Rule 37BA of the Income Tax Rules, 1962

It deals with the credit for tax deducted at source (TDS) for the purposes of section 199. According to this rule, credit for TDS and paid to the Central Government shall be given to the person to whom payment has been made or credit has been given (hereinafter referred to as the deductee) on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorized by such authority¹.

In cases where the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee, credit for TDS shall be given to the other person and not to the deductee. This is provided that the deductee files a declaration with the deductor and the deductor reports the tax deduction in the name of the other person in the information relating to deduction of tax¹.

Here's an illustration: Let's say Mr. A receives a payment from Mr. B on which tax has been deducted at source by Mr. B. However, this income is assessable in the hands of Mr. C and not Mr. A. In this case, credit for TDS shall be given to Mr. C and not Mr. A, provided that Mr. A files a declaration with Mr. B and Mr. B reports the tax deduction in the name of Mr. C.

Here's an illustration of how Rule 37BA applies in the context of clubbing of income: Let's say Mr. X has transferred funds from his account to his wife's account, and she has used these funds to make a fixed deposit (FD) in her name. The interest earned on this FD is subject to tax deducted at source (TDS). According to the clubbing provision of the Income Tax Act, this interest income should be taxable in the hands of Mr. X as the source of funds for this FD was from his account. Now, as per Rule 37BA (2), TDS on this interest income should also be claimed by Mr. X only. However, in this case, the deductee was Mrs. X (the wife). Therefore, Mrs. X should file a declaration with the deductor (the bank) to report such tax deduction in the name of Mr. X.

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