Resident Payments explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
For resident payments, section 40(a)(ia) disallows 30% of the sum where tax deductible under Chapter XVII-B was not deducted, or was deducted and not paid by the section 139(1) due date — restored in full in the year the tax is paid.
From the ICAI Guidance Note on Tax Audit (Revised 2026), the concluding edition under the Income-tax Act, 1961. For tax years under the Income-tax Act, 2025 the particulars move to Form No. 26 under rule 47 of the Income-tax Rules, 2026, where the TDS statements themselves are renumbered — Forms 138, 140, 143 and 144 under rule 219.
The rule
Paragraphs 34.1(ii) and 34.2: 30% of any sum is disallowed where the sum is payable to a resident, tax is deductible at source under Chapter XVII-B, and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in section 139(1).
The first proviso restores it: where tax on any such sum has been deducted in a subsequent year, or deducted during the previous year but paid after the section 139(1) due date, thirty per cent of such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
Both the disallowance and its reversal are fixed at 30%, so section 40(a)(ia) shifts the deduction between years rather than destroying it. That distinguishes it sharply from the employees' contribution position under section 36(1)(va), where a late deposit is lost for good. It also means the auditor has to carry a schedule of prior-year 30% disallowances on resident payments forward, to pick up the reversal in the year the tax is finally paid.
The Form 26A route
The second proviso read with section 201: where an assessee fails to deduct the whole or any part of the tax but is not deemed to be an assessee in default under the first proviso to section 201(1), it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of the return of income by the payee.
Paragraph 34.2 explains the mechanics: a certificate is to be obtained in Form 26A by the person who has not deducted tax, establishing that the deductee is not responsible for deduction of tax and hence the lack of deduction does not attract section 201. The tax auditor is advised to check the certificate in Form 26A and how it has been reflected in the statement of TDS filed in Form 24Q / Form 26Q / Form 27Q.
Paragraph 34.8 restates the duty: where the auditee claims the second proviso deduction, so that the sum is not inadmissible, the tax auditor should verify compliance with the requirements of section 201 and obtain and keep in his record a copy of the certificate in Form 26A.
What the auditor examines
Paragraph 34.7: for this purpose, the tax auditor will be required to examine whether the provisions relating to tax deduction at source have been complied with in respect of the payments specified under the clause. For that he may examine the books of account and the tax deduction returns or statements pertaining to these payments.
Paragraphs 34.9 and 34.10 fix the reporting granularity. Under clause 21(b)(ii)(A), resident payments on which tax was required to be deducted but not deducted must be reported for each individual payee; under clause 21(b)(ii)(B), payments on which tax was deducted but not deposited within the prescribed time must likewise be reported for each individual payee.
The two working paper tables
Paragraph 34.11 gives the formats:
| Table | Columns |
|---|---|
| (a) Tax not deducted | Sr. No. · Date of payment · Amount of payment · Nature of payment · Name and address of the payee · PAN of the payee, if available |
| (b) Tax deducted but not paid on or before the section 139(1) due date | The same six fields · Amount of tax deducted · Amount out of that deposited, if any |
Note the extra final column that table (b) carries for resident payments and the non-resident table does not: the amount out of the tax deducted that was deposited. A partial deposit therefore has to be shown as such rather than treated as full compliance or full default.
The clause 34 reconciliation
Paragraph 34.11 opens with a cross-check the auditor should run before signing: the particulars given under clause 21(b) should not differ from the particulars given under clause 34 of Form No. 3CD, to the extent applicable.
Clause 34 reports deduction and collection of tax under Chapters XVII-B and XVII-BB, the furnishing of the TDS and TCS statements, and interest under sections 201(1A) and 206C(7). A payment shown at clause 21(b) as one on which tax was not deducted must be consistent with the clause 34(a) statement of amounts on which tax was deductible and was not deducted. Two inconsistent answers in the same report is exactly the kind of internal contradiction a reviewer can see without any access to the file.
Worked example
| Payment to a resident | TDS position | Clause 21(b)(ii) reporting |
|---|---|---|
| Rs 30,00,000 contract payment | No TDS; no Form 26A | Table (A); Rs 9,00,000 inadmissible |
| Rs 30,00,000 contract payment | No TDS, but payee filed his return and Form 26A obtained and reflected in the TDS statement | Not inadmissible; retain the certificate |
| Rs 12,00,000 professional fees | TDS Rs 1,20,000 deducted; Rs 40,000 deposited before the section 139(1) due date, Rs 80,000 later | Table (B): tax deducted Rs 1,20,000, amount deposited Rs 40,000; 30% disallowance on the proportionate sum |
| Last year's disallowed rent | TDS paid in the current year | 30% allowed this year under the first proviso — pick it up from the carry-forward schedule |
Audit checklist
- Test TDS compliance on every head of expenditure, from the books and the TDS statements.
- Report payee-wise in both tables, with the amount deposited column completed in table (B).
- Apply 30%, not the whole sum, to resident payments — and confirm the payee is in fact resident.
- Obtain Form 26A where the second proviso relief is claimed, and trace it into Form 24Q / 26Q / 27Q.
- Maintain a carry-forward schedule of prior-year 30% disallowances to claim the reversal.
- Reconcile clause 21(b) with clause 34 before signing.
- Apply materiality, test checks and compliance tests where the data is voluminous, per paragraph 34.17.
Common mistakes
- Disallowing 100% of resident payments.
- Missing the reversal of a prior-year disallowance in the year the tax is paid.
- Treating a partial deposit as full compliance.
- Accepting a Form 26A that is not reflected in the TDS statement.
- Leaving clause 21(b) and clause 34 inconsistent.