Belated FY2025-26 TDS by Employer – what is to be done

To avoid tax demands and penalties for the employer's delayed TDS deduction:

1. Legally Safe: Mr. Z cannot be penalized or charged interest for his employer's administrative delay.

2. ITR Filing Action: Mr. Z must report his full salary income for FY 2025-26 in his current ITR filing and manually add/edit the missing TDS amount in the TDS Schedule so his tax liability becomes zero.

3. Be Prepared for a Notice: Because Form 26AS won't match immediately, the tax department might issue a mismatch notice. Mr. Z can easily resolve this by replying online with his April/May 2026 salary slips and Form 16, proving the deduction was for the previous year's salary.

@ Aashok FC Advisory

Many thanks for your prompt advice.

Mr. Z must report his entire salary income (including the Jan–Mar 2026 period) in his ITR for AY 2026-27. Because the belated TDS was deducted in FY 2026-27, it will not reflect in his Form 26AS for AY 2026-27. To seamlessly claim this credit and clear any potential mismatch notice or tax demand, Mr. Z can file an online application via Form 71 under Section 155(20) once the employer deposits the tax. Furthermore, Section 205 grants him absolute protection against any direct tax penalties or recovery actions.

Because his employer deducted the corresponding TDS belatedly from his April 2026 salary (paid in May 2026), this TDS will only show up in his Form 26AS / AIS for FY 2026-27 / AY 2027-28. If he manually claims it in his AY 2026-27 return without it matching Form 26AS, the CPC will flag it and issue a mismatch notice or automated tax demand.

Legal Remedy 1: Electronic Rectification via Form 71

To resolve hardships arising from such timing gaps, the law provides a dedicated statutory mechanism enabling taxpayers to link late-deducted TDS back to the financial year in which the income was originally declared.

As per Section 155(20) of the Income Tax Act, 1961:

“Where any income has been included in the return of income furnished by an assessee under section 139 for any assessment year and tax on such income has been deducted at source and paid to the credit of the Central Government in a subsequent financial year, the Assessing Officer shall, on an application made by the assessee in such form and within such time as may be prescribed, amend the order of assessment or any intimation under sub-section (1) of section 143, as the case may be, so as to allow credit of such tax deducted at source in the relevant assessment year...”

Under Rule 134 of the Income-tax Rules, 1962, the prescribed format for this application is Form No. 71, which must be submitted electronically within two years from the end of the financial year in which the tax was deducted at source.

Legal Remedy 2: Immunity from Penalty under Section 205

Mr. Z cannot be penalized or forced to pay double tax due to his employer's negligence. The Income Tax Act clearly shields salaried employees when the fault lies entirely with the corporate deductor.

As per Section 205 of the Income Tax Act, 1961:

“Where tax is deductible at the source under the foregoing provisions of this Chapter, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income.”

Because the tax was legally deductible from his salary and has now been recovered by the employer, the Income Tax Department is barred from raising a direct demand against Mr. Z. The tax department's sole lawful recourse for delayed deduction is to penalize and collect interest from the employer directly under Section 201 (treating them as an "assessee-in-default").

Step-by-Step Action Plan for Mr. Z

• Step 1: File the Regular Return for AY 2026-27 Mr. Z must file his regular ITR for AY 2026-27 by the standard deadline (July 31, 2026), reporting his gross salary income (including Jan–Mar 2026). At this specific stage, he should not claim the missing TDS credit to avoid triggering immediate automated tax demands before the employer even files their paperwork.
• Step 2: Verify the Next Year’s Tax Credit Once his employer files their quarterly TDS return for Q1 of FY 2026-27 (due by July 31, 2026), the belatedly deducted tax will show up in Mr. Z's Form 26AS for FY 2026-27.
• Step 3: Online Submission of Form 71 Once the credit becomes visible in the subsequent year's tax portal ledger, Mr. Z must log into the Income Tax e-filing website, navigate to e-File > Income Tax Forms > File Income Tax Forms, and select Form 71 ("Application for claiming TDS credit").
• Step 4: Processing and Amendment The system will route this form to his Jurisdictional Assessing Officer (AO). The AO will verify the submission, amend the original AY 2026-27 assessment/intimation order, credit the late-deducted TDS to the correct year, and clear any outstanding mismatch records or issue any tax refunds due.

@ Manish

Manishji, Thanks for your very detailed advice.

It will help a lot of Individuals, who must be having same issue I highlighted for Mr Z.