If your bank, employer, or any financial institution has deducted taxes in the wrong financial year, you can now resolve this issue directly through the income tax department. You don't need to go to the tax deductor for help. The Central Board of Direct Taxes (CBDT) has introduced Form 71, which allows taxpayers to correct incorrect Tax Deducted at Source (TDS) credits for past financial years. This notification was issued on August 30, 2023.
Here's an example to help you understand
Let's say you earned interest on a Fixed Deposit (FD) of Rs 1 lakh in the financial year 2022-23 (Assessment Year 2023-24), and the bank deducted TDS in the financial year 2023-24 (Assessment Year 2024-25). Since the bank deducted tax in the wrong year, you couldn't claim this TDS credit in 2023-24. The FD interest should have been taxed in 2022-23, and the TDS credit can only be claimed for that year.
Similarly, if you hold shares in a company and they pay dividends in a different financial year than you declared them in your Income Tax Return (ITR), there can be a TDS credit mismatch. To fix this issue, starting from October 1, 2023, you can directly contact the income tax department instead of visiting the bank.
Form 71 can be used to resolve TDS mismatch problems for income from previous financial years. Many taxpayers faced issues because tax was deducted in the year of payment, while they declared income when it was due to them, resulting in a TDS credit mismatch.
The CBDT introduced this new form because taxpayers often couldn't file revised ITRs to claim tax credits due to the expiration of the deadline.
For example, in cases where businesses provide services on an accrual basis and the service receiver deducts tax when they pay for the services, this form can help claim the TDS credit, even if it wasn't reflected in Form 26AS (the tax credit statement) for the same financial year.
This new form simplifies the process of claiming TDS credits, ensuring that eligible refunds are not held up due to income and TDS mismatch.
Form 71 allows individuals to correct TDS credit mismatches when they've already declared income in a previous ITR for that year.
To use Form 71, there's a deadline. You can submit it to the income tax department within two years from the end of the financial year in which TDS was deducted. After this deadline, you cannot submit the form.
To submit Form 71, you can do it online on the income tax e-filing portal. You must verify it either using an electronic verification code (EVC) or a digital signature certificate (DSC), depending on what's applicable to you.
The author is a Chartered Accountant with 2 decades of experience into Accounting, Taxation, Auditing, Risk & Compliance, Credit Controls, Due diligence. Currently, the author is the founder and managing partner at RRL Global Services. She can also be reached at rrlglobal@yahoo.com
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