s.199 treats tax deducted and paid to the Government as tax paid on your behalf, and rule 37BA works out the detail. Credit goes for the assessment year in which the income is assessable, spread proportionately where the income is assessable over several years, and can be given to a person other than the deductee where the income is assessable in that other person's hands — but only if the deductee files a declaration with the deductor and the deductor reports the deduction in that other person's name.
s.199(1) of the Income-tax Act, 1961 is the charging end of the mechanism: '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.' s.199(3) then empowers the Board to make rules for giving credit, 'including the rules for the purposes of giving credit to a person other than' the deductee. Rule 37BA of the Income-tax Rules, 1962 is that rule, and it is headed 'Credit for tax deducted at source for the purposes of section 199'.
**Sub-rule (1) — the default.** Credit 'shall be given to the person to whom payment has been made or credit has been given (hereinafter referred to as deductee) on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority'. So the starting point is the deductor's statement. That is why a wrong PAN in a TDS return produces a missing credit: the information is the basis of the credit.
**Sub-rule (2) — credit to somebody else.** Where under any provision of the Act the whole or part of the income on which tax was deducted 'is assessable in the hands of a person other than the deductee, credit for the whole or any part of the tax deducted at source, as the case may be, shall be given to the other person and not to the deductee'. This is the provision for clubbing, for a firm's income deducted against a partner's PAN, for co-owners of let-out property, for a trust or an association, and for succession cases. It is conditional, and the conditions are procedural: the deductee must file a declaration with the deductor, and the deductor must report the deduction in the name of the other person in his statement. The declaration must contain 'the name, address, permanent account number of the person to whom credit is to be given, payment or credit in relation to which credit is to be given and reasons for giving credit to such person'. The deductor issues the TDS certificate in the name of the person shown in the statement and keeps the declaration in safe custody. If the declaration was never filed, the machinery has not been operated and the officer has a textual answer to the claim.
**Sub-rule (3) — the year.** 'Credit for tax deducted at source and paid to the Central Government, shall be given for the assessment year for which such income is assessable.' Where the income is assessable over a number of years, credit is 'allowed across those years in the same proportion in which the income is assessable to tax'. This is the answer to the commonest CPC mismatch of all: the deductor deducted on an advance or on a bill raised in March and reported it in one year, while the income is recognised in another. The rule ties the credit to the income, not to the deduction. It works both ways — you cannot take the credit in a year in which you have not offered the income, and you can insist on it in the year in which you have.
**Sub-rule (3A)** carves out s.194N (cash withdrawals): there, credit goes to the person from whose account the tax was deducted, for the assessment year relevant to the previous year in which the deduction is made — because a cash withdrawal is not income and there is no year of assessability to tie it to.
**Sub-rule (4) — how it is granted.** Credit 'shall be granted on the basis of' the deductor's information and the claim made in the return of income, 'subject to verification in accordance with the risk management strategy formulated by the Board from time to time'. Two things follow. The claim in your return matters, so a credit not claimed in the correct schedule is not granted by the system. And verification is a departmental process, not a reason to refuse: CBDT Instruction No. 5/2013 dated 8 July 2013 directs that where the assessee produces the deductor's TDS certificate against a mismatched amount the officer must verify whether the deductor has paid, and give the credit if he has, using his power to check with the TDS jurisdiction officer or to require the deductor to file a correction statement.
Where the deductor's statement is defective — wrong PAN, wrong section, wrong year, wrong amount — the fix is at the deductor's end, by a correction statement. Rule 37BA gives the officer no power to grant credit contrary to the information without verification, which is why the practical sequence is: get the deductor to correct the statement, and in the meantime keep the demand off your back under s.205 (see the separate entry on the bar against direct demand). The Delhi High Court's directions in Court On Its Own Motion v. CIT are the authority that a claim supported by the deductor's certificate is not to be rejected merely because the amounts do not tally.
On the Income-tax Act, 2025 and the Income-tax Rules, 2026: I did not locate the successor to s.199 or to rule 37BA from an official source, so no new-Act references are given here.
Almost every 26AS or AIS mismatch is really a rule 37BA question wearing a different hat — the credit exists, but in the wrong year or against the wrong person. Knowing which sub-rule you are in decides whether the answer is a rectification claiming credit in the correct year, a declaration to the deductor under sub-rule (2), or a correction statement from the deductor. It also tells you when the department is right: a claim under sub-rule (2) without the declaration having been filed is not merely unproved, it is outside the rule.
The deductor deducted my tax and never deposited it. The Assessing Officer says he cannot give me credit until the money reaches the treasury, and has attached my bank account. Is he right on both counts?
My company withdraws crores in cash every month to pay plantation wages. The bank is deducting under section 194N even though the withdrawal is my own money and not income. Is there a challenge to the section, and where does it stand?
My tenant deducted tax from my rent but never paid it over or gave me a Form 16A. The department is now recovering it from me - can it?
The officer has passed a s.154 order shifting my TDS credit to the next year because the payer's accounting year is different from mine. Can he do that by rectification?
A vendor billed my sister concern but put my PAN on the TDS certificate, so my 26AS shows receipts and TDS that are not mine. The tax has been paid by the sister concern. Can I claim the credit without offering that income?
CPC has refused my TDS credit and adjusted the refund against an old demand. What did the Delhi High Court actually direct?
My employer deducted tax from my salary but never paid it over. Can the department recover it from me and adjust my refunds?
My customer deducted TDS on my bills and deposited almost none of it, and I have no Form 16A. Can I still get the credit and stop the demand?
Every page in this library links to what it was written from, so you can check it rather than take our word for it.
