Common Compliance Errors in GST, TDS and TCS Filings: Practical Guide for FY 2026-27
Compliance in FY 2026-27 is no longer just about filing a return on time. It is about filing the right data, matching it with books, validating it with system-generated statements, and keeping records ready for scrutiny. Even small errors in GST, TDS or TCS can trigger notices, interest, fee, blocked credit, reporting mismatches and avoidable audit stress.
This practical guide explains the most common compliance errors businesses make in GST, TDS and TCS filings, why they happen, what their impact can be, and how to fix them before they become expensive.
Why Compliance Errors Happen
Most filing errors do not happen because tax law is impossible. They happen because businesses file from incomplete data. Sales teams update credit notes late, purchase teams do not track vendor defaults, accounts teams skip monthly reconciliation, and returns get filed under deadline pressure without a final review.
If you want a broader update on ongoing GST system changes, you can also read our guide on GST 2026 updates, IMS and ITC checklist.
Top 15 Compliance Errors in GST, TDS and TCS Filings
1. GSTR-1 and GSTR-3B Mismatch
This remains one of the most common GST compliance failures. Outward supplies reported in GSTR-1 should broadly align with tax liability discharged in GSTR-3B. A mismatch often leads to notices, annual return inconsistencies and interest exposure.
Example: Sales as per books ₹10,00,000. GSTR-1 filed at ₹10,00,000, but GSTR-3B liability discharged on only ₹8,00,000. That ₹2,00,000 mismatch becomes a visible compliance risk.
Fix: Reconcile books, GSTR-1 and GSTR-3B every month. Where needed, use GSTR-1 correction controls and, before filing GSTR-3B, consider whether GSTR-1A can be used for same-period corrections.
2. Claiming ITC Without Proper GSTR-2B and Supplier-Level Validation
Businesses still claim input tax credit purely on purchase register or invoice receipt basis. That is risky. Section 16 now requires supplier-furnished details to be communicated to the recipient, and GSTR-2B has become the primary monthly control document.
This does not mean every temporary mismatch automatically kills credit forever, but availing ITC without supplier reporting is a major notice trigger.
Fix: Follow a strict GSTR-2B-based ITC policy, maintain a vendor follow-up system and document reasons for deferred credit.
3. Missing ITC Reversal Under the 180-Day Payment Rule
If the recipient does not pay the supplier the value of supply plus tax within 180 days from invoice date, proportionate ITC must be reversed with interest, subject to legal exceptions such as reverse charge cases.
Example: ITC of ₹50,000 is availed, but the supplier remains unpaid beyond 180 days. The proportionate credit must be reversed and can be reclaimed later on payment.
Fix: Run monthly vendor ageing reports and create alerts for invoices nearing 150 to 180 days.
4. Incorrect Rule 42 and Rule 43 Reversal
Businesses dealing in both taxable and exempt supplies often claim full common ITC without monthly or annual reversal under Rule 42 and Rule 43. This becomes a bigger problem at year-end reconciliation or departmental review.
Fix: Segregate exclusive taxable, exclusive exempt and common credits. Recalculate annually and pass adjustment entries before final return closures.
5. Claiming Blocked Credits Under Section 17(5)
A frequent mistake is availing ITC on motor vehicles, food and beverages, club expenses, employee benefits or other restricted items without checking section 17(5).
Fix: Maintain a blocked ITC matrix in the accounting process and map expense heads accordingly.
6. Missing Reverse Charge Entries
Reverse charge continues to be a high-risk area, especially for legal fees, GTA, director remuneration, import of services and notified rent or real-estate transactions. Many businesses still miss RCM entirely or pay it late.
Fix: Maintain a dedicated monthly RCM review. For a full breakdown, see our guide on RCM and ITC updates under GST.
7. Wrong HSN, Tax Rate or Place of Supply
Classification errors often cause short payment of GST, wrong invoice reporting and B2B recipient mismatches. Sometimes the issue is not just rate, but whether a supply is intra-state or inter-state.
Example: A service taxed at 12% instead of 18% may appear minor during billing, but it creates short payment, interest and correction burden later.
Fix: Maintain an HSN/SAC master, classification notes and periodic review for new products or service lines.
8. Delay in Reporting Credit Notes and Amendments
Businesses often issue commercial credit notes in books but fail to reflect GST credit notes timely in returns. This results in excess tax payment, turnover mismatch and customer reconciliation issues.
Fix: Keep a monthly credit-note register and reconcile it with sales ledger, e-invoicing records and GSTR-1.
9. Filing GSTR-3B Without Reviewing System-Generated Values
The GST portal now auto-drafts parts of GSTR-3B from GSTR-1, GSTR-1A and GSTR-2B. Many taxpayers either blindly accept these values or ignore them completely. Both approaches are dangerous.
Fix: Treat system-generated GSTR-3B as a review tool, not as a substitute for reconciliation. Always compare it with books before filing.
10. Wrong TDS Section Selection
One of the biggest TDS mistakes is deducting under the wrong section, such as applying section 194C instead of 194J, or overlooking section 194Q where applicable. Wrong section selection can mean wrong rate, wrong threshold and wrong reporting.
Fix: Use a payment-nature master and section-wise review checklist. Our TDS rate chart for FY 2026-27 can be linked here for quick reference.
11. Late Deposit of TDS
TDS is often deducted correctly but deposited late. That still creates interest exposure under the Income-tax Act and may trigger downstream return issues.
In general, for non-government deductors, TDS deducted in a month is usually required to be deposited by the 7th of the following month, except March where a different deadline applies.
Fix: Create an internal cut-off two or three days before the statutory date and reconcile deduction entries with challan payments monthly.
12. PAN Errors, Challan Mapping Errors and TRACES Mismatch in TDS Returns
Even where deduction and deposit are correct, the return can still be defective because of wrong PAN, unmatched challan serial number, wrong minor head or incorrect deductee mapping.
Fix: Validate PAN before payment processing, reconcile challans with OLTAS/TRACES and review the FVU or filing utility output before upload.
13. Late Filing of TDS or TCS Statements
Quarterly TDS/TCS statements are often treated as secondary work after month-end closes. That is expensive. Delay attracts fee under section 234E at ₹200 per day, subject to the amount of tax deductible or collectible.
Fix: Maintain a quarterly compliance calendar, lock data early and avoid waiting for last-day corrections.
14. Missing TDS Certificates or Issuing Them With Errors
Delay in issuing Form 16, Form 16A or relevant TCS certificates damages vendor or employee trust and can also lead to penalty exposure under the Act, apart from correction workload later.
Fix: Auto-schedule certificate generation after statement processing and verify deductee data before release.
15. Applying the Wrong TCS Rule in FY 2026-27
This is the most overlooked TCS mistake now. Many businesses still track section 206C(1H) for sale of goods even though it no longer applies from 1 April 2025. At the same time, they may miss active TCS categories such as scrap and specified goods under section 206C(1), luxury goods under section 206C(1F), or LRS and overseas tour collections under section 206C(1G).
Fix: Update the TCS compliance matrix for FY 2026-27. Remove 206C(1H) from live controls and focus on currently operative sections only.
Practical Case Study
A mid-sized business closed one quarter without proper reconciliation and later discovered:
- GST outward liability mismatch of ₹2,00,000
- ITC mismatch of ₹3,00,000 against GSTR-2B controls
- TDS deposit delay on ₹1,00,000 of deduction entries
- Unreported credit notes in sales returns
| Error Area | Issue | Likely Exposure |
|---|---|---|
| GST | GSTR-1 vs GSTR-3B mismatch | Notice, interest, annual return mismatch |
| GST | ITC claimed without proper supplier reflection | Reversal demand, scrutiny, vendor follow-up burden |
| TDS | Late deposit | Interest and return complications |
| Compliance Process | No final review | Compounded errors across returns |
The core problem was not lack of filing. The returns were filed. The problem was that they were filed without reconciliation.
Practical Compliance Checklist Before Filing Any Return
- Reconcile sales register with GSTR-1, GSTR-1A and GSTR-3B.
- Review ITC with GSTR-2B and supplier exceptions list.
- Check Rule 37, Rule 42, Rule 43 and blocked credit positions.
- Review RCM ledger separately.
- Match TDS deductions with payment challans and booking dates.
- Confirm correct TDS section and rate before quarterly statement filing.
- Reconcile PAN, challan, CIN/BSR and deductee mapping in return utility.
- Use an updated TCS matrix and remove obsolete section 206C(1H) tracking.
- Run a maker-checker review before final submission.
Related DN & CO. Articles
- Top 5 GSTR-1 Filing Mistakes in FY 2026-27
- GSTR-3B Changes 2026: Zero Mismatch, IMS, ITC Block and Interest Rules
- RCM and ITC Key Updates Under GST
- Rule 86A and Blocked ITC: Legal Remedy Guide
- TDS Compliance Mistakes That Lead to Notices
- TDS Rate Chart FY 2026-27
- GST Complete Guide for Businesses in India
Official References
- GST Portal: GSTR-1 and GSTR-1A FAQ
- GST Portal: GSTR-3B FAQ and system-generated GSTR-3B guidance
- CBIC Circular No. 170/02/2022-GST on reporting of ITC reversals and reclaim
- CBIC Sectoral FAQs including 180-day ITC payment rule
- CGST Rules and GSTR-2B advisory references
- Income Tax Department: TDS deposit due dates
- Income-tax Act: Section 234E fee for late TDS/TCS statements
- Income Tax Department: Penalties and Prosecutions
- Income Tax Department: TCS overview including withdrawal of section 206C(1H)
- Income Tax Department: Current TCS rates and notified goods
- Income Tax Department: Threshold limits and TCS/TDS reference table
FAQs on GST, TDS and TCS Compliance Errors
1. What is the biggest GST compliance mistake?
One of the biggest GST mistakes is mismatch between GSTR-1, GSTR-3B and books. That mismatch often triggers notices and year-end reconciliation issues.
2. Can ITC be claimed if it is not properly reflected through supplier reporting?
ITC should not be claimed casually without checking supplier-furnished details and GSTR-2B controls. This is one of the highest-risk areas in current GST compliance.
3. What is the 180-day rule under GST?
If the recipient does not pay the supplier the value of supply plus tax within 180 days from invoice date, proportionate ITC must generally be reversed with interest, subject to specific legal exceptions.
4. What is the fee for late filing of TDS or TCS statements?
Fee under section 234E is ₹200 per day for delay, subject to the amount of tax deductible or collectible.
5. Is section 206C(1H) still applicable in FY 2026-27?
No. TCS on sale of goods under section 206C(1H) is not applicable from 1 April 2025.
6. What is the most common TDS return error?
PAN mismatch, incorrect challan tagging and wrong deductee mapping are among the most common TDS return filing errors.
7. Why do businesses still get notices even after filing returns on time?
Because timely filing is not enough. Notices often arise from mismatches, wrong classification, missing reversals, supplier non-compliance or reporting inconsistencies across systems.
8. How can a business reduce compliance errors quickly?
The fastest improvement comes from monthly reconciliation, maker-checker review, updated tax masters and a documented compliance calendar.
Final Takeaway
In FY 2026-27, compliance risk comes less from non-filing and more from wrong filing. GST, TDS and TCS returns are now heavily data-linked. If books, portal data, challans and vendor records do not match, the system will usually spot it before you do.
The smartest compliance strategy is simple: reconcile monthly, validate before filing, and never treat return filing as a pure formality. Businesses that build this discipline early save tax, time and reputation later.