Have you ever, stuck in a situation where the TDS is deducted by your employer but not paid to the government? Here’s all you need to know.
The Tax Deducted at Source (TDS) is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest, etc. by the persons making such payments. Usually, the person receiving income is liable to pay income tax. But the government with the help of Tax Deducted at Source provisions makes sure that income tax is deducted in advance from the payments being made by you. The recipient of income receives the net amount (after reducing TDS). The recipient will add the gross amount to his income and the amount of TDS is adjusted against his final tax liability. The recipient takes credit for the amount already deducted and paid on his behalf.
The issue arises when the TDS is deducted by the payer of the income let’s say employer but was not being deposited with the government. The problem of TDS deduction not being deposited with the government is not only limited to salary income but can happen in the case of all those incomes where tax is deducted but not deposited with the government by the payer of the income.
All taxes paid by or on behalf of a person (like TDS, TCS (Tax Collected at Source), advance-tax, and self-assessment tax) reflect in a tax passbook Form 26AS. This Form26AS is linked to the PAN of the individual.
If tax deducted by the payer is not visible in this tax passbook, it would mean that the payer has either not paid the taxes to the central government or, after payment, the deductor has not filed the TDS statement/TDS return with the income tax department. In both situations, credit of TDS is disallowed by the tax department and a notice of tax demand is issued to the taxpayer.
In situations like this, the taxpayer will be caught between the income tax department and the employer and suffer.
To avoid the delay from companies in depositing TDS, the Central Board of Direct Taxes (CBDT) has become more vigilant and started imposing penalties on companies that are not complying with the deadlines. CBDT has announced that if there is a mismatch in the TDS or tax credit information due to the deductor’s delay in payment, the taxpayer will not be made responsible anymore. All TDS range officers are expected to make a strict check on such compliance in their respective jurisdictions.
If the taxpayer finds that Form 26AS does not show the full TDS deducted from his/her income, he should contact the deductor for such a mismatch.
The TDS credit mismatch may be due to the various reasons namely TDS is not deposited with the government, TDS is deposited, but the TDS statement is not yet filed with the tax department; The deductor has quoted the wrong PAN in the TDS statement, or An incorrect TDS amount has been mentioned in the TDS statement.
It is noteworthy that a taxpayer has no legal right to force the deductor to deposit TDS or make any corrections in the TDS statement filed by the deductor. If the deductor refuses to entertain the taxpayer’s request, he can submit TDS proof to the income tax department.
If in case the Income Tax Department issues demand notice to the taxpayer, he can file his reply on the Income Tax E-Filing Portal with all the supporting documents such as salary slips, bank statement, etc. which clearly demonstrate that the employer has deducted the TDS from his income, if the Assessing officer finds the documents to be correct then the TDS credit can be allowed. If the credit is disallowed by the AO then the assessee me file an appeal to CIT(A).
In the case of Kartik Vijaysinh Sonavane Vs. Deputy Commissioner of Income Tax, the Gujarat High Court while allowing the Income Tax Refund to Pilot of Kingfisher Airlines held that Mere deduction of TDS does not close the chapter of tax liability unless deposited in Government treasury. “The credit of the tax shall be given to the petitioner and if in the interregnum any recovery or adjustment is made by the respondent, the petitioner shall be entitled to the refund of the same, with the statutory interest, within eight (8) weeks from the date of receipt of the copy of this order,” the bench ruled.
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