Need for allowance of TDS credit in the hands of person other than recipient:
1. As per Sec 199 of the Income Tax Act read with Rule 37BA of the Income Tax Rules, TDS credit shall be given to the person to whom payment is made or credit has been given.
2. However situations may arise where payment is made to one person but the income is taxable in the hands of another person. Possible situations could be as follows:
a. There could be a case where property is jointly owned by a couple but the entire cost of acquisition is paid by only husband. Now if this property is to be sold, the capital gain would be clubbed in the hands of the husband.
b. Shares are sometimes held by parents on behalf of the minor child. Any dividend may be received in the bank account opened in the name of the minor but taxable in the hands of the parent.
3. In such situations, TDS credit should be allowed in the hands of the person in whose hands the income is taxable.
Process for allowance of credit in the hands of person other than recipient:
1. The proviso to Rule 37BA(2) serves the purpose of regularizing the allowance of credit for TDS to a person other than the income recipient.
2. It mandates the furnishing of particulars of the other person (the recipient) to enable the deductor to issue a TDS certificate in their name.
3. While No Form or Format of the declaration has been provided, the declaration shall contain:
a. name, address, permanent account number of the person to whom credit is to be given
b. payment or credit in relation to which credit is to be given
c. reasons for giving credit.
4. The Deductor is also required to keep the said declaration in his safe custody.
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