Summary: The article explains that employees should not ordinarily be required to pay tax again merely because their employer deducted Tax Deducted at Source (TDS) from salary but failed to deposit it with the Government. It illustrates this through the example of an employee who discovered, while filing his Income Tax Return (ITR), that although TDS had been deducted and reflected in Form 16, it was absent from Form 26AS, resulting in a tax demand. Referring to the ITAT Kolkata decision in Ajay Kumar Goel v. DCIT, the article notes that once TDS is deducted from salary, the employee is deemed to have paid tax to that extent and should receive TDS credit. The responsibility for depositing the deducted tax rests with the employer. The article also discusses Sections 199, 201 and 205 of the Income-tax Act, relevant CBDT instructions, and advises employees to reconcile Form 16, Form 26AS and AIS, preserve supporting documents, promptly report mismatches, and verify any tax demand before making payment.
Employer Didn’t Deposit TDS? Don’t Panic – Employees Need Not Pay Tax Again, Says ITAT
Before understanding what the law says, let us look at a real-life situation that many employees may encounter during the ITR filing season.
Real Life Situation: Mr Sharma’s Query:
Mr. Sharma, an employee of a Public Sector Undertaking (PSU), sat down to file his Income Tax Return. He carefully entered all the required details, expecting the process to be smooth.
But just before submitting the return, the Income Tax portal displayed an unexpected tax demand. The message indicated that the outstanding tax had to be paid before he could proceed with filing his ITR.
Puzzled, Mr. Sharma compared his Form 16 with Form 26AS. To his utter surprise, although his employer had deducted TDS from his salary, the amount had not been deposited with the Government. Consequently, the TDS was missing in Form 26AS and was not auto-populated in the TDS schedule of the ITR.
Mr. Sharma was naturally shocked. The first thought that crossed his mind was:
“Have I lost my money? Will I have to pay the same tax again?”
Tax Clinic’s Prescription
There is no need to panic.
An employee cannot ordinarily be asked to pay the same tax again merely because the employer failed to deposit the TDS with the Government.
A recent decision of the Income Tax Appellate Tribunal (ITAT), Kolkata, in Ajay Kumar Goel v. DCIT has reaffirmed this important legal protection available to taxpayers.
What Happened in This Case?
The case concerns a salaried employee of M/S Think & Learn Private Limited. The employer had deducted TDS from his salary to the extent of Rs. 14,881,489/-.
The employer did not deposit the deducted TDS into the Central Government account. The assessee filed a return and claimed TDS credit; however, the credit was not granted, and a demand was raised.
Aggrieved by the tax demand, the employee challenged the matter before the Income Tax Appellate Tribunal (ITAT), Kolkata.
What Did the ITAT Decide?
ITAT Kolkata held that once TDS had been deducted from an employee’s salary, it was deemed that taxes to that extent had already been paid, and the employee could not be revisited for those taxes. The Assessing Officer was directed to grant the assessee the benefit of TDS credit as claimed.
This decision reinforces an important principle of tax law. Once TDS has been deducted from an employee’s income, the responsibility for depositing it with the Government rests with the employer. An employee should not ordinarily suffer as a result of the employer’s default. The Department is empowered under the Act to recover the tax from the defaulting employer.
What Does the Income-tax Act Say?
Section 199 of the Income Tax Act, 1961 mandates that any Tax Deducted at Source (TDS) and remitted to the Central Government is treated as a tax payment on behalf of the person from whose income the deduction was made.
Section 205 of the Income-tax Act, 1961 provides that an employee cannot be held personally liable for tax demands if tax has already been deducted at source from his income. If an employer fails to deposit this tax with the government, the tax authorities cannot recover the amount directly from the employee.
Section 201 of the Income-tax Act, 1961 empowers the Income-tax Department to recover unpaid TDS from the defaulting employer and provides for applicable interest and other consequences. It ensures accountability and sets strict consequences for defaulting.
ITAT itself relied on these provisions, as well as the CBDT’s 2015 Instruction and 2016 Office Memorandum.
Practical Checklist for Employees
Before filing the Income Tax Return, it is advisable to:
√ Compare Form 16, Form 26AS and AIS to ensure that the TDS deducted by the employer is correctly reflected.
√ Keep salary slips and Form 16 safely as evidence of TDS deduction.
√ If any TDS mismatch is noticed, immediately bring it to the notice of the employer and request early deposit or correction.
√ Do not ignore an Income Tax demand merely because it appears on the portal. Verify the reason before making any payment.
√ If TDS has actually been deducted but not deposited by the employer, rely on the relevant provisions of the Income-tax Act, CBDT Instructions and judicial precedents while seeking appropriate relief.
√ Preserve copies of correspondence exchanged with the employer regarding the TDS mismatch
Frequently Asked Questions (FAQs)
Q1. TDS has been deducted from salary but is not appearing in Form 26AS. Can the same tax be demanded again?
Answer: No. If TDS has already been deducted from the employee’s income, Section 205 of the Income-tax Act protects the employee from being asked to pay the same tax again merely because the employer failed to deposit it. The recent ITAT Kolkata decision has reaffirmed this principle.
Q2. Who is responsible for depositing the deducted TDS with the Government?
Answer: The responsibility rests entirely with the employer (deductor). Once tax has been deducted from the employee’s salary, the employer is legally required to deposit it with the Central Government within the prescribed time.
Q3. Can the Income-tax Department recover the unpaid TDS from the employer?
Answer: Yes. The Income-tax Act empowers the Department to recover the tax, along with applicable interest and other consequences, from the defaulting employer.
Q4. What should be done if a tax demand is issued due to a TDS mismatch?
Answer: The reason for the demand should first be verified by comparing Form 16, Form 26AS and AIS. If the mismatch is due to the employer’s failure to deposit TDS, the matter should be taken up with the employer and, where necessary, an appropriate response may be submitted to the Income-tax Department.
Q5. Does this ITAT decision apply automatically in every case?
Answer: Every case depends on its own facts. However, this decision reinforces an important legal principle under Section 205 of the Income-tax Act and is consistent with the CBDT instructions on this subject.
Key Takeaways:
- TDS deducted from salary should not ordinarily become the employee’s burden merely because the employer failed to deposit it.
- Section 205 of the Income-tax Act provides important protection against recovery of the same tax from the employee.
- The responsibility for depositing deducted TDS lies with the employer.
- The Income-tax Department has the power to recover the unpaid tax from the defaulting employer.
- Employees should always reconcile Form 16, Form 26AS and AIS before filing the Income Tax Return.
- Timely identification of TDS mismatches can help avoid unnecessary tax demands and prolonged disputes.
- The recent ITAT Kolkata ruling reinforces the legal protection already available under the Income-tax Act and CBDT Instructions.
Conclusion
The recent ITAT ruling serves as an important reminder that employees should not ordinarily suffer for the employer’s failure to deposit TDS. Nevertheless, timely verification of Form 16, Form 26AS and AIS before filing the Income Tax Return remains the best safeguard against avoidable tax demands and unnecessary litigation.
Tax Clinic’s Final Advice
Always verify Form 16, Form 26AS and AIS before filing the Income Tax Return. A few minutes spent on reconciliation can help avoid unnecessary tax demands, correspondence and litigation later. Prevention is better than correction.
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Disclaimer: The article is for educational purposes only.
The author can be approached at caanitabhadra@gmail.com
It was submitted that, in view of CBDT Instruction No. 275/29/2014-(IT)-(B), dated 01/06/2015, the assessee should not be put to any inconvenience on account of the deductor’s failure to deposit tax into the Government account.
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