Form 138 and Form 140: TDS Returns Can Now Be Filed Directly on TRACES. What Is Easier, and What Is Not

 By CA Surekha S Ahuja

The TDS statement for July to September 2026 is due on 31 October 2026. For Tax Year 2026-27, salary TDS is reported in Form No. 138 and non-salary TDS on payments to residents in Form No. 140.

But the bigger change is procedural.

From Q2 onwards, these statements can be prepared, validated and filed directly inside the deductor's TRACES login.

For the online route, there is no need to first prepare a separate return file, validate it through a separate utility and then upload it.

The new workflow is:

TRACES login → select form → import challans → enter/upload deductees → map challans → validate → e-verify → file

This is particularly useful for short returns and also provides better pre-filing controls for larger statements.

What has changed?

The Income-tax Act, 2025 came into effect from 1 April 2026, with new TDS/TCS statement numbers.

New form	Earlier form	Broad purpose
Form 138	24Q	TDS on salary and specified senior-citizen cases
Form 140	26Q	TDS on payments other than salary to residents
Form 143	27EQ	Tax collected at source
Form 144	27Q	TDS on specified payments to non-residents

The quarterly due dates remain:

Quarter	Period	Due date
Q1	April–June 2026	31 July 2026
Q2	July–September 2026	31 October 2026
Q3	October–December 2026	31 January 2027
Q4	January–March 2027	31 May 2027

Statements relating to FY 2025-26 and earlier years continue under the old forms through the old compliance framework. The new online facility should therefore be understood as part of the new Tax Year 2026-27 regime.

What is genuinely easier?

Stage	Earlier route	New online TRACES route
Preparation	Separate return utility	Direct online entry
Challans	Manual entry	Import available unconsumed challans/BINs
Deductees	Utility entry	Online entry or CSV bulk upload
Mapping	Checked through return processing	Difference visible before filing
Validation	Separate validation step	Validate Statement on portal
Verification	Separate filing cycle	Aadhaar OTP or DSC in the same workflow
Draft	Outside portal	Save and resume
Review	Mainly outside system	Admin/Sub-User workflow

Why short returns gain most

Consider a company with a few professional-fee, contractor, rent and commission payments.

Earlier, even a ten-record statement required preparation of a complete return file.

Now the deductor can:

import challans → enter the deductees → map → validate → e-verify.

For larger statements, the same workflow can be combined with bulk upload.

Challan import: a real practical improvement

Available unconsumed challans/BINs can be imported, avoiding repeated entry of BSR code, challan serial number, date and amount.

Where permitted, a challan can also be added manually.

But:

Imported does not mean reconciled.

The deductor must still verify that the challan relates to the correct period and liability.

For government deductors, BIN-related provisions apply separately.

Deductee entry and bulk upload

A small return can be entered record by record.

For multiple deductees, the prescribed CSV bulk-upload facility is more efficient.

The data includes, as applicable:

• PAN and name

• section code

• date of payment or credit

• amount paid or credited

• TDS deducted

• date of deduction

• relevant certificate and other form-specific particulars

The convenience is procedural; responsibility for correct data remains with the deductor.

Challan mapping is an important new control

After deductee entry, records are mapped against the relevant challans. The portal shows:

Challan amount → mapped amount → difference

This allows a mismatch to be identified before filing.

The practical reconciliation should be:

TDS in books = TDS deducted = TDS reported = TDS deposited = TDS mapped

If these do not agree, stop and reconcile.

What has NOT become easier?

The interface is easier. The substantive TDS responsibility is not.

The deductor remains responsible for the correct:

• section and rate

• threshold, wherever applicable

• PAN treatment

• date of payment or credit

• amount on which tax is deductible

• timing of deduction and deposit

• challan and deductee reporting

E-verification must be planned

Do not wait until the due date to discover that Aadhaar linkage or DSC registration is incomplete.

The authorised person should have the required Aadhaar-linked mobile or registered DSC arrangements ready in advance.

A filed statement cannot simply be edited

Once submitted, an incorrect statement cannot be reopened and changed.

A correction statement has to be filed through the prescribed process.

The validation screen is therefore the last practical opportunity to catch errors before filing.

Not every non-salary payment is automatically Form 140

Form allocation depends on the relevant provision, payment and deductee.

Particular care is required for non-resident payments, for which Form 144 may apply.

The utility route still exists

The new online route does not mean that the utility-based process has disappeared.

The new forms also have preparation and validation utilities. Large-volume deductors or entities whose payroll/accounting systems already produce structured files may continue to prefer that route.

The real improvement is a simpler online option, not the abolition of every other filing method.

Before you start

Keep ready:

• active TAN and TRACES login

• registered mobile/email access

• challan details or available unconsumed challans

• deductee-wise payment data

• PAN and section details

• payment/credit and deduction dates

• relevant certificate details

• bulk CSV, if required

• Aadhaar OTP or registered DSC for e-verification

Also check the deductor and Responsible Person details in the TRACES profile before starting.

How to file Form 138 or Form 140

The practical sequence is:

1. Log in
Enter TAN and complete portal authentication.

2. Open filing
Go to e-File & View → File TDS/TCS Forms & Statements and select Form 138 or Form 140.

3. Select the statement
Choose Tax Year 2026-27 → Q2 → Regular → Prepare & File Online.

4. Check pre-filled details
Verify deductor and Responsible Person particulars. Correct the TRACES profile first if required.

5. Import/add challans
Import available unconsumed challans/BINs or add a challan manually where permitted.

6. Enter/upload deductees
Enter individual records or upload the prescribed CSV.

7. Map challans
Map deductees against challans and resolve any difference.

8. Validate
Run Validate Statement, correct errors and review the summary.

9. E-verify and file
Use Aadhaar OTP or DSC, as applicable, and retain the acknowledgement/reference generated after submission.

A draft can be saved and resumed, which is useful where preparation and review are done separately.

Form 138 and Form 140 are not identical

The workflow is broadly common, but the data requirements differ.

Form 138 is principally the salary statement and has additional salary/pension reporting requirements in the relevant quarter, including additional Q4 annexures.

Form 140 covers non-salary payments to residents and therefore contains payment-specific deductee fields.

The forms should not be treated merely as renamed versions of 24Q and 26Q. The applicable section and transaction type still determine what must be reported.

Admin and Sub-User: useful for firms

The new workflow also provides an internal-control advantage.

A Sub-User can prepare and validate, while the Admin reviews, e-verifies and files.

The practical sequence becomes:

Staff prepares → staff validates → principal reviews → principal e-verifies

A draft can also be sent back for correction before final submission.

For CA firms, this provides delegation without giving up final filing control.

Six checks before the final click

1. Challan balance — reconcile the portal balance with books and actual deposits.

2. PAN — check invalid or inoperative PANs.

3. Section and rate — a technically successful upload can still contain an incorrect deduction.

4. Mapping — ensure every deductee is appropriately mapped.

5. E-verification — confirm Aadhaar/DSC readiness before the due date.

6. Final reconciliation —

Books = TDS working = challans = deductee statement = mapped TDS

This is the most important control in the process.

A separate October 2026 change: Property purchased from an NRI

Another important TDS change took effect from 1 October 2026, but it should not be confused with quarterly Form 138/140 filing.

Where a resident individual or HUF purchases immovable property from a non-resident, the buyer no longer needs to obtain a TAN merely for this TDS obligation.

The process has moved towards a PAN-based mechanism, reducing a significant procedural burden.

But:

Removal of TAN does not remove the tax obligation.

The buyer must still determine the applicable withholding provision and rate for payment to a non-resident. This is a procedural simplification, not a change in the substantive tax treatment of the NRI seller.

The transaction has its own prescribed reporting mechanism and should not be mixed with the quarterly Form 138/140 statement.

CA S.Ahuja Perspective

The real TDS change is not 24Q becoming 138 or 26Q becoming 140.

It is the ability to move from preparation to filing through one online TRACES workflow.

That means less duplication, less manual challan entry and an earlier opportunity to identify mismatches.

But the fundamental responsibility remains unchanged.

Before filing, the deductor should be able to answer four questions:

Was the correct tax deducted?
Was it deposited correctly?
Was it reported against the correct deductee?
Does the statement reconcile with the books?

If the answer to all four is yes, the new TRACES facility does what it is intended to do:

make compliance easier without making the underlying control weaker.

For Q2 2026-27, the immediate deadline is 31 October 2026.

MSME Payments: TReDS, Factoring or Bank Finance — What Is Legally Safe, What Does It Cost and Who Bears the Risk

 By CA Surekha S Ahuja

A buyer wants 60 days. A Micro or Small supplier needs money in 10. Financing can bridge that gap.

But financing does not automatically rewrite the buyer’s statutory payment obligation.

That is the starting point for evaluating TReDS, factoring, invoice discounting, bank finance and supply-chain finance.

The real issue is not the financing product

Under Section 15 of the MSMED Act, a buyer must pay within the period agreed in writing or, where there is no written agreement, within 15 days of acceptance. A written agreement cannot provide more than 45 days from acceptance or deemed acceptance.

The statutory clock is linked to acceptance of goods or rendering of services, not simply to the invoice date, internal approval or uploading an invoice on a financing platform.

For covered delayed payments, Section 16 provides compound interest with monthly rests at three times the RBI Bank Rate. Section 23 makes such MSMED interest non-deductible for income-tax purposes.

From 1 April 2026, the corresponding income-tax provision is Section 37(2)(g) of the Income-tax Act, 2025. Delay can therefore create:

interest cost + tax deduction deferral + financing cost.

Financing should be arranged before statutory default, not used to postpone it.

Figure 1: How the statutory payment date is fixed

Who is the supplier?

The MSMED payment regime applies where the supplier falls within the statutory coverage. Buyer controls should therefore verify Udyam status, category and applicability for the relevant supply.

From 1 April 2025:

•      Micro: investment up to ₹2.5 crore and turnover up to ₹10 crore

•      Small: investment up to ₹25 crore and turnover up to ₹100 crore

•      Medium: investment up to ₹125 crore and turnover up to ₹500 crore

Section 15 protects Micro and Small suppliers. Medium enterprises are outside it.

Financing changes the fund flow — not necessarily the legal obligation

The first question should not be “TReDS or factoring?”

It should be:

Who needs liquidity, who funds it, who bears the cost, who ultimately receives payment, and when is the buyer’s statutory obligation discharged?

TReDS

TReDS provides an electronic mechanism for financing MSME trade receivables. The MSME can obtain early payment from a financier, while the buyer settles the receivable with the financier on the agreed due date.

The supplier’s liquidity problem is therefore addressed without necessarily changing the buyer’s underlying payment obligation.

Figure 2: Who pays whom on TReDS

Factoring or assignment

Factoring can transfer the receivable to a financier. But assignment does not automatically extend the payment period.

Section 14 of the Factoring Regulation Act preserves the MSMED payment framework for receivables of Micro or Small enterprises. Assignment may change who receives the money; it does not automatically change when the amount is legally payable.

Bank, NBFC or fintech finance

The buyer may finance its working capital and pay the supplier on time. Alternatively, the supplier may discount the receivable.

The legal and tax result depends on the actual structure—not merely on whether the product is called vendor finance, invoice discounting, supply-chain finance or platform finance.

Two transactions that look similar but are not

Supplier seeks early cash: A ₹10 lakh invoice is discounted by a financier and the buyer pays the financier on the agreed due date. This is principally financing a receivable.

Buyer finances an overdue payment: The statutory due date passes and the buyer subsequently arranges finance to settle the amount.

That is fundamentally different.

Financing the overdue amount does not automatically cure the original default.

Figure 3: Financing a receivable compared with financing a delay

The cost of delay can exceed the financing cost

Illustratively, on ₹1 crore for 45 days:

Route	Illustrative cost
TReDS at 8.75%	₹1.08 lakh
Bank finance at 9.5%	₹1.17 lakh
Buyer borrowing at 10%	₹1.23 lakh
Fintech at 11.5%	₹1.42 lakh
NBFC at 15%	₹1.85 lakh
Statutory interest at illustrative 16.5%	₹2.03 lakh

 

These are illustrations, not prescribed or market rates. The financing costs are ordinarily deductible business expenses; the statutory interest is not.

The cheapest compliant financing may be far cheaper than financing a statutory default.

TDS: interest, discounting and finance charges are not the same thing

“Finance charge” is not itself a TDS category.

The correct analysis is:

What is the payment? Who receives it? Who bears it? What is its legal character? Which TDS provision applies?

Interest

Where the amount is genuinely interest, Section 194A of the Income-tax Act, 1961, or the corresponding Section 393 framework of the Income-tax Act, 2025, may apply, subject to the payer, payee, threshold and specific exclusions.

Interest paid to a banking company is subject to specific exclusions under the TDS framework. Interest paid to other specified financiers may attract TDS where Section 194A/Section 393 applies.

Receivable discounting

A discount on assignment or discounting of a receivable is not automatically the same as interest merely because the financier deducts it from the amount funded.

Its treatment depends on the substance of the transaction—whether there is an actual assignment/purchase of the receivable, the rights and recourse of the financier, the nature of the return and the contractual arrangement.

Therefore, do not deduct TDS mechanically on every amount described as “discounting charges”.

At the same time, the label “discount” cannot by itself establish that TDS is not applicable. The documentation and actual transaction must support the characterization.

Platform, processing and other finance-related charges

A separate platform, processing, documentation, administration, brokerage or other service charge requires independent classification.

It should not automatically be treated as interest. Equally, it does not automatically become Section 194C payment merely because it is called a “finance fee”.

The applicable TDS provision must follow the legal character of the payment, not its commercial label.

The Income-tax Act, 2025 consolidates the earlier TDS provisions into Section 393 tables, with the underlying TDS rates and thresholds broadly retained.

Figure 4: Classifying each charge before deciding TDS

Settlement statements must separate the components

A financing settlement should, wherever applicable, separately identify:

Invoice value → discount/interest → platform/processing charges → GST, if applicable → TDS, if applicable → supplier receipt → financier funding → buyer’s final settlement.

This prevents the common error of treating every deduction as interest—or every finance-related fee as subject to the same TDS provision.

GST requires the same discipline

Financing consideration may have a different GST treatment from platform, processing, documentation, administration or broking charges.

Do not assume that the entire settlement statement is exempt merely because the transaction relates to financing.

Classify each charge separately.

Who should bear the financing cost?

If the supplier chooses early payment for its own liquidity, the discounting cost may ordinarily be a supplier-side commercial cost.

If the buyer wants the supplier paid early, the commercial arrangement may justify the buyer bearing the cost.

If the buyer simply wants to extend payment beyond the statutory period, financing should not be used to shift the economic burden of that delay onto the supplier without careful legal and contractual review.

The question is:

What was agreed, who received the financing benefit, and what does the underlying law permit?

Which route makes sense?

Situation	Starting point
Supplier does not need early cash	Normal timely payment
Supplier needs early liquidity	TReDS / factoring / receivable discounting
Buyer wants supplier paid early	Reverse factoring / supply-chain finance
Buyer needs working capital	Bank finance + timely supplier payment
Buyer wants credit beyond statutory period	Legal review before structuring
Invoice is already overdue	Regularise default; financing is not a cure

 

Figure 5: Choosing the route for an MSME invoice

Five questions before signing

1.       Is early cash genuinely required?

2.       What is the statutory payment date?

3.       Who is the actual financier and is there recourse?

4.       What exactly is each charge—interest, discount, commission or service fee—and what TDS/GST treatment follows?

5.       Can the transaction be reconciled from invoice to final settlement?

If these answers are not clear, the structure is not ready.

Year-end control

From February onwards, buyers should maintain an invoice-level report showing:

supplier/Udyam status | acceptance date | statutory due date | amount | financing route | financier | funding date | settlement date | interest/default status

This is particularly important at year-end because payment status can affect statutory interest and tax deduction.

Retain Udyam evidence, purchase terms, delivery/acceptance records, financing or assignment agreement, recourse terms, financier identity, settlement statement, TDS/GST workings, payment evidence and final reconciliation.

CA S.Ahuja Perspective

TReDS, factoring, invoice discounting and supply-chain finance sit at the intersection of MSMED law, factoring law, contracts, treasury, income-tax, GST and accounting.

The wrong question is: “Which financing route has the lowest rate?”

The better question is:  “Which structure gives the supplier liquidity, gives the buyer commercially sensible funding, and keeps the statutory payment obligation clearly within the law?”

The real distinction is between financing a receivable and financing a delay.

Finance the liquidity problem. Do not finance the statutory default.

For the CFO or business owner:  Pay the right party, through the right structure, at the right time, at a total cost that can be defended.