Salary slip shows TDS deducted, but Form 26AS doesn’t? Here’s how the ITAT ruling protected the taxpayer

Thousands of salaried taxpayers rely on Form 16 and salary slips while filing their income tax returns. But what happens if an employer deducts tax from salary and never deposits it with the Income Tax Department?

The issue has come into focus after an Income Tax Appellate Tribunal (ITAT) ruling involving a former Byju’s employee, where the tribunal held that an employee cannot be forced to pay tax again merely because the employer failed to deposit the tax deducted at source (TDS).

TaxBuddy founder Sujit Bangar highlighted the case in a detailed post on X, calling it an important reminder for salaried taxpayers to verify their tax records before filing ITR for FY 2025-26 (AY 2026-27).

What is the Byju’s TDS case?

According to Bangar, Byju’s deducted nearly ₹1.49 crore as TDS from the salary of an employee named Ajay but did not deposit the amount with the tax authorities. He added that the issue reportedly affected 23,621 employees of the company.

Since the tax was never deposited, the employee’s Form 26AS did not reflect the TDS credit. The Centralised Processing Centre (CPC) later raised a tax demand after denying the credit during return processing.

However, the ITAT ruled in favour of the employee and directed that full TDS credit be allowed, observing that the employer’s failure to deposit the tax cannot be shifted to the employee.

What the law says?

Explaining the legal position, Bangar said Section 205 of the Income Tax Act provides protection to employees in such situations.

He mentioned that once tax has been deducted from salary, the employee cannot be asked to pay the same tax again. The responsibility to deposit that tax lies entirely with the employer.

He also pointed to CBDT Instruction No. 275/29/2014 dated June 1, 2015, which states that tax demands arising solely because of a TDS mismatch should not be enforced against employees if tax has already been deducted from their salary.

Bangar further referred to a 2016 Office Memorandum of the Central Board of Direct Taxes (CBDT), saying it reiterates that an employer’s failure to deposit TDS should not create an additional tax liability for the employee. No recovery can be made from the employee in this case.

What should taxpayers do while filing ITR?

Bangar advised salaried individuals to compare the TDS mentioned in their salary slips and Form 26AS before submitting their returns.

If a mismatch is noticed because the employer has not deposited the deducted tax, he said taxpayers should still claim the eligible TDS credit supported by salary records.

Keep a record of your salary slips for all 12 months, Form 16, and bank statements. These documents become important evidence if the tax department raises a query later.

He added that if a tax demand is issued despite TDS having been deducted from salary, taxpayers may consider filing a rectification request under Section 154 while referring to the applicable legal provisions and supporting documents.

The case serves as a reminder that employees are not expected to bear the consequences of an employer’s failure to deposit TDS after deducting it from salaries.

Disclaimer: This is only for informational and educational purposes. Please consult a qualified tax expert for the latest tax laws and regulations.