Employee Cannot Be Penalised If Employer Fails To Deposit TDS, Says ITAT Kolkata
Employee Cannot Be Penalised If Employer Fails To Deposit TDS, Says ITAT Kolkata
The ITAT Kolkata ruled that an employee cannot be penalised if the employer deducts but fails to deposit TDS. It directed tax authorities to grant full TDS credit to the taxpayer and remove the demand, holding the employer responsible for the default.
The case has been filed by a taxpayer named Ajay Kumar Goel in the ITAT Kolkata, challenging an order passed by the ld.Addl/JCIT(A), Gwalior, on June 02, 2025. The case is related to the assessment year 2024-25.
The taxpayer works in a company named M/s Think & Learn Private Limited. The taxpayer had been receiving his salary from the said company for his work done. His employer deducted TDS of Rs. 14,881,489 from his salary. However, his employer did not deposit this TDS with the government. Therefore, when Ajay claimed the TDS credit in his tax return, the Income Tax Department refused to credit him the amount and raised a tax demand on him.
The taxpayer argued that the employee should not be punished if the employer failed to deposit the TDS to the government. To support his argument, he cited a CBDT Instruction (2015), which states that taxpayers should not face problems if the employer deducts TDS but doesn’t deposit it. The CBDT Office Memorandum (2016) states that the same credit should not be denied to employees. Section 205 of the Income Tax Act says that if tax is already deducted from someone’s salary, the tax department cannot ask that person to pay the same tax again.
On this point, the tax department argued that, as per the law, they cannot release TDS credit unless the employer deposits the desired TDS amount to the government.
When the tribunal analysed the arguments of both sides, it observed that once TDS is deducted from the employee’s salary, it is considered as paid on behalf of the employee. If the employer does not pay it to the government, then it is the fault of the employer and not the employee. Hence, an employee should be punished for a mistake made by the employer. Thus, the tax department cannot demand this tax again from the employee (Section 205). The department should take action against the employer, not the employee.
To announce its final decision, the Tribunal also criticised the JCIT(A) for ignoring previous tribunal and High Court decisions, reminding it that judicial discipline must be followed. Directed the tax authorities to release the full TDS credit to the employee and remove the tax demand raised due to the non-deposit of TDS by the employer.