Introduction of new Form 71 for claiming TDS credit which is deducted in a subsequent assessment year

There have been many instances wherein a person responsible for deducting TDS (‘deductor’) has deducted TDS in the year of making payment to the deductee. However, following the mercantile system of accounting, the deductee has already disclosed such accrued income in his return of income of earlier year. Because of this mismatch, the deductee is not able to get the TDS credit of such accrued income in the same year in which the income is offered to tax as the corresponding TDS does not reflect in the Form 26AS of the deductee. For example, ABC Ltd provides certain services to customer X in F.Y. 2022-23 and raises invoice for the same in FY 2022-23 itself. Since ABC Ltd follows mercantile system of accounting, the said income is offered to tax in the FY 2022-23.. However, customer X deducts TDS while making payment to ABC Ltd in F.Y. 2023-24 (A.Y. 2024-25). This results in TDS credit mismatch.

In order to overcome this difficulty, in the Finance Act 2023, sub-section 20 was inserted to section 155 of the Income Tax Act, 1961, with effect from 01.10.2023. This new sub-section is applicable when an income has been reported in an Income Tax return (‘ITR’) for a specific assessment year, and tax was withheld by the deductor and paid to the government in a later financial year. In order to avail TDS credit in the same year in which the income is offered to tax, a tax payer has to make an application in form 71.

FORM 71

1. Time limit:

It has to be filed within 2 years from the end of the financial year in which TDS is deducted.

2. CONTENTS OF FORM 71:
3. Name of the person furnishing the application
4. PAN and Aadhaar number (if available) of the person furnishing the application

• Name of the person in respect of which application is being furnished {If different from (1.)}

2. PAN of the person in respect of which application is being furnished {If different from (2.)}
3. Whether the deductee is resident or non-resident?
4. Address of the person furnishing the application

• PIN/Zip Code of the person furnishing the application
• E-mail Id

1. Mobile Number
2. Relevant Assessment Year referred to in sub-section (20) of section 155 i.e. the assessment year in which the income is offered to tax
3. Subsequent financial year referred to in sub-section (20) of section 155 i.e. the financial year in which the tax is deducted and paid by the deductor

• Date on which return of income for relevant assessment year was furnished(dd/mm/yyyy)

3. Furnishing of form 71:

Form 71 shall be furnished to Principal Director General of Income Tax (Systems) or the Director General of Income Tax (Systems) or the person authorised by the Principal Director General of Income Tax (Systems) or the Director General of Income Tax (Systems).

4. Mode of furnishing form 71:

Form 71 shall be furnished electronically:

1. Under digital signature, if the return of income is required to be furnished under digital signature ;
2. Through electronic verification code (EVC) in a case not covered under point (1.)

5. The Principal Director General of Income Tax (Systems) or the Director General of Income Tax (Systems),as the case may be, or any person authorised by the Principal Director General of Income Tax (Systems) or the Director General of Income Tax (Systems) shall forward Form No. 71 to the Assessing Officer (‘AO’).

The AO shall amend the order of assessment or any intimation allowing credit of such tax deducted at source in the relevant assessment year i.e. the assessment year in which the income is offered to tax by the applicant.

It is also proposed to make an amendment to section 244A of the Act to provide that the interest on refund arising out of the above rectification shall be for the period from the date of the application to the date on which the refund is granted.

Authors:

Nishika Acharya

Senior Associate at MASD & Co | Email: nishika.acharya@masd.co.in

Palash Jain

Associate at MASD & Co | Email: palash.jain@masd.co.in