Rule 203 — Credit for tax deducted or collected at source. Made under s.393, s.394 of the Income-tax Act, 2025.
Rule 203 gives effect to Section 393 and Section 394 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
The rule decides who gets credit for tax deducted or collected at source, and for which year.
Sub-rule (1) makes credit follow the information furnished by the deductor or collector to the income-tax authority or the person authorised by that authority: credit for tax deducted and paid to the Central Government under Chapter XIX goes to the person to whom payment has been made or whose account has been credited, the deductee; credit for tax collected and paid goes to the person from whom tax has been collected or whose account has been debited, the collectee.
Sub-rules (2) to (4) handle the case where the income belongs to someone else. Where the deductee files a declaration with the deductor that the whole or part of the income on which tax has been deducted is assessable in the hands of a person other than the deductee, or the collectee files a like declaration with the collector, the deductor or collector reports the deduction or collection in the name of that other person, and credit is given to the other person and not to the deductee or collectee. Sub-rule (3) fixes what the declaration must contain — the name, address and Permanent Account Number of the other person, details of the payment or credit in relation to which credit is to be given, and reasons for giving credit to that person — and requires the deductor or collector to keep it in custody. Sub-rule (4) requires the certificate of deduction or collection to be issued to the person in whose name credit is shown in that information, with the deductor or collector keeping the certificate of deduction in his custody.
Sub-rules (5) and (6) fix the year. Credit is given for the tax year for which the income is assessable to tax. Where the income corresponding to the tax deducted is assessable over a number of years, credit is allowed across those years in the same proportion in which the income is assessable; where tax has been collected and the lease or licence relates to more than one year, credit is allowed across the years to which the lease or licence relates in the same proportion.
Sub-rule (7) overrides sub-rules (1) to (6) for particular provisions: for section 393(3) [Table: Sl. No. 5] and section 394(1) [Table: Sl. Nos. 6, 7 and 8], credit is given to the person from whose account the tax is deducted or collected and paid to the Central Government account, for the tax year in which the deduction or collection is made. Sub-rule (8) makes the grant of credit turn on both sources of information — that referred to in sub-rule (1) and the claim in the return of income — subject to verification in accordance with the risk management strategy formulated by the Board from time to time.
Tax deducted at source is paid over in one person's name but the income may belong to another, and it may belong to several years. The Act gives credit for the tax without settling either question. The rule settles both: credit ordinarily follows the deductor's reporting, but a declaration can move it to the true owner of the income, and where the income is spread the credit is spread with it in the same proportion. Sub-rule (7) then carves out the provisions where credit is deliberately tied to the account from which the tax came and to the year of deduction instead.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Tax year for which credit is given | The tax year for which the income is assessable to tax | General rule for tax deducted or collected at source and paid to the Central Government | Sub-rule (5) |
| Allocation of credit where income is assessable over several years | In the same proportion in which the income is assessable to tax | Where tax has been deducted and paid and the corresponding income is assessable over a number of years | Sub-rule (6)(i) |
| Allocation of credit where a lease or licence spans several years | Across those years in the same proportion | Where tax has been collected and paid and the lease or licence is relatable to more than one year | Sub-rule (6)(ii) |
| Year of credit for the overriding cases | The tax year in which the deduction or collection is made | For section 393(3) [Table: Sl. No. 5] and section 394(1) [Table: Sl. Nos. 6, 7 and 8]; credit goes to the person from whose account tax is deducted or collected | Sub-rule (7) |
Credit is not claimed into existence by the return alone. Sub-rule (1) makes it follow the information the deductor or collector furnishes, and sub-rule (8) grants it on that information together with the claim in the return, subject to verification under the Board's risk management strategy — so a mismatch is resolved by getting the deductor's reporting corrected, not by asserting the claim. Moving credit to another person is a two-step process: the declaration under sub-rule (2) is filed with the deductor or collector, and it only works if the deductor then reports in that person's name; the declaration is kept by the deductor, not filed with the Department, and sub-rule (3) makes reasons a required part of it. Timing is governed by the year the income is assessable, not the year of deduction, and where the income is spread over years the credit must be spread in the same proportion rather than taken in full in the first year. Sub-rule (7) reverses that for the provisions it names: there the credit goes to the person from whose account the tax came and in the year of deduction or collection, and it opens with words that override sub-rules (1) to (6).
A property is held by two co-owners but the rent is paid to one of them, and the tenant deducts tax in that person's name. The co-owner files a declaration with the tenant under sub-rule (2), giving the other co-owner's name, address and Permanent Account Number, the details of the rent credited and the reason, and the tenant reports half the deduction in the other co-owner's name and issues the certificate accordingly. Credit for that half goes to the other co-owner and not to the recipient of the rent. Because the rent is assessable in one year, sub-rule (6) does not arise; had it been an advance covering three years, the credit would follow the income across the three in the same proportion.
You meet it whenever a return's tax credit claim is matched against the deductor's reporting, in the certificate of deduction or collection, and in a rectification or grievance where credit has been given to the wrong person or the wrong year.
The credit for tax deducted or collected at source and paid to the Central Government, shall be given for tax year for which the income is assessable to tax.
credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax
The declaration filed by the deductee or collectee under sub-rule (2) shall contain the name, address, Permanent Account Number of the other person to whom credit is to be given, details of payment or credit in relation to which credit is to be given and reasons for giving credit to such person
