TDS Refund on Property, Salary & Bank Interest – 26QB Correction & TRACES Process Guide

TDS refund becomes necessary in many practical situations where tax has been deducted but is either not required, paid in excess, or remains unused. This is commonly seen in property transactions, where buyers deduct TDS for registration purposes but later face issues such as cancellation of the deal or incorrect valuation.

In our experience handling TDS refund cases in Bangalore, we frequently come across situations such as:

• Property transaction cancelled after TDS payment: Buyer has paid TDS through Form 26QB, but registration is not completed, and the amount needs to be refunded.
• Mismatch between guidance value and actual transaction value: TDS is deducted on higher guidance value, leading to excess TDS payment.
• TDS deducted where not applicable: Property value is below ₹50 lakhs, but TDS is deducted due to incorrect advice or misunderstanding of Section 194-IA.
• Unused or wrongly paid TDS: Tax paid for a transaction which was not executed or later adjusted, requiring refund of unutilised amount.

In all such cases, TDS refund is not automatic. The Income Tax Department requires a proper and transparent process to validate the claim. This includes verification of transaction details, reason for refund, and supporting documents such as property agreement, payment proof, and buyer-seller details.

In certain cases, the process also involves online approval or consent from the seller, along with review by the Assessing Officer (AO) to ensure there is no tax avoidance or undervaluation involved.

With over 20+ years of experience, our CA-assisted team has handled such complex TDS refund cases, ensuring proper correction through TRACES, coordination between buyer and seller, and compliance with Income Tax provisions to secure the refund in a legally structured manner.

This guide will help you understand when TDS refund applies, why it gets delayed, and the correct step-by-step process to claim your refund without complications.

When is TDS Refund Required? (TDS Refund Process Explained)

TDS refund is required when the tax deducted or paid is more than the actual tax liability or when the deduction itself was not applicable. In many real-life situations, this happens due to incorrect understanding of provisions, transaction changes, or reporting issues.

Based on practical cases handled by us, TDS refund is commonly required in the following situations:

• Property TDS deducted in excess (Section 194-IA): TDS paid on higher guidance value instead of actual transaction value, resulting in excess deduction.
• Property transaction cancelled: TDS already paid through Form 26QB, but the deal is not completed, requiring refund of the amount paid.
• TDS deducted where not applicable: Property value is below ₹50 lakhs, but TDS is deducted due to wrong advice or misunderstanding of provisions.
• NRI transactions (Section 195): Higher TDS deducted without considering actual capital gains or lower TDS certificate, leading to excess tax payment.
• Salary / Freelancer / Consultant TDS (Form 16 / 16A): In many cases, employees, teachers, freelancers, or consultants have TDS deducted by employer or company even when their total income is below taxable limit. They are advised to file Income Tax Return to claim refund of such TDS.
• Bank or interest TDS: TDS deducted on fixed deposits or other income where total income is below taxable limit.
• Salary TDS mismatch: Excess TDS deducted due to incorrect declaration or adjustment issues.
• Unused or wrongly paid TDS: Tax paid for transactions that were not completed or amounts that remain unutilised.

In all the above cases, refund is not automatic. The excess TDS must be properly identified, reported in the return, or corrected through the prescribed process to claim the refund.

Understanding the exact reason for excess TDS is the first and most important step to ensure that the refund is claimed correctly and without delay.

Why TDS Refund is Not Automatic in the TDS Refund Process

A common misconception among taxpayers is that once TDS is deducted, the excess amount will automatically be refunded after filing the Income Tax Return (ITR). However, in practice, TDS refund is not automatic, especially in cases involving property transactions or incorrect TDS payments.

The Income Tax system requires proper validation before issuing any refund. This includes matching of TDS details, verification of transaction, and confirmation that the refund claim is valid and supported by documents.

The refund may get delayed or blocked due to the following reasons:

• Mismatch in TDS records: If TDS is not correctly reflected in Form 26AS or TRACES, refund cannot be processed.
• Incorrect details in Form 26QB: Errors in PAN, amount, or property details require correction before refund can be claimed.
• Requirement of correction before refund: In property cases, refund is allowed only after correcting the TDS return through TRACES.
• Seller approval requirement: In certain corrections, the seller must approve the changes through their PAN login.
• Assessing Officer (AO) verification: The department may verify the transaction details, property agreement, and reason for refund before approval.
• Risk of undervaluation or incorrect claim: If the department suspects mismatch in property value or tax calculation, the refund may be held for further verification.

Unlike regular income tax refunds, TDS refund—especially in property and high-value transactions—involves multiple stages of correction, validation, and approval. Without proper handling, the refund process may take several months or remain unresolved.

Therefore, it is important to follow the correct procedure and ensure that all details are properly aligned before claiming the refund.

TDS Refund Process – Step-by-Step Guide (26QB & TRACES)

Claiming a TDS refund, especially in property or high-value transactions, involves a structured process through TRACES and the Income Tax Department. The following steps outline the practical flow followed in most cases:

1. Review TDS Details and Identify Issue: Analyse Form 26QB, challan details, and transaction records to confirm whether TDS is paid in excess, wrongly deducted, or not applicable.
2. Correct Form 26QB (if required): Any error in PAN, amount, or property value must be corrected through the TRACES portal before proceeding with refund.
3. Register and Login to TRACES: The buyer (deductor) must register on TRACES portal and update profile details including bank account and Digital Signature (DSC) where applicable.
4. Submit Correction Request: File a correction request for Form 26QB by selecting the appropriate reason such as excess TDS paid or incorrect deduction.
5. Authenticate Using DSC: The correction request is verified using the buyer’s Digital Signature Certificate (DSC).
6. Seller Approval (if applicable): In certain cases, the seller must log in to their Income Tax account and approve the correction request.
7. Approach Assessing Officer (AO): Submit supporting documents such as property agreement, payment proof, and explanation for refund to the jurisdictional AO for verification.
8. Apply for Refund through Form 26B: Once correction is approved, apply for refund of unconsumed TDS through TRACES using Form 26B.
9. Track Refund Status: Monitor the refund status through TRACES and Income Tax portal until the amount is credited to the bank account.

Each step requires proper documentation and follow-up. Any error or delay in correction or approval may result in the refund getting delayed or rejected.

Therefore, a systematic approach and proper coordination between buyer, seller, and the department is essential to complete the refund process smoothly.

Common Mistakes in TDS Refund Process

In many TDS refund cases, delays or rejections happen not because refund is not eligible, but due to errors in process, incorrect data, or lack of proper follow-up. Avoiding these common mistakes can significantly improve the chances of getting the refund smoothly.

Based on our experience, the following are the most frequent mistakes observed:

• Incorrect details in Form 26QB: Errors in PAN, property value, or challan details lead to complications in correction and refund processing.
• Deducting TDS where not applicable: Many cases arise where TDS is deducted even when property value is below ₹50 lakhs or due to misunderstanding of provisions.
• Not correcting TDS before applying for refund: Refund cannot be processed unless the TDS return (26QB) is corrected properly in TRACES.
• Delay in initiating correction: Late action may lead to prolonged delays and additional complications in approval.
• Failure to obtain seller approval: In cases where seller consent is required, lack of coordination delays the process.
• Incomplete documentation: Missing agreements, payment proof, or supporting documents can lead to rejection or delay by the Assessing Officer.
• No follow-up with Assessing Officer (AO): Many cases remain pending due to lack of proper communication and follow-up with the department.
• Incorrect assumption that refund is automatic: Many taxpayers rely only on ITR filing without completing the required correction and TRACES process.

Even a small mistake in the process can delay the refund for several months.

Therefore, careful handling of each step and proper documentation is essential to ensure that the refund is processed without unnecessary delay or rejection.

Case Study: Successful TDS Refund in Property Transaction

Real-life cases help in understanding how TDS refund works in practical situations. Below is one of the cases handled by our team involving excess TDS payment in a property transaction.

Background

Our client, Mr. Mahesh BR, purchased a residential property in Bangalore for ₹48 lakhs. Prior to registration, he was informed that the guidance value (RV value) of the property was ₹61,16,000. Based on this, he deducted and paid 1% TDS amounting to ₹61,160 under Section 194-IA.

However, on the date of registration (13th December 2024), it was confirmed that the actual guidance value was ₹47 lakhs, which is below the ₹50 lakh threshold. Hence, TDS deduction was not applicable, resulting in excess TDS payment.

The client approached us to assist in claiming the TDS refund.

Process Followed for TDS Refund

• Initial Assessment: We reviewed the transaction details, identified the excess TDS, and verified that there were no pending tax demands in the client’s profile.
• Document Collection: We collected necessary documents including Form 26QB, property agreement, challan/payment proof, DSC, and guidance value report from Kaveri portal.
• Correction on TRACES: Correction request for excess TDS was filed on 16th December 2024, and the seller was requested to approve the correction through their PAN login.
• Approach to Assessing Officer (AO): The client and seller visited the jurisdictional AO at HMT Bhavan, RT Nagar, Bangalore. We assisted in presenting the case and supporting documents for verification.
• Approval & Refund Processing: Upon verification, the AO approved the correction request, and the updated details were reflected in Form 26AS.
• Refund Credited: The TDS refund of ₹61,160 was successfully credited to the client’s bank account on 20th December 2024.

Key Takeaways

• Always verify the guidance value (RV) before deducting TDS in property transactions.
• TDS mistakes can be corrected through proper TRACES and AO approval process.
• Timely action helps in faster refund and avoids complications in future tax filings.

This case highlights that even if TDS is wrongly deducted, it can be successfully refunded with proper documentation, correction, and follow-up.

Need Assistance with TDS Refund?

TDS refund cases, especially involving property transactions or excess deductions, require proper correction, documentation, and follow-up with the Income Tax Department. Any delay or error in the process can result in prolonged refund timelines or rejection.

If you are facing issues such as excess TDS payment, incorrect deduction, mismatch in Form 26QB, or delay in refund processing, it is advisable to get the case reviewed and handled in a structured manner.

You can visit our Income Tax Refund Services in Bangalore page to understand how we assist in identifying issues, correcting records, and ensuring that your eligible refund is processed smoothly.

You may proceed by using the contact option available on this page to share your details, and our team will review your case and guide you on the next steps.

Frequently Asked Questions on TDS Refund

For complete assistance, you can visit our Income Tax Refund Services in Bangalore page.