How to File Nil TDS Return ?

Tax Deducted at Source (TDS) is an essential compliance requirement for entities deducting tax while making payments as rent, commission, professional fees, salary, interest etc. If a taxpayer has not deducted or paid any TDS during a particular quarter, they are still required to file a Nil TDS return to stay compliant and avoid notices from the Income Tax Department. As a taxpayer, if you don’t file the return on time, you will receive a letter or notice from NSDL (National Securities Depository Limited) or the tax authorities for non-filing. So, you need to file a Nil TDS return to keep your tax records clear and prevent future issues. In this guide, you will learn how to file nil TDS return for business purposes.

What is a Nil TDS Return?

A Nil TDS Return is a tax return that includes only zero or NIL deductions in its deduction details, meaning no tax was deducted at the source. The return contains no challan details except for a NIL Challan, which simply indicates that no tax payment was made.  If the tax deducted (TDS/TCS) is Zero, the total payment or amount credited must be greater than zero. The tax authorities do not accept returns where the total payment is also zero.

This means that if you have made payments to employees, vendors, or contractors but did not deduct any TDS, you must file a Nil TDS return to stay compliant. If no payments were made at all, you don’t need to file a return.

Why Should You File a Nil TDS Return?

Filing a Nil TDS Return is not legally mandatory when no tax has been deducted at source during a quarter. Filing a new TDS is mandatory to maintain compliance and avoid potential issues with the Income Tax Department. Here are the key reasons why it is important:

• Avoidance of Notices and Scrutiny

Filing a Nil TDS Return informs the tax authorities that no TDS was deducted. It helps to prevent unnecessary queries or notices. If you don’t file a Nil TDS return, the tax department may send you a notice. They might ask for explanations. This can lead to unnecessary scrutiny of your financial records. It can also waste your time and effort. 

• Prevention of Penalties

If TDS is applicable but not reported, late fees and penalties may apply. Filing a Nil return ensures you stay on the safe side.

• Maintenance of Clean Compliance Records

Regularly filing Nil TDS returns helps maintain a clear and compliant record with the tax authorities. This is especially helpful during audits or financial checks. Businesses can able to follow tax rules properly. It helps to prevent issues or complications with tax authorities.

• Helps in Future Business Transactions

 A clean tax compliance record is important for businesses, especially when applying for loans or contracts.

• Simplification of Future Filings

Filing regularly, even Nil returns, keeps your records updated. It makes future tax filing easier and helps avoid mistakes or missing details.

• Mandatory in Some Cases

In certain situations, the government requires companies to file Nil TDS Returns, even if no tax was deducted.

By filing a Nil TDS Return, businesses stay compliant, avoid legal troubles, and maintain financial transparency.

When Should You File a Nil TDS Return?

A Nil TDS return is required only when a payment is subject to TDS, but no tax is deducted. This happens when the deductee provides a certificate stating that the tax rate is Nil. Filing this return helps them to claim a tax credit. However, if there are no such payments under a specific form, the deductor does not need to file an e-TDS return unless notified by the IT Department or NSDL. Quarterly TDS returns are only required if tax has been deducted. Filing a Nil TDS return is not mandatory, but it grants compliance and avoids future issues. Let’s learn how to file nil TDS return and prepare a challan against it.

How to Prepare Nil TDS challan?

Here are the steps to prepare a Nil TDS challan:

Step 1: Choose a TDS Payment Software

To generate a Nil TDS Challan, you need to use TDS filing software. You must log in to your preferred software and either add a new deductor or continue working on an existing deductor profile.

Step 2: Enter the challan Details

You must go to the Challans section in the software and set the last date of the quarter as the challan date. Next, you must select the Nil Challan option to indicate that no tax has been deducted. Do not enter any TDS amount, challan number, or BSR code, as there are no payments involved.

Step 3: Prepare the Nil TDS Return

To prepare the Nil TDS Return, You must navigate to the TDS Returns section and create a new return or update an existing one. Select the Challans option, then click on Select Challan under "More Options" next to "Save Challans." Choose the Nil Challan and submit the return for processing.

Moreover, The Income Tax Department no longer accepts Nil Challans without any tax deductions specified. This means you must include some tax deductions linked to the challan, even if no TDS was actually deducted.

How to File Nil TDS Return?

Here are the step-by-step process in Nil TDS Return Filing:

Step 1: Log in to the TRACES Website

You must visit and access to the TRACES (TDS Reconciliation Analysis and Correction Enabling System) portal. Log in using your user ID, Password, and TAN (Tax Deduction and Collection Account Number)

Step 2: Navigate to the Relevant Selection

You need to go to the “Statements/Payments” tab after logging in and Go to the "Declaration for Non-Filing of TDS statement" page.

Step 3: Provide the Necessary details

You must enter the required details such as the Financial Year, Quarter, Form Type, and the reason for non-filing of the return. You must also choose the reason for not filing the return from the given options.

Step 4: Add Statement Details

You must click on the "Add Statement Details" option to add the statement details. It helps to confirm that no TDS return is being filed for the selected period.

Step 5: Follow the Department’s Instructions

You are required to carefully review the instructions that are provided by the tax department. Then, Tick the Declaration Box to confirm the correctness of the provided information.

Step 6: Submit and Review

You must clearly verify all entered details for accuracy and pay the required fee. Next, proceed by selecting the appropriate options to submit the declaration.

Step 7: Confirmation and Acknowledgement

Once it gets submitted, you will receive a confirmation message on the portal. A confirmation email will also be sent to your registered email ID as proof of submission.

Documents Required to File a Nil TDS Return

Here are the documents required to file a Nil TDS Return:

• TAN (Tax Deduction and Collection Account Number
• PAN (Permanent Account Number) of the deductor
• A Copy of Aadhaar Card
• Name and Address of the deductor
• Quarter and Financial Year Information
• Form Type (Based on Payment Category)
• TRACES Portal Credentials including User ID and Password, Registered Email, and Mobile Number for OTP verification (if required).
• Challan and Payment Details (If Applicable)
• TDS Filing Software Details (If Using a Software)
• Declaration of Nil Deduction
• Responsible Person Details: Name, designation, and contact information of the person responsible for TDS compliance.?
• Other Relevant details

Common Mistakes to Avoid

Here are the common mistakes to avoid while Nil TDS return filing:

1. Not Filing the Return

Many people think if no TDS is deducted, there is no need to file a return. This can lead to penalties and tax department notices. You must file a Nil TDS Return to stay compliant.

2. Using the Wrong Form

If you file the incorrect form, it can lead to rejection. So, you must use the correct form.

3. Missing the Deadline

Late filing can result in penalties and it may impact your finances. You must file it on time which is usually due every quarter.

4. Entering Incorrect Details

Mistakes in PAN, financial year, or business details can cause problems like rejection. You must double-check all details before submission.

5. Not Keeping Records

If you are not maintaining proper records, it can create issues during audits. You must keep a record of all transactions and the reason for filing a Nil Return.

6. Ignoring the Acknowledgement Receipt

Many taxpayers forget to save the receipt after submission. It can create a lack of proof that may lead to compliance issues. To avoid these mistakes, you must always download and store the receipt safely.

7. Forgetting Past Returns

Some taxpayers don’t check previous years’ returns which can lead to mistakes from past returns and can cause discrepancies. You must review your previous returns for accuracy.

8. Not Reconciling TDS Data

Many fail to match TDS details with their filed returns which can lead to disputes with the tax department. You must regularly check form 26AS for correct reporting.

9. Not Updating Personal or Business Information

If you change your address or business structure, update it with the tax department to avoid communication issues and smooth tax processing.

10. Providing Wrong Bank Details

If your bank details are incorrect, any tax refunds may be delayed or not processed. You should always double-check and update your banking information to avoid issues.

Conclusion

Throughout the article, you learned how to file nil TDS return. It is a simple but essential step in Nil TDS return filing for businesses. It contains a Tax Deduction and Collection Account Number (TAN) but hasn’t deducted TDS in a particular quarter. By following the right process, businesses can ensure smooth TDS return filing, avoid penalties, and so on. It also helps to maintain a clean financial record without unnecessary complications. If you want to get support for nill TDS return filing, contact Online Legal India. They have experts to guide you.