Most salaried employees assume that once TDS is deducted from their salary, the tax has been duly paid to the government. However, problems can arise if the employer deducts the tax but fails to deposit it with the income tax department.
This is exactly what happened to a Mumbai-based IT professional Sophia Rick. While filing her income tax return for Assessment Year 2019-20, she declared an income of ₹18.41 lakh and claimed a (tax deducted at source) credit of ₹3.91 lakh, according to a news report by The Economic Times.
However, she received a refund of only ₹79,030 and was instead served with a tax demand of ₹3.36 lakh because her employer, an IT services company, had failed to deposit the TDS deducted from her salary with the government.
What did the IT professional do next?
Rick repeatedly sought rectification from the Centralised Processing Centre (CPC), but her requests did not lead to any relief. She then filed a first appeal, which was dismissed as time-barred, meaning her appeal was no longer valid or enforceable because the legal time limit for taking action had expired.
Aggrieved, she then turned to the income tax appellate tribunal (), which ultimately ruled in her favour, the news publication reported.
ITAT Mumbai found that full TDS credit has not been granted since the IT professional’s employer has deducted TDS but has not remitted the same to the revenue. Because of this, full TDS credit didn’t reflect in her Form 26AS, leading to her ₹3.91 lakh TDS credit claim being denied.
In support of her claim, Rick furnished salary slips, Form 16, bank statements and other documents showing that TDS had been deducted from her salary. This is something that worked in her favour.
ITAT Mumbai grants relief to the employee
Taking note of the evidence and citing recent Supreme Court and a High Court ruling, the tribunal held that no tax demand can be raised against an employee if the employer had deducted tax at source from its employee’s salary income but failed to deposit the same with the government.
As a result, the ₹3.36 lakh will also be nullified once the concerned Assessing Officer verifies Rick’s ₹3.91 lakh TDS claim and allows full credit to be deposited in her account, the news publicated noted in the report.
What is TDS on Salary?
In accordance with Section 192 of the Income Tax Act, employers are required to estimate the total income of an employee for the financial year and deduct tax if the estimated salary exceeds the basic exemption limit.
The TDS is computed according to the applicable income tax slab rates under the chosen tax regime, meaning the deduction amount will vary from employee to employee depending on their income and eligible deductions.
What should taxpayers do before filing their ITR to avoid such issues?
To reduce the risk of TDS-related disputes and unnecessary tax demands, taxpayers should take a few simple checks before filing their income tax return for each financial year. These include:
- Verify your TDS details by matching the figures in Form 16 with Form 26AS, the Annual Information Statement (AIS) and your bank statements.
- Report any TDS mismatch immediately to your employer and request that the discrepancy be rectified before filing your tax return.
- Keep supporting documents ready, including Form 16, salary slips and bank statements, as these can help establish that TDS was deducted from your salary if a dispute arises later.