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First identify whether the amount is buyer-side TDS under section 194Q or seller-side TCS under section 206C(1), then verify the transaction date, statutory material classification, calculation and annual tax statement. If tax was withheld but is missing or incorrect, write to the deductor, request deposit and a corrected statement, and reconcile the credit through TRACES or the e-Filing portal. Do not assume that every payment described commercially as a scrap sale is governed by the same rule or that an apparent excess automatically produces a direct refund.
Why “scrap-sale TDS” can describe two different taxes
The first error to eliminate is using TDS and TCS interchangeably. In a scrap transaction, the buyer may deduct tax from a qualifying purchase, or the seller may collect tax on specified scrap. The responsible party, threshold, tax base and correction route differ.
| Question | Section 194Q (buyer TDS) | Section 206C(1) (seller TCS) |
|---|---|---|
| Who acts? | The buyer deducts tax from a qualifying purchase from a resident seller. | The seller collects tax when selling specified goods, including qualifying scrap. |
| What triggers it? | The buyer’s conditions, the seller’s residence and aggregate purchases during the year. | The goods must fall within the statutory category and the seller must collect as required. |
| Core figure in the current published guidance | 0.1% of the purchase amount above ₹50 lakh, subject to the section’s conditions. | A separate collection rule; do not substitute the 194Q rate. |
| What must be checked? | Buyer turnover, annual purchases, timing of credit or payment, PAN and the amount exceeding the threshold. | Whether the material is statutory “scrap,” the applicable rate and the seller’s collection records. |
Section 194Q is not a rule that applies merely because an invoice says “scrap.” The Income Tax Department’s guidance describes it for a buyer whose purchases from a resident seller exceed ₹50 lakh in the year and whose business sales, gross receipts or turnover exceeded ₹10 crore in the immediately preceding financial year, subject to statutory exceptions. Deduction occurs at the earlier of credit or payment.
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Section 206C(1) uses a narrower legal meaning of scrap than ordinary commercial speech. It covers waste and scrap from manufacturing or mechanical working of materials that is definitely not usable as such because of breakage, cutting up, wear or another reason. A reusable surplus, end-of-line product or ordinary used item is not automatically “scrap” for this provision.
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Do not use the former general sale-of-goods collection rule as an explanation for a current transaction: official guidance says section 206C(1H) stopped applying from 1 April 2025. Determine the section actually shown on the invoice, certificate or statement.
Check the governing date before checking the rate
The tax-law framework changes at the 2026 boundary:
- Events on or before 31 March 2026 are governed by the Income-tax Act, 1961 framework.
- Events from 1 April 2026 use the Income-tax Act, 2025 framework and its related forms.
- A correction statement for an old-period transaction remains an old-framework correction even if it is filed after the new Act begins.
Keep the invoice date, credit date, payment date and deduction date separately. A transaction can have an invoice in one period and payment or deduction in another, which affects the applicable reporting period. Use the current Income Tax Department instructions for the relevant year rather than carrying an old form number into a 2026–27 filing.
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Build the evidence file before disputing a deduction
A rate dispute cannot be resolved from the word “scrap” or from a bank-credit net of tax. Assemble one folder containing:
- Invoice, purchase order or sale contract, including the tax clause and any separately stated GST or levies.
- Material description, photographs or specifications where classification as scrap is disputed.
- Weight slips, delivery challans and acceptance records.
- Ledger entries showing the credit date and gross amount.
- Bank statement showing the payment date and net amount received or paid.
- Form 16A or other tax certificate, if issued.
- Annual tax statement, challan details and every email or letter exchanged with the counterparty.
Record who is the buyer and who is the seller. A seller who receives less cash because the buyer deducted tax has a different issue from a seller who added TCS to the invoice and collected it.
How to test whether a section 194Q deduction is wrong
1. Recalculate the threshold
For qualifying 194Q purchases, the Department’s basic published rule is 0.1% on the amount exceeding ₹50 lakh, not 0.1% on the entire annual purchase total. Aggregate purchases from the same resident seller for the relevant financial year and identify the point at which the ₹50 lakh threshold was crossed. Then verify that the buyer satisfied the preceding-year turnover condition of more than ₹10 crore.
2. Confirm the tax base and timing
Deduction is at the earlier of credit or payment. Where an invoice is credited first and GST or another listed levy is separately shown under the contract, the Department says those separately identified components are excluded from the 194Q base. If payment occurs before credit and deduction is made at payment, the Department says the whole payment is used because the future invoice components are not yet identifiable.
3. Check PAN and the reported section
Compare the PAN used by the buyer with the seller’s correct PAN and inspect the section code on the certificate and statement. The official guidance describes higher-rate consequences where PAN is not furnished. A deduction that looks excessive may therefore be a missing-PAN issue, a wrong section, or a reporting error rather than a simple arithmetic mistake.
4. Separate a calculation error from a credit failure
Recompute the amount from the contract and dates, then compare it with the tax actually reported. If the amount was calculated correctly but does not appear in the annual statement, the problem is deposit, filing or data reporting—not necessarily the rate.
What to do when tax was deducted but is not deposited or reported
- Compare the records. View or download the annual tax statement through TRACES. For an old-Act period, this is generally the Form 26AS record; for Tax Year 2026–27 onwards, follow the Department’s annual-statement instructions for the new framework. Match the deductor’s name and PAN, section, tax year, deduction date, amount and challan.
- Write to the deductor. Send a concise reconciliation listing invoice numbers, payment dates, gross amount, tax withheld, amount appearing in the statement and the exact correction requested. Ask for deposit proof and a corrected certificate and statement.
- Ask for a revised statement. The Department’s mismatch FAQ directs the taxpayer to the deductor and says the deductor needs to file a revised TDS return. The payee generally cannot repair an unreported buyer deduction by simply entering a different credit in the return.
- Use the portal mismatch service if available. The e-Filing tax-credit mismatch service compares credit claimed in the filed return with Form 26AS. It can document the discrepancy, but the underlying correction still normally has to come from the deductor’s revised statement.
- Escalate a material or contested case. Preserve proof that the request was delivered and seek advice from a chartered accountant or Indian tax adviser if the counterparty refuses to correct the record, the amount is substantial, or the section and material classification are disputed.
For section 194Q instructions, the Department says the deductor pays withheld tax through Challan ITNS 281 within seven days after the end of the deduction month; deductions made in March are due by 30 April of the next financial year. It describes quarterly Form 26Q filing and Form 16A issuance within 15 days from the statement due date. Confirm the form and deadline for a transaction governed by the Income-tax Act, 2025.
If a deductor withholds tax and fails to deposit it, the Department says that person can be treated as in default. Its 194Q guidance describes interest at 1.5% per month or part of a month from deduction until deposit, along with possible penalties or prosecution. Those consequences apply to the responsible deductor; they are not an automatic payment or refund route for the seller.
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Do not label a deduction “excess TDS” until the governing section and period are established. Common explanations include:
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- The buyer applied 0.1% to the full annual purchases instead of only the amount above ₹50 lakh.
- The buyer did not count earlier purchases correctly, or crossed the threshold in a different month.
- PAN was missing or reported incorrectly, triggering a higher-rate rule.
- The transaction was reported under 194Q even though the seller was not resident, the buyer did not meet the turnover condition, or the material was not statutory scrap.
- The amount is actually seller-side TCS under section 206C(1), not buyer-side TDS.
- The deduction is correct but the return contains a duplicate, wrong-PAN or wrong-challan entry.
Request a written reconciliation that identifies the section, rate, base, threshold calculation, PAN and tax period. The official materials do not establish one universal direct seller-side refund procedure for every apparent excess in a scrap transaction. Do not unilaterally net the difference against a later invoice or promise a refund without having the certificate, challan, annual statement and transaction documents reviewed.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How tax-credit mismatch affects your income-tax return
Form 26AS is an annual tax-credit statement containing TDS, TCS and other tax information. The Department’s mismatch service notes that credit is restricted to the amount reflected there. Therefore, an amount withheld from sale proceeds is not automatically available merely because the buyer reduced the payment.
Claim only the credit supported by the applicable annual statement and your records. If the statement is short or absent, retain the certificate and written demand, but ask the deductor to deposit and revise its statement before treating the missing amount as available credit. A revised statement may update the annual record in a later refresh.
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Use this written request to the buyer or deductor
A short, document-led message is more effective than alleging wrongdoing:
Subject: Request to reconcile and correct tax deduction – [invoice references]- Identify the parties, PANs, invoice numbers and transaction dates.
- State whether the amount was described as section 194Q TDS or section 206C(1) TCS.
- Show gross value, tax withheld or collected, net payment and your calculation.
- Attach the certificate and annual-statement extract, marking the missing or incorrect field.
- Request deposit proof, a revised TDS/TCS statement and an updated certificate by a specified date.
- Ask the counterparty to confirm if it believes a different section or rate applies and to provide the calculation.
Keep the original files and send readable copies. Do not alter an invoice or issue a unilateral debit note solely to manufacture a tax credit.
Decision table: identify the failure before choosing the remedy
| What you observe | Likely issue to investigate | First action |
|---|---|---|
| Tax withheld, certificate issued, no annual-statement credit | Deposit, return filing, PAN or challan reporting failure. | Ask the deductor to deposit or correct its statement; compare again in TRACES. |
| Annual statement shows a different amount | Wrong base, duplicate entry, incorrect deduction date or challan. | Send a line-by-line reconciliation and request a revised statement. |
| Rate is higher than 0.1% under an alleged 194Q deduction | Missing PAN, wrong section, threshold error or a different tax period. | Verify PAN, buyer turnover, ₹50 lakh excess and the governing Act before disputing. |
| Invoice says “scrap,” but material remains usable | Commercial description may not meet the statutory scrap definition. | Review technical and delivery evidence and obtain professional classification advice. |
| Amount was collected by the seller rather than withheld by the buyer | Possible section 206C(1) TCS, not 194Q TDS. | Check the collection section and certificate before applying a TDS remedy. |
When professional advice is warranted
Get a chartered accountant or Indian tax adviser involved when the material classification is contested, the buyer and seller disagree about who had the obligation, the amount is material, PAN was invalid or changed, several financial years are involved, or a notice has been issued. Provide the complete evidence file and ask for a written view that identifies the section, period, rate, base, reporting form and proposed correction. This is especially important across the 31 March 2026/1 April 2026 transition, where old-period corrections and new-period forms must not be mixed.
Quick Recap
Practical checklist
- Identify buyer versus seller and TDS versus TCS.
- Test whether the material meets the statutory scrap definition.
- Pin down credit, payment and deduction dates.
- For 194Q, verify resident seller, buyer turnover above ₹10 crore, annual purchases above ₹50 lakh, the excess-only base, timing and PAN.
- Compare the certificate, ledger, bank record, challan and TRACES annual statement.
- Ask the deductor in writing to deposit, report or revise the statement.
- Claim only the credit reflected for the applicable tax period unless professional advice supports another treatment.
- Keep old-Act and new-Act records and forms separate.
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