Employee TDS Deposits: A Guide to Handling Unremitted Deductions

Taxpayers Face Unnecessary Demands for Unpaid TDS

Taxpayers often receive notices when the tax deducted at source (TDS) reflected in their salary slips does not match the actual deposits made by their employers, resulting in mismatches with Form 26AS and triggering tax demands. These issues arise when employers fail to remit the deducted tax to the government. The tax department flags such discrepancies, placing the burden of explanation onto employees even though they are not at fault.

The Income Tax Department issues a notice when it detects a mismatch between the tax reflected as deducted in salary records and the amount actually credited to the government. Automated reconciliation through Form 26AS, AIS, and TIS flags such discrepancies and generates a communication seeking clarification. Since depositing TDS is a statutory obligation of the employer under the Income Tax Act, 1961, any failure to do so is treated as a compliance lapse. However, the system initially places the responsibility on the employee, as incomplete TDS credit leads to a perceived shortfall and results in a tax demand being raised.

Recent Ruling Supports Employees

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A recent ruling by the Income Tax Appellate Tribunal (Kolkata bench) has clarified that salaried taxpayers cannot be denied TDS credit merely because their employer failed to deposit the deducted tax with the government. The tribunal held that once TDS is deducted from an employee's salary, it is deemed tax paid on their behalf, and the employee cannot be penalized for the employer's default. This decision reinforces that employees should not face double taxation for lapses beyond their control.

The Central Board of Direct Taxes (CBDT) has also addressed this issue in Letter No. 275/29/2014-IT(B) dated 01-06-2015, where it clarified that although credit of TDS under section 199 is linked with deposit into the Government account, section 205 of the Income-Tax Act puts a clear bar on raising a direct demand against the taxpayer to the extent tax has already been deducted from their income.

Steps to Take if TDS is Not Reflected in Form 26AS or AIS

Employees should remain vigilant and preserve proof of deduction, such as salary slips, Form 16, bank statements, or employment records showing TDS deduction. If TDS is not reflected in Form 26AS, the first step should be to approach the employer and request correction or deposit of the tax. If any demand is later raised, the employee should respond with documentary evidence and specifically refer to section 205 of the Income-tax Act along with the above CBDT instructions.

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Correcting TDS Mismatch using Form 26AS, AIS, and Salary Records

The verification process starts by matching the TDS amount shown on salary slips with the figures reflected in Form 26AS. If the deducted tax is missing from Part A of Form 26AS, it typically indicates that the employer has not deposited it. AIS and TIS should then be reviewed to rule out any partial or delayed credits. Cross-checking these details with Form 16 helps establish whether TDS was reported in payroll records but not remitted to the government.

In the table above, if the employer has deposited the TDS, the figures in all three columns will match. However, if the employer has not deposited the TDS, the figures in Part A of Form 26AS will be missing, indicating a mismatch.