfall in advance tax as a finance cost to be disclosed separately (para 9.8.1.3), and interest on TDS is commonly presented the same way. For line-by-line placement, see loans and advances under Schedule III and other current liabilities and provisions.

What the auditor reads from these ledgers

• Form 3CD clause 34 (FY 2025-26) asks, section by section, for the amount on which tax was deductible, the amount deducted at the specified rate and at less than it, and any tax deducted but not deposited (34(a)); the due date and date of each statement, and whether it reports every transaction it should (34(b)) — the ₹5,000 row left out above is a "No" here until corrected; and the interest payable under s.201(1A) and the amount paid (34(c)). The quarter sheet above, per section and per TAN, is that clause.
• Clause 21(b) — amounts inadmissible under s.40(a), including the 30% under s.40(a)(ia). The "bills above the threshold with no TDS" check is where these come from.
• CARO 2020 clause 3(vii)(a) — regularity in depositing undisputed statutory dues, including income tax, and arrears outstanding for more than six months at year-end. Late challans and an old TDS payable ledger that never cleared both show up here (check CARO 2020 applicability first).

If the client's books do not follow this structure, don't rebuild them. Ask for the TRACES statement status, the challans and Form 26AS, and put the differences on the year-end audit query list. Then send the accountant this layout for next year, along with the GST ledger blueprint, which follows the same idea of one ledger per thing you have to tie.

Frequently asked questions

Sources

• CBDT — FAQs on the transition to the Income-tax Act, 2025 (TDS due dates, Forms 138/140/144, Form 168, s.35(b))
• Income Tax Department — Forms under the Income-tax Rules, 2026 (Form 138 = 24Q, 140 = 26Q, 144 = 27Q, 168 = 26AS)
• Income-tax Act, 2025 (30 of 2025), Gazette of India — sections 35, 390, 392, 393, 397, 398, 427, 510
• Income-tax Act, 1961 — sections 40(a)(ia), 192, 194C, 194-I, 194J, 199, 201, 234E; Income-tax Rules, 1962 — rules 30, 31A, 37BA
• Income Tax Department — Form 168 (earlier Form 26AS): view annual tax statement
• Tally Solutions — TallyPrime Help: TDS in TallyPrime (Form 140 and Form 144 from 1 April 2026)
• Tally Solutions — TallyPrime Help: Create TDS Masters
• Tally Solutions — TallyPrime Help: TDS Nature of Payments as per Income Tax Act 2025
• Tally Solutions — TallyPrime Help: Review TDS Outstanding and Reconcile Challan
• Tally Solutions — TallyPrime Help: TDS FAQ (new Nature of Payment for the 2025 Act)
• ICAI — AS 22, Accounting for Taxes on Income, paras 27–28
• ICAI — Guidance Note on Division I – Non Ind AS Schedule III (Revised 2022), paras 8.6.3, 9.8.1.3
• ICAI — Guidance Note on CARO 2020 (Revised 2022), clause 3(vii)

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