Is the employee at risk if the employer has not deposited TDS to the government?

It is only in rare cases that the employer fails to deposit tax deducted (TDS) from the salary of employees to the government. I have come across many cases of delay in payment but not non-payment of taxes.

Kingfisher case – However, I have come across two cases of non-payment of TDS. Two of my clients who were working at Kingfisher Airlines as pilots had encountered this problem. We did file their Income Tax return considering TDS amount done by the company, though Form 26AS of these employees were not showing TDS credits.

We were asked whether the employees will be at fault if the employer fails to pay taxes. Will income tax department chase employees for short/no credit of TDS?

Central Board of Direct Taxes (CBDT) through their letter No.275/29/2014 – IT (B) dated 1^st June 2015 clarified the position of the department in cases where the employer has failed to pay TDS amount. The extract of the same is reproduced below –

Grievances have been received by the Board from many taxpayers that in their cases the Deductor has deducted tax at source from payments made to them in accordance with the provisions of Chapter-XVII of the Income-tax Act, 1961 (hereafter ‘the Act’) but has failed to deposit the same into the Government account leading to denial of credit of such deduction of tax to these taxpayers and consequent raising of demand.

2. As per Section 199 of the Act, credit of Tax Deducted at Source is given to the person only if it is paid to the Central Government Account. However, as per Section 205 of the Act the assessee shall not be called upon to pay the tax to the extent tax has been deducted from his income where the tax is deductible at source under the provisions of Chapter- XVII. Thus the Act puts a bar on direct demand against the assessee in such cases and the demand on account of tax credit mismatch cannot be enforced coercively.
3. This may be brought to the notice of all the assessing officers in your region so that if the facts of the case so justify, the assessees are not put at any inconvenience on account of default of deposit of tax into the Government account by the Deductor.

Thought for the day

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