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TDS deducted in wrong FY? Income Tax Form 71 will help you to get it

Tax Deducted at Source (TDS) is a mechanism used by the Indian government to collect taxes at the time of income generation. However, there are instances when TDS is deducted in the wrong financial year, creating a mismatch in TDS credit. To rectify this issue, the Central Board of Direct Taxes (CBDT) has introduced a new form, Form 71. In this comprehensive guide, we will explore the purpose of Form 71, how it works, and the steps individuals can take to correct TDS deducted in the wrong FY.

Understanding the Issue

TDS credit mismatch occurs when the accounting method followed by the taxpayer and the payer of income (such as a bank) differs. This discrepancy makes it challenging for taxpayers to claim TDS credit in the financial year (FY) in which tax is deducted, as the income is not declared in the Income Tax Return (ITR) for that year.

Let's consider an example to better grasp the concept. Suppose an individual has Rs 1 lakh FD interest in FY 2022–2023 (AY 2023–2024), and the bank withholds TDS. However, in FY 2023–24 (AY 2024–25), the bank incorrectly withholds tax on the FD interest. In this case, the individual will not be eligible to receive credit for this TDS in FY 2023–24 (AY 2024–25) since the tax was withheld in the wrong financial year. The TDS credit for this income can only be claimed for FY 2022–2023, as the FD interest was taxable in that fiscal year.

The Need for Form 71

The CBDT issued Form 71 to address this issue, as taxpayers may have the opportunity to claim credit for wrongly deducted tax. Filing a revised ITR for the specific FY to claim tax credit may not be possible for taxpayers, as the deadline to file a revised ITR has already expired.

Form 71 allows individuals to rectify TDS credit mismatches by claiming tax credit if the income on which tax has been deducted has already been declared in the ITR of a previous FY. This form can also be used in situations where taxpayers file revised, belated, or updated returns, but the corresponding TDS claim has not been considered due to it reflecting in the Tax Credit Statement (Form 26AS) of a subsequent FY.

Understanding Form 71

Form 71 is a new income tax form that enables individuals to resolve the issue of TDS credit mismatch. It provides a means to claim tax credit for income on which tax has been deducted in a different financial year. Taxpayers can utilize Form 71 even if they have filed revised, belated, or updated returns, as long as the TDS claim was not considered due to it reflecting in Form 26AS of a subsequent FY.

Time Limit for Using Form 71

To ensure timely resolution of TDS credit issues, there is a specific time limit within which individuals can use Form 71. As per the Income-tax Act, 1961, Form 71 must be filed with the income tax department within two years from the end of the FY in which TDS was deducted. This form can be filled for any previous financial year in which the income was subject to TDS.

For instance, let's assume that a bank was required to deduct TDS on FD interest in FY 2018-19. However, the bank mistakenly deducted TDS in FY 2021-22. To claim TDS credit, an individual can submit Form 71 to the income tax department by March 31, 2024 (till FY 2023-24). It's important to note that once this deadline is missed, Form 71 cannot be submitted for that particular case.

How to Use Form 71

Using Form 71 to correct a wrong TDS credit issue is a simple process. Individuals can follow these steps:

  1. Step 1: Access the Income Tax Portal - From October 1, 2023, individuals can directly solve TDS credit mismatch issues through the income tax portal, rather than visiting a bank branch.
  2. Step 2: Obtain Form 71 - Download and fill out Form 71, which is available on the income tax department's website. Ensure all the required details are accurately filled.
  3. Step 3: Provide Relevant Information - Include necessary information such as PAN, assessment year, bank details, and the financial year in which TDS was incorrectly deducted.
  4. Step 4: Declare Previously Declared Income - Declare the income on which TDS was deducted in the ITR of a previous FY.
  5. Step 5: Verify the Form - The filled Form 71 must be verified using an electronic verification code (EVC) or a digital signature certificate (DSC), whichever is applicable.
  6. Step 6: Submit the Form - Once the form is verified, submit it to the income tax department within the specified time limit.

Benefits of Form 71

The introduction of Form 71 provides several benefits for taxpayers and businesses. Some of these benefits include:

  • Rectifying TDS Credit Mismatches - Form 71 allows individuals to correct TDS credit mismatches caused by tax deducted in the wrong FY.
  • Opportunity to Claim Credit - Taxpayers now have the opportunity to claim credit for wrongly deducted tax, even if they missed the deadline to file a revised ITR.
  • Ease of Resolution - The income tax portal provides a convenient platform for individuals to resolve TDS credit mismatch issues without visiting a bank branch.
  • Applicability for Revised Returns - Form 71 can be used even for revised, belated, or updated returns, as long as the corresponding TDS claim was not considered due to it reflecting in Form 26AS of a subsequent FY.

Conclusion

Form 71 is a valuable tool introduced by the CBDT to rectify TDS credit mismatches caused by tax deducted in the wrong FY. By using this form, individuals can claim tax credit for income on which TDS has been deducted in a different financial year. It is essential to understand the time limit for using Form 71 and follow the necessary steps to ensure timely resolution of TDS credit issues. With the income tax portal's availability, taxpayers can conveniently correct TDS credit mismatches without the need to visit a bank branch. Utilize Form 71 and take advantage of the opportunity to claim credit for wrongly deducted tax, ensuring accurate and fair taxation.

 

author

The Tax Heaven

Mr.Vishwas Agarwal✍📊, a seasoned Chartered Accountant 📈💼 and the co-founder & CEO of THE TAX HEAVEN, brings 10 years of expertise in financial management and taxation. Specializing in ITR filing 📑🗃, GST returns 📈💼, and income tax advisory. He offers astute financial guidance and compliance solutions to individuals and businesses alike. Their passion for simplifying complex financial concepts into actionable insights empowers readers with valuable knowledge for informed decision-making. Through insightful blog content, he aims to demystify financial complexities, offering practical advice and tips to navigate the intricate world of finance and taxation.

Frequently Asked Questions

TDS stands for Tax Deducted at Source. It is a mechanism through which tax is deducted by the payer at the time of making certain payments such as salary, interest, rent, etc., and deposited with the government. It ensures the collection of tax at the source itself.

If TDS is deducted in the wrong financial year, it may lead to discrepancies in tax calculations for the respective financial years and could affect the taxpayer's overall tax liability and refunds.

Income Tax Form 26AS is a consolidated statement that provides details of tax credits available to a taxpayer for a particular financial year. It includes information on TDS deducted by various deductors, advance tax payments, and self-assessment tax payments.

Income Tax Form 71 is a form used for rectification of errors in TDS deductions. It allows taxpayers to request corrections in TDS entries for a specific financial year if they have been deducted incorrectly or attributed to the wrong FY.

Yes, taxpayers can use Income Tax Form 71 to rectify TDS deductions made by the deductor in the wrong FY by submitting the form to the assessing officer along with necessary supporting documents.

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