Claim your TDS credit even if it is not reflected in 26AS/AIS/TIS

Section 205 of the Income Tax Act prohibits the Income Tax Officer from collecting tax on income from which TDS has already been deducted. Therefore, if a taxpayer has documentary evidence that TDS has already been deducted on a particular income, even if such TDS credit is not reflected in 26AS, the taxpayer can claim TDS credit manually while filing ITR .

For example, a salaried individual received salary after deduction of TDS. TDS deducted by the employer from the salary of the employee is not paid to the government. Consequently, TDS return was not filed by an employer. Now, when the employee files his income tax return, the TDS deducted by the employer will not reflect in the 26AS/AIS/TIS of the employee. In such a situation, the employees will have two options:-

1) Pay income tax again:- If the employee does not claim TDS credit while filing ITR, then he will have to pay income tax again on salary income. The employee will suffer double whammy of tax; First at the time of deducting TDS and second at the time of filing ITR.

2) Claim TDS credit even though not reflected in 26AS:- Now, assume that while filing ITR, the employee manually claims TDS credit even though it is not reflected in 26AS, AIS or TIS. In such a scenario, the employee may receive a notice from the CPC for “mismatch in TDS credit”. The matter will go to litigation before the tax authorities. During litigation, the taxpayer has to produce conclusive evidence of TDS. Deductions are made from the income sought to be taxed. For example – pay slip and claim remedy under section 205 of the Income Tax Act.

There are various judgments issued by the Income Tax authorities wherein the tax authorities were directed to collect income tax from the deductor of TDS instead of collecting tax from an employee or payee of income (who has earned income after deduction of TDS). The CBDT has also issued OM F.No.275/29/2014-IT(B), dated 11-3-2016, directing the Income Tax authorities that when TDS is deducted on a particular income, the tax is not recovered.

Recently in January 2023, the Hon’ble Pune Tribunal in the case of Chandrashekhar Sadashiv Potfod Vs. Deputy Commissioner of Income Tax held that once the tax liability of the taxpayer is extinguished by the indirect method of TDS, the statute of limitations applies as per the provisions of section 205 of the Act. The base comes into play. It essentially bans the department from enforcing the recovery of tax from the income of the taxpayer from which TDS is deducted.

In January 2000, the Hon’ble Gauhati High Court in the case of Assistant Commissioner of Income Tax Vs Om Prakash Gattani held that deduction of tax at source is only one of the methods of recovery of tax. Once this mode is adopted, tax should be recovered from the person deducting TDS based on statutory provisions. The taxpayer should not be subjected to other modes of recovery of tax by recovering the amount once again to meet the tax liability. In short, double burden of tax liability cannot be imposed on the taxpayer.

It is known for a very long time that if the TDS deductor is the defaulting party then the department cannot recover the tax from the taxpayer. On the contrary, the software techniques implemented by the Income Tax Portal are such that if there is a mismatch in TDS credit as per ITR and 26AS, the system will automatically generate notices and demand tax liability. In such a scenario, the taxpayer is left with no option but to go through the process of litigation.

Taxpayer should check his 26AS/AIS/TIS in the last week of May or first week of June to verify the TDS deduction details of the previous financial year. If there are discrepancies in the details of TDS credit, the taxpayer should do the following things to fortify himself during litigation:-

1. Request for payment or correction of TDS return from TDS deductor for the due date of filing of Income Tax Return.

2. Collect documentary evidence to prove that TDS has been deducted from the income proposed for tax purposes. In the case of an employee, the salary slip issued by the employer can be the evidence to prove that TDS has been deducted from the employee.

3. If possible, an email confirmation should be obtained from the TDS deductor to prove that TDS has been deducted from his income.

4. During the hearing, request the concerned Income Tax Officer to recover the tax from the TDS deductor, who has defaulted in payment of tax.

5. During the course of hearing, the taxpayer may rely on the judgment issued by the Gauhati High Court in the case of Assistant Commissioner of Income Tax v. Om Prakash Gattani, Yashpal Sawhney v. Bombay High Court. In the matter of Rekha Hazranvis, Assistant Commissioner of Income Tax, Gujarat High Court, Kartik Vijaysingh Sonawane Vs. Deputy Commissioner of Income Tax, Circle-8.