Employee can also take Tax Credit If TDS from salary is deducted by Employer but not deposited to government.

The biggest problem faced by employees is the mismatch between the TDS shown in Form 26AS and TDS deducted by Employer.

If your TDS deducted but not deposited by employer, demand will automatically be raised against you by income tax department. Section 199 of income tax also specified that credit of TDS shall be given only if it is paid to government.

Now what are the recourse available to you if TDS from salary is deducted but not reflecting in Form 26AS.

  1. Section 205 stipulates that once TDS is deducted from your salary, even if it is not remitted to the government by the deductor, you should get credit to that extent.
  2. Department has also directed to its officers that demand on account of tax credit mismatch should not be enforced coercively.
  3. Further in recent judgment, Gujarat High Court also upheld that Department cannot deny the benefit of TDS deducted by the employer of the petitioner even not deposited by employer. (Here the petition was filed by a Pilot of King Fisher Airlines)

Some practical difficulties are always there. Always maintain solid evidence to defend you.


Section-199: Credit for tax deducted, Income tax Act 1961

(1) Any deduction made in accordance with the foregoing provisions of this Chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or of the depositor or of the owner of property or of the unit-holder, or of the shareholder, as the case may be.

(2) Any sum referred to in sub-section (1A) of section 192 and paid to the Central Government shall be treated as the tax paid on behalf of the person in respect of whose income such payment of tax has been made.

(3) The Board may, for the purposes of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules1 as may be necessary, including the rules for the purposes of giving credit to a person other than those referred to in sub-section (1) and sub-section (2) and also the assessment year for which such credit may be given.

Section-205: Bar against direct demand on assessee, Income tax Act 1961

Where tax is deductible at the source under the foregoing provisions of this Chapter, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income.


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