Section 199 with Rule 37BA: Credit for Tax Deducted at Source (TDS)

1. Fundamental Principle

• TDS Credit Mechanism: Any tax deducted at source (TDS) is treated as:
  • Payment of taxon behalf of the recipient
  • Eligible for creditagainst final tax liability
  • Adjustable in the yearthe income is taxable (may differ from deduction year)

2. Normal Rule (Section 199)

• Standard Credit: TDS credit is given in the financial year when:
  • The income is assessable (taxable)
  • The tax was actually deducted

3. Special Situations (Rule 37BA)

• Income Not Assessed in Deduction Year:
  • Credit allowed in the year income becomes taxable
  • Example: TDS on FY 2022-23 fixed deposit interest credited in FY 2023-24 return
• Multiple Year Income Attribution:
  • For incomes spread over years (e.g., insurance commissions)
  • Credit proportionately allocated across relevant years
• Change in Tax Status:
  • Resident → Non-resident (or vice versa)
  • Credit follows the income’s taxability

4. Claiming TDS Credit

• Mandatory Requirements:
  • Valid PAN of deductee
  • TDS must appear in Form 26AS/Annual Information Statement (AIS)
  • Income must be declared in ITR
• Verification Process:
  • Auto-matched with 26AS during return processing
  • Mismatches lead to credit denial

5. Practical Scenarios

6. Recent Updates (2023-24)

• AIS Integration: Real-time TDS tracking through Annual Information Statement
• Pre-filling: TDS details auto-populated in ITR forms
• Extended Time Limit: Revised 2-year period for credit claims (from end of assessment year)

7. Common Issues & Solutions

• Problem: TDS not reflecting in 26AS
  • Solution: Obtain certificate from deductor and file rectification
• Problem: Credit denied due to PAN mismatch
  • Solution: File revised return with corrected PAN details
• Problem: Income declared but TDS missing
  • Solution: Use Form 71 for manual claim

8. Judicial Precedents

• CIT vs. Shelly Products (2003): Credit allowed even if deductor didn’t deposit TDS
• Rajeev Kumar Agarwal (2018): Strict PAN linkage requirement upheld

9. Best Practices

1. Quarterly Verification: Cross-check 26AS against expected TDS
2. Document Retention: Preserve TDS certificates for 6 years
3. Timely Action: Claim missing credits within 2-year window
4. Professional Help: Consult CA for complex cases (multiple income years, NRI situations)

10. Special Cases

• Non-Residents: Credit only for India-taxable income
• Minors: Credit to guardian/representative assessee
• Estates of Deceased: Legal heir can claim credit

Pro Tip: For disputed TDS credits, use the ‘Submit Response’ feature on the income tax portal before filing an appeal.