Tax Deducted at Source (TDS) is a system where tax is collected by the government at the time income is earned. However, many taxpayers face a situation where TDS gets deducted in one financial year but is deposited or reflected in Form 26AS or AIS in the next year. This leads to confusion about when and how to claim the TDS in the Income Tax Return (ITR).
This article explains why TDS gets carried forward, the legal provisions governing such cases, and how taxpayers can correctly claim accumulated TDS in the appropriate financial year.
Why Does TDS Accumulate to the Next Year?
Some common reasons for TDS appearing in the next year are:
- Income earned in one financial year but payment received in the next year
- Deductor deposited TDS in April or later
- TDS return filed late by deductor
- Salary arrears received late
- Banks deduct TDS at the time of payment instead of accrual
- Income is recognized in books earlier but payment is delayed
Due to these reasons, income belongs to one year while TDS reflects in another.
Legal Rule – Section 199
Section 199 of the Income Tax Act clearly states:
TDS credit shall be allowed only in the year in which the corresponding income is taxable.
This means TDS should not be claimed simply based on the year it appears in 26AS or AIS. It must match the year of income recognition.
Supporting Provision – Rule 37BA
Rule 37BA further clarifies:
- TDS credit must be allowed in the year in which the income is assessable.
- If income is assessable across multiple years, TDS credit should be apportioned proportionately.
- If PAN is correctly mentioned, TDS should be allowed even if deposited late by the deductor.
Therefore, taxpayers are legally entitled to claim TDS even if it reflects in the next financial year, provided the income is correctly reported.
Example 1 – Bank Interest
- Interest pertains to FY 2024–25
- Bank deducts TDS in April 2025
- TDS appears in FY 2025–26 Form 26AS
Correct treatment:
- Report interest income in FY 2024–25
- Claim TDS in the same year by manually entering it in the ITR schedule
This is valid even if 26AS of FY 2024–25 does not show the TDS.
Example 2 – Professional Income
- Services rendered in FY 2024–25
- Client deducts and deposits TDS in July 2025
The income belongs to FY 2024–25. Therefore, TDS must also be claimed in FY 2024–25 ITR.
How to Claim TDS in ITR When It Appears Next Year
Step 1 – Report Income in the Correct Year
Declare the income in the year to which it belongs, not the year of TDS deposit.
Step 2 – Manually Enter TDS Details in ITR
In the ITR utility:
- Open “Schedule TDS”
- Enter:
- Deductor’s name
- TAN
- Amount of TDS deducted
- Related income amount
Even if the system does not auto-populate, manual entry is fully valid under law.
Step 3 – Keep Supporting Documents
Maintain:
- TDS certificate (Form 16/16A)
- Bank statements
- Ledger or income proof
These may be required during scrutiny.
If You Forgot to Claim TDS in the Correct Year
If TDS was not claimed earlier:
- File a Revised Return, if within the time limit.
- If the due date has passed, file a Condonation Request under Section 119(2)(b) to claim refund.
What Causes CPC Mismatch Notices
CPC notices typically arise when:
- Income is reported in one year but TDS is claimed based only on 26AS of another year
To resolve:
- Provide clarification that income belongs to the same year in which the TDS credit is claimed
- Submit supporting proofs
- Rule 37BA allows credit in such cases
Key Principles to Remember
- TDS credit must match the year of income taxation.
- Reflecting in 26AS of a different year does not change the eligibility.
- Taxpayer can manually claim TDS in ITR based on Section 199 and Rule 37BA.
- Revised return and condonation relief are available if claimed incorrectly.
Conclusion
TDS reflecting in the next financial year is a common issue, but the Income Tax Act provides clear guidance. TDS credit should always be claimed in the year to which the corresponding income belongs, even if the TDS is deposited late. By correctly reporting income and TDS and maintaining documentation, taxpayers can avoid mismatches, CPC denials, and loss of refund.
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