Form 71: TDS Claim in the Correct Tax Year

Form 71 enable taxpayers in correcting errors in tax deduction at source (TDS).

This form is also applicable when TDS has been deducted but the related income is offered in a later year.

TDS Claim Rules

TDS Claim Under Section 199 with Rule 37BA of Income Tax law states that:

• TDS credit can only be claimed in the year when the related income is declared and offered for taxation.

• Only the person who is assessable for the income on which TDS was deducted can claim the TDS credit.

How does Form 71 help in cases of time lag in income and TDS?

Case 1 : TDS deducted but income offered to tax later

TDS is deducted in one financial year, but the income is taxed in a subsequent year.

For Example

Abhay & Co. is a CA Firm who has audited CSB Private Limited in the month of July for FY 22-23.

CSB Private Limited paid the audit fees amounting Rs 5 Lakh and deducted TDS @ 10% in the FY 22-23.

But Abhay & Co. issued invoice to CSB Private Limited in the month of July 23 as the service was provided in the FY 23-24.

In this case what to do whether the TDS amount Rs 50,000 of Abhay & Co. coming in 26AS in the FY 22-23 can be claimed in FY 22-23?

Solution:

Since the income is not offered to tax in the year FY 22-23, Abhay & Co. cannot claim TDS (5 Lakh @ 10%) = Rs. 50,000 in that year.

It can claim the same TDS in the FY 23-24 as the income is billed and offered to tax in FY 23-24 only.

How to reflect the same in IT Return?

ITR Schedule TDS provides us the facility to carry forward and brought forward the TDS in order to claim TDS only in that year in which income is offered to tax.

Case 2 : Income offered to tax but TDS deducted later

Income is taxed first, but the TDS is deducted in a later financial year.

For Example

A CA Firm - Aditya and Co. rendered services in FY 22-23 to Ignite Private Limited and payment received in the FY 23-24 amounting Rs 10 Lakh.

The client also deducted TDS of @10% at that time.

But the CA Firm - Aditya & Co. recognized the amount Rs 10 Lakh as income in FY 22-23 and paid tax on it.

Since the firm's ITR for FY 22-23 is already filed and the revision period has lapsed, the firm now faces a challenge in claiming the TDS in FY 23-24 as the income was already taxed in FY 22-23. How the firm will claim the TDS?

Solution:

Form 71 allows the taxpayer to claim the TDS credit when the income is offered to tax.

The form must be submitted within two years from the end of the financial year in which TDS was deducted.

The Finance Act 2023 introduced Section 155(20) to handle such situations by allowing taxpayers to claim TDS in the year the income is shown by submitting Form 71.