Income Tax Law | TDS Credit | Updated October 2026

Section 199 Income Tax Act: Credit for Tax Deducted at Source

Section 199 of the Income-tax Act, 1961 explains when tax deducted at source (TDS) and paid to the Central Government is treated as tax paid on behalf of the taxpayer. From 1 April 2026, the corresponding framework is contained in section 390(5) and (6) of the Income-tax Act, 2025, read with Rule 203 of the Income-tax Rules, 2026.

Key principle: TDS is generally an advance payment of the recipient's income-tax liability, not a separate final tax. The credit belongs to the appropriate person and tax period, subject to statutory rules, reporting and verification.

What is TDS credit?

Tax deducted at source (TDS) means income-tax withheld by a payer from specified income or payments and deposited with the Central Government. TDS credit means the amount of that deposited tax recognised against the tax liability of the person legally entitled to the credit. The deductor withholds and reports tax; the deductee is the person from whose payment or account tax is deducted.

Section 199 of the Income-tax Act, 1961 explained

Sub-section (1): Tax deducted is tax paid on the taxpayer's behalf

Tax deducted under the relevant provisions of Chapter XVII and paid to the Central Government is treated as tax paid on behalf of the person from whose income it was deducted. Depending on the nature of the payment, this includes the owner of securities, depositor, property owner, unitholder or shareholder.

Sub-section (2): Tax paid by an employer on non-monetary perquisites

Where an employer pays income-tax under section 192(1A) on qualifying non-monetary perquisites, the tax paid to the Government is treated as tax paid on behalf of the employee whose income is concerned.

Sub-section (3): Power to prescribe credit rules

The Central Board of Direct Taxes (CBDT) may prescribe rules identifying the person entitled to credit and the assessment year in which the credit is available. Rule 37BA sets out those rules under the 1961 Act.

Read the official text of Section 199.

Rule 37BA: Who gets TDS credit and when?

Ordinary case: credit is given to the deductee based on the deductor's filed TDS information and the income-tax return, subject to verification.
Income taxable in another person's hands: credit can be given to that other person when the prescribed declaration is made and the deductor reports the deduction in the other person's name.
Correct assessment year: credit generally belongs to the assessment year in which the corresponding income is assessable.
Income spread over several years: credit is allocated across the relevant years in the same proportion as the income assessed in those years.
Cash-withdrawal TDS under section 194N: a special rule allocates credit to the person from whose account tax was deducted for the relevant assessment year.

Official source: Rule 37BA - Credit for tax deducted at source.

Income-tax Act, 2025: Section 390 and Rule 203

The Income-tax Act, 2025 applies from 1 April 2026. The corresponding legal framework for TDS and TCS credit is in section 390(5) and (6), rather than section 199. Section 390(5) treats TDS, TCS and specified employer-paid tax deposited with the Central Government as tax paid on behalf of the relevant person. Section 390(6) authorises rules on who receives credit and for which tax year.

Rule 203 of the Income-tax Rules, 2026 provides the detailed mechanism for TDS and TCS credit, including allocation to another person on declaration, allocation across multiple tax years, specified cash-withdrawal cases and matching against the return of income.

Issue	Income-tax Act, 1961	Income-tax Act, 2025
Primary credit provision	Section 199	Section 390(5)-(6)
Detailed credit rules	Rule 37BA	Rule 203
Period for claiming credit	Assessment year in which income is assessable	Tax year in which income is assessable
Deduction and reporting framework	Chapter XVII	Chapter XIX

Official references: Income-tax Act, 2025, as amended and Income-tax Rules, 2026 - Rule 203.

Examples of how TDS credit works

Example 1: Salary TDS

An employee earns taxable salary of Rs. 9,00,000 and the employer deducts and deposits Rs. 45,000 as TDS. The employee reports the relevant salary income and claims Rs. 45,000 as tax already paid, subject to reconciliation and the applicable tax calculation.

Example 2: Income assessable in another person's hands

A payment is made to Person A, but the relevant income is legally assessable in Person B's hands. Where the prescribed declaration and deductor reporting requirements are fulfilled, credit may be given to Person B rather than Person A. The name and PAN reported by the deductor matter.

Example 3: Income taxable across two years

If Rs. 10,000 of TDS relates to income taxable 60% in one year and 40% in another, the applicable rule generally permits proportionate credits of Rs. 6,000 and Rs. 4,000 in the respective years, subject to the facts and prescribed reporting.

TDS credit around 1 April 2026

For income relating to FY 2025-26, TDS under the 1961 Act remains linked to assessment year 2026-27, even if the deductor deposits that TDS after 1 April 2026. TDS deducted in April 2026 under the new law relates to tax year 2026-27. The Income Tax Department explains that the two reporting periods are segregated through the relevant statements and tax-credit records.

See the Income Tax Department's TDS compliance FAQs.

How to check and claim TDS credit

Review the relevant tax-credit information in the Income Tax Department's e-filing portal, including Form 26AS or AIS for earlier periods and the applicable new-law tax-credit statement.
Compare the PAN, amount, tax period and nature of income with the deductor's certificate and records.
Report the corresponding taxable income in the correct return and claim the related TDS credit in the prescribed schedule.
If TDS is missing or wrongly reported, ask the deductor to check deposit details and file a correction statement where necessary.
Where income is assessable in another person's hands, arrange the prescribed declaration and correct deductor reporting rather than claiming the same credit twice.

Visit the official income-tax e-filing portal for available records and services.

Frequently asked questions

Is TDS credit available merely because tax was deducted?

Credit is governed by the applicable law and reporting requirements. Under the general statutory rule, the deducted tax must be paid to the Central Government and the claim must be supported by the relevant records and income reporting.

Can TDS credit be claimed in a different year?

Ordinarily, credit follows the year in which the related income is assessable, not simply the year in which tax was deposited. Special rules apply to certain deductions, including cash withdrawals.

Can two taxpayers claim the same TDS?

No. Where the law permits credit to another person, the prescribed declaration and deductor reporting must identify the person entitled to the credit.

Does Section 198 have the same purpose as Section 199?

No. Section 198 addresses when deducted tax is deemed part of income received for income computation. Section 199 addresses the corresponding credit for tax paid on the taxpayer's behalf.

Official legal references

This article provides general legal information. Application depends on the tax year, type of income, reporting details and the facts of each case.