CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 199 — Credit for Tax Deducted (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. The credit machinery; the deductee's principal protection.
Finance Act, 2026: No amendment.
Mechanism: TDS paid to the Government is treated as tax paid on the deductee's behalf and credited in the year the income is assessable (Rule 37BA); by section 205 the deductee cannot be made to pay again for the deductor's default.
Litigation profile: Settled on principle. The deductee is protected against the deductor's non-deposit (Yashpal Sahni; section 205); credit is matched to the income (Rule 37BA).
A. SECTION COMMENTARY
Section 199 governs the credit for tax deducted at source. It provides that tax deducted and paid to the Central Government is treated as a payment of tax on behalf of the person from whose income the deduction was made, and credit is to be given to him for the amount so deducted on the production of the certificate (and now, in practice, on the basis of the tax-credit statement), in the assessment year in which such income is assessable. The credit mechanics are prescribed by Rule 37BA, which also governs cases where income is assessable in the hands of a person other than the deductee, and the apportionment of credit over years.
Year of credit and the matching principle
The governing principle is that the TDS credit is given in the year in which the corresponding income is assessable, so that the credit and the income are matched. Rule 37BA operationalises this — including the rule that where income is offered over several years, the credit is to be allowed proportionately, and where the income is assessable in another person's hands (clubbing, succession, etc.), the credit follows the income.
The deductee must not suffer for the deductor's default — section 205
The most important protection is the interaction with section 205: where tax has been deducted at source, the assessee/deductee cannot be called upon to pay that tax again, even if the deductor has failed to deposit it with the Government. Credit for the deducted tax must be allowed to the deductee irrespective of whether the deductor actually deposited it; the remedy of the Revenue lies against the defaulting deductor, not against the deductee. The High Courts have consistently restrained coercive recovery from deductees on account of a Form 26AS mismatch caused by the deductor's default, and the CBDT has issued instructions to the same effect.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
199. (1) Any deduction made in accordance with the foregoing provisions of this Chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or of the depositor or of the owner of property or of the unit-holder, or of the shareholder, as the case may be.
(2) Any sum referred to in sub-section (1A) of section 192 and paid to the Central Government shall be treated as the tax paid on behalf of the person in respect of whose income such payment of tax has been made.
(3) The Board may, for the purposes of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules as may be necessary, including the rules for the purposes of giving credit to a person other than those referred to in sub-section (1) and sub-section (2) and also the assessment year for which such credit may be given.
C. AUTHORITIES
The authorities establish the year-of-credit (matching) principle and, crucially, that the deductee cannot be made to suffer for the deductor's failure to deposit (read with section 205). All citations are web-verified.
Cluster 1 — Deductee cannot suffer for the deductor's default (section 199 read with section 205)
Yashpal Sahni v. ACIT (2007) 293 ITR 539 (Bom)
Issue: Whether an assessee from whose salary tax was deducted, but which the employer failed to deposit, can be denied credit and asked to pay the tax himself.
Held: No. Once tax has been deducted at source, by virtue of section 205 the assessee cannot be called upon to pay that tax again; credit must be given to the deductee, and the Revenue must recover the un-deposited tax from the deductor, not the deductee.
Significance: The leading authority that the deductee is protected against the deductor's default — credit and the section 205 bar go together.
Form 26AS mismatch — no coercive recovery from the deductee
Principle: Where credit is denied only because of a mismatch in Form 26AS caused by the deductor's non-deposit or incorrect reporting, recovery cannot be enforced coercively against the deductee; the CBDT has instructed the field accordingly, consistent with section 205.
Use: The practical application of the protection in the era of automated 26AS-based credit.
Cluster 2 — Year of credit and apportionment (Rule 37BA)
Matching of credit with the income — Rule 37BA
Principle: TDS credit is allowed in the assessment year in which the corresponding income is assessable; where income is offered over more than one year, credit is apportioned proportionately, and where the income is assessable in another's hands, the credit follows the income (Rule 37BA).
Use: Resolves timing and cross-person credit questions.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 199 — Credit for Tax Deducted (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. The credit machinery; the deductee's principal protection.
Finance Act, 2026: No amendment.
Mechanism: TDS paid to the Government is treated as tax paid on the deductee's behalf and credited in the year the income is assessable (Rule 37BA); by section 205 the deductee cannot be made to pay again for the deductor's default.
Litigation profile: Settled on principle. The deductee is protected against the deductor's non-deposit (Yashpal Sahni; section 205); credit is matched to the income (Rule 37BA).
A. SECTION COMMENTARY
Section 199 governs the credit for tax deducted at source. It provides that tax deducted and paid to the Central Government is treated as a payment of tax on behalf of the person from whose income the deduction was made, and credit is to be given to him for the amount so deducted on the production of the certificate (and now, in practice, on the basis of the tax-credit statement), in the assessment year in which such income is assessable. The credit mechanics are prescribed by Rule 37BA, which also governs cases where income is assessable in the hands of a person other than the deductee, and the apportionment of credit over years.
Year of credit and the matching principle
The governing principle is that the TDS credit is given in the year in which the corresponding income is assessable, so that the credit and the income are matched. Rule 37BA operationalises this — including the rule that where income is offered over several years, the credit is to be allowed proportionately, and where the income is assessable in another person's hands (clubbing, succession, etc.), the credit follows the income.
The deductee must not suffer for the deductor's default — section 205
The most important protection is the interaction with section 205: where tax has been deducted at source, the assessee/deductee cannot be called upon to pay that tax again, even if the deductor has failed to deposit it with the Government. Credit for the deducted tax must be allowed to the deductee irrespective of whether the deductor actually deposited it; the remedy of the Revenue lies against the defaulting deductor, not against the deductee. The High Courts have consistently restrained coercive recovery from deductees on account of a Form 26AS mismatch caused by the deductor's default, and the CBDT has issued instructions to the same effect.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
199. (1) Any deduction made in accordance with the foregoing provisions of this Chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or of the depositor or of the owner of property or of the unit-holder, or of the shareholder, as the case may be.
(2) Any sum referred to in sub-section (1A) of section 192 and paid to the Central Government shall be treated as the tax paid on behalf of the person in respect of whose income such payment of tax has been made.
(3) The Board may, for the purposes of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules as may be necessary, including the rules for the purposes of giving credit to a person other than those referred to in sub-section (1) and sub-section (2) and also the assessment year for which such credit may be given.
C. AUTHORITIES
The authorities establish the year-of-credit (matching) principle and, crucially, that the deductee cannot be made to suffer for the deductor's failure to deposit (read with section 205). All citations are web-verified.
Cluster 1 — Deductee cannot suffer for the deductor's default (section 199 read with section 205)
Yashpal Sahni v. ACIT (2007) 293 ITR 539 (Bom)
Issue: Whether an assessee from whose salary tax was deducted, but which the employer failed to deposit, can be denied credit and asked to pay the tax himself.
Held: No. Once tax has been deducted at source, by virtue of section 205 the assessee cannot be called upon to pay that tax again; credit must be given to the deductee, and the Revenue must recover the un-deposited tax from the deductor, not the deductee.
Significance: The leading authority that the deductee is protected against the deductor's default — credit and the section 205 bar go together.
Form 26AS mismatch — no coercive recovery from the deductee
Principle: Where credit is denied only because of a mismatch in Form 26AS caused by the deductor's non-deposit or incorrect reporting, recovery cannot be enforced coercively against the deductee; the CBDT has instructed the field accordingly, consistent with section 205.
Use: The practical application of the protection in the era of automated 26AS-based credit.
Cluster 2 — Year of credit and apportionment (Rule 37BA)
Matching of credit with the income — Rule 37BA
Principle: TDS credit is allowed in the assessment year in which the corresponding income is assessable; where income is offered over more than one year, credit is apportioned proportionately, and where the income is assessable in another's hands, the credit follows the income (Rule 37BA).
Use: Resolves timing and cross-person credit questions.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.