What is a tax credit?
If tax has been deducted at the source (TDS) and the same deposited with the government, it would be treated as a tax paid on behalf of the individual from whom such deduction was done. In short, a tax credit would be allowed to the individual whose tax has been deducted at source.
Tax as deducted paid to the government by the employer on the behalf of an employee reflects in Form 26AS of the employee. This Form 26AS is linked to the employee’s PAN.
Issue of Tax demand notice by income tax authorities
The processing of income tax return (ITR) is an automatic process and is done by the CPC. The income tax system is designed in a way to allow only TDS credit to the extent it appears in Form 26AS. Hence, in case there’s a TDS mismatch, CPC would issue a tax demand notice.
The income tax return forms are annexure-less, and thus, an individual cannot attach supporting documents along with it in support of any TDS claim. Hence, it’s almost certain that the employee would receive a tax demand notice if there’s a discrepancy between the TDS reflected in the TDS credit claimed in the ITR and Form 26AS.
It’s advisable to check Form 26AS before filing the income tax return and if there’s a discrepancy, the same must be fixed before filing the income tax return.
What do you need to do?
If an individual finds out that in his Form 26AS isn’t showing the full tax amount is deducted (TDS), the individual needs to contact the deductor / employer for the mismatch. The mismatch could arise due to:
- The deductor has not deposited the TDS with the government.
- The deductor has deposited the TDS, but the TDS statement hasn’t been filed with the tax department.
- The deductor quoted the incorrect PAN while filing the TDS statement; or
- A wrong amount of TDS has been provided in the TDS statement.
These mistakes could be corrected only by the deductor. Hence, the deductee/employee needs to ask the deductor to rectify the mistake at the earliest and ensure that the same is updated in the Form 26AS, before the filing of the Income Tax Return.
An individual has no legal right of forcing the deductor to deposit such TDS or make the corrections in its TDS statement. If a deductor denies the request, the individual can submit the TDS proof to the department.
In response to the notice, an individual could file a reply on the e-filing portal with such supporting documents establishing that the TDS was deducted from his income. The individual could submit salary slips and bank statements showing credit of net salary/other income after the deduction of TDS.
The assessing officer (AO) will allow TDS credit to the individual in case the documents submitted are correct. Nevertheless, if the AO still does not allow the tax credit, the only choice left for the individual is to file an appeal before the Commissioner of Income Tax (CIT) (Appeals).