TRACES Portal Yet to Enable FY 2026-27 Challan Corrections Under Income Tax Act, 2025; Deductors Must Use Old TRACES System

The transition from the Income-tax Act, 1961 to the new Income Tax Act, 2025 has created a practical compliance issue for tax deductors who have deposited TDS challans under the wrong financial year. As the first year of implementation of the new law begins, taxpayers and deductors are discovering that the newly launched TRACES ecosystem for Income Tax Act, 2025 does not yet support online challan correction functionality.

As a result, deductors who have deposited a TDS challan in FY 2025-26 under the old framework, but subsequently realize that the payment actually pertains to FY 2026-27 governed by the Income Tax Act, 2025, are currently required to use the legacy TRACES portal operating under the Income-tax Act, 1961 for making the correction.

Why the Issue Has Arisen

The Income Tax Act, 2025 came into force from 1 April 2026 and introduced the concept of a “Tax Year” replacing the traditional Assessment Year framework. Income earned from 1 April 2026 onwards falls under Tax Year 2026-27 and is governed by the new Act, while income up to 31 March 2026 continues to be governed by the Income-tax Act, 1961.

In many cases, deductors inadvertently selected FY 2025-26 while depositing TDS challans even though the transaction related to FY 2026-27. Such errors can lead to challenges in matching TDS payments, filing TDS statements, and claiming credit.

New TRACES Portal Does Not Yet Permit Challan Correction

According to current functionality available to deductors, the correction mechanism for TDS challans continues to operate through the older TRACES infrastructure. The OLTAS Challan Correction facility remains available under the legacy system, allowing correction of specified fields including the Financial Year.

Tax professionals have reported that the new TRACES environment aligned with the Income Tax Act, 2025 presently does not provide an option to change the financial year of an already deposited TDS challan.

How to Correct the Financial Year

Deductors seeking to move a challan from FY 2025-26 to FY 2026-27 may use the OLTAS Challan Correction facility available on the old TRACES portal.

The process broadly involves:

Login to the legacy TRACES portal.
Navigate to Statements / Payments.
Select Request for OLTAS Challan Correction.
Enter the Challan Identification Number (CIN) details.
Choose Financial Year Correction.
Change the Financial Year from 2025-26 to 2026-27.
Verify the details and submit the request.

After submission, the deductor can track the status of the correction request through the “Track OLTAS Challan Correction Request” option available on TRACES. Possible statuses include Submitted, Processed, Rejected, or Failed.

Transition Period Requires Extra Caution

The Income Tax Department has clarified that the governing law for TDS purposes depends upon whether the earlier event of credit or payment occurred before or after 1 April 2026. Transactions falling on or after that date are governed by the Income Tax Act, 2025.

Given the ongoing transition between the two statutory regimes, deductors are advised to carefully verify the applicable financial year and governing law before depositing TDS. Any error should be corrected at the earliest to avoid mismatches during TDS statement filing and credit processing.

Key Takeaway

Until the new TRACES portal introduces a dedicated challan correction module for the Income Tax Act, 2025 regime, deductors needing to shift a TDS challan from FY 2025-26 to FY 2026-27 must continue using the legacy TRACES portal’s OLTAS Challan Correction facility for rectification.