Form 140 (Old 26Q) for Q2 2026-27: Reconcile Your Challans Before the 31 October Deadline

The TDS return for the July to September 2026 quarter is due on 31 October 2026, and for most deductors it is the first return where every deduction, every challan and every form number belongs to the Income Tax Act, 2025. The obligations have not changed much in substance — rates and thresholds were carried across largely as they were — but nearly every identifier a return-preparation workflow relies on has. Form numbers, section references, the challan format and the code that ties a challan to a deduction are all new.

That combination is what makes Q2 risky. A return can be substantively right and still be rejected because a template, a software master or a junior's muscle memory is still working in the old vocabulary.

Which form replaces which

Key dates for the quarter

31 October is also a crowded date for practices with audit clients, since it is the income tax return due date for audited cases. Firms that leave TDS returns to the last week of October usually end up preparing them alongside ITRs, which is exactly when transcription errors creep in.

The pre-filing reconciliation, step by step

A TDS statement is essentially a claim that specific challans paid for specific deductions against specific PANs. Each of those three links can break. The checks below work through them in the order that catches the most errors earliest.

1. Build the quarter's challan register. List every challan paid for July, August and September deductions with its BSR code, deposit date, challan serial number, the payment codes on its section-wise table and the amount against each code. A single ITNS 281N challan can carry many codes, so it becomes several rows, not one.
2. Separate tax from interest and fee. Interest and late fee sit in the challan's tax breakup, not against a payment code. Give them their own lines or the section-wise totals will never tie back to the challan total.
3. Tie challans to the deduction ledger, code by code. For each payment code, the tax deducted in the books for the quarter should equal what the challans paid against that code. Differences are almost always a wrong code on the challan, a deduction booked in the wrong month or a payment that has not been made.
4. Check that the code matches the payee. Several old sections split into two codes by payee type — contract payments to an individual or HUF use a different code from payments to a company or firm. A code that is right for the section but wrong for the payee is a common Q2 error.
5. Validate PANs before you validate the file. Missing, invalid or inoperative PANs attract the higher deduction rate. Find them now, while the deductee can still be contacted, rather than through a short-deduction default later.
6. Apply lower-deduction certificates correctly. Confirm the certificate number, the rate, the validity period and how much of its limit has already been used. Deductions above the limit revert to the normal rate.
7. Compute interest for any late deposit. Any deduction deposited after the 7th of the following month carries interest per month or part of a month. Pay it before filing so the statement does not generate a demand.
8. Only then generate the statement. Use the new form numbers throughout, and make sure your software's masters list the new forms and codes, not the old ones.

Filing directly on TRACES

Practitioners report that from Q2 of 2026-27, Form 138 and Form 140 statements can be prepared, validated and filed inside the deductor's TRACES login, in addition to the established utility-based route. That removes a file-generation step, but it does not remove the reconciliation. The portal checks the format and the challan balances. It cannot tell you that a professional fee was booked under a contract-payment code, or that a deduction was never made. Confirm the current filing options on TRACES before you rely on them.

Penalties for missing 31 October

A late-filing fee of ₹200 per day applies from the day after the due date until the statement is filed, capped at the TDS amount for the quarter. This was the old Section 234E fee, now carried into the new Act. Separately, a penalty of ₹10,000 to ₹1,00,000 can be levied where a statement is not filed long after the due date. The fee is automatic; the penalty is discretionary. Neither is worth the risk for a quarter whose data already exists.