Section 199 of ITA, 1961 : Section 199: Credit For Tax Deducted

Explanation using Example

Imagine a company, XYZ Corp, pays its employee, John, a monthly salary of ₹50,000. As per the Income-tax Act, XYZ Corp is required to deduct tax at source (TDS) on this salary. Let's say the TDS amount is ₹5,000 per month. When XYZ Corp deposits this TDS of ₹5,000 to the Central Government, it is considered as tax paid on behalf of John, the employee.

Now, when John files his annual income tax return, the ₹60,000 (₹5,000 x 12 months) that has been deducted and deposited by XYZ Corp will be treated as tax already paid by John. He will get credit for this amount against his total tax liability for the year. If the total tax liability is calculated to be ₹70,000, John would only need to pay the balance ₹10,000, as the ₹60,000 TDS is already accounted for.

If there are any specific rules or circumstances where tax credit needs to be given differently, the Central Board of Direct Taxes (CBDT) has the authority to make rules for that, ensuring John or any other taxpayer in a similar situation receives the appropriate credit for taxes deducted or paid.