TDS Frequently Asked Questions
TRACES Portal FAQ Extraction
Q1: Why should I change my password if I have already set up a strong password?
A: The TRACES Portal requires all users to update their account password every 180 days, regardless of its strength. This is a mandatory security measure prescribed under the Guidelines for Indian Government Websites (GIGW) to ensure enhanced protection of user accounts and compliance with government standards.
Q2: I forgot to change my password on TRACES Portal within 180 days and now it has expired. What should I do now?
A: If your TRACES Portal password has expired after 180 days, you will not be able to login with your current password. You have to use the “Forgot Password” functionality to set a new password by authenticating with OTP on your registered Email ID and Mobile Number.
Q3: Can I re-use any of my previous passwords while changing my TRACES Portal password?
A: No. The TRACES Portal does not allow the reuse of any of your last three passwords. This restriction is enforced as a security measure. If the new password matches any of the previous three, the system will display an error message, and you must create a different password that complies with the TRACES password guidelines.
Q4: What are the modes of paying tax on income during a tax year?
A: Section 390(1) specifies three modes through which tax on income must be paid during a tax year. These include deduction or collection of tax at source (TDS or TCS), advance payment of tax, and payment of tax on non-monetary perquisites as per section 392(2)(a) of the Act. (Section 390(1))
Q5: Whether the payment of tax under the modes like advance tax, TDS, TCS etc has to be made even though assessment in respect of such income is liable to be made in future?
A: Yes. Payment of taxes has to be made, irrespective of the fact that assessment in respect of such income is to be made in a later tax year. (Section 390(2))
Q6: Does prescribing the modes of payment of tax under section 390 like advance tax, TDS etc affect the fundamental charge of tax on income?
A: No. Section 390(3) explicitly clarifies that the provisions of this section do not affect the charge of tax under section 4(1). While section 4(1) establishes the basis of charge of income tax, section 390 merely prescribes the modes of payment for such tax. Accordingly, the charge of tax remains unaffected and operates independently of the collection mechanisms set out in section 390. (Section 390(3))
Q7: Are payment of tax referred to in Section 390(1) in addition to any other modes of tax recovery?
A: Yes. Section 390(4) clarifies that the payment of tax made through deduction or collection at source, advance tax, or payment of tax on non-monetary perquisites as per section 392(2)(a) are in addition to any other modes of tax recovery used to discharge the assessed tax liability for a tax year. (Section 390(4))
Q8: How does the law ensure that the responsibility to pay tax rests with the assessee when TDS mechanisms do not apply or fail?
A: Section 391(1) provides that an assessee is required to pay income tax directly in cases where no provision exists for tax deduction at source on a particular income. It also mandates direct payment when tax was required to be deducted at source but has not been deducted.
Example 1: Mrs. A (individual) earns income from sale of listed shares during the tax year. There is no provision under Chapter XIX requiring TDS at the time of such receipt. Mrs. A must pay income-tax directly on the resulting capital gains by way of advance tax during the tax year or self-assessment tax while filing her return.
Example 2: If a company (deductor) pays a contractor Rs.5,00,000 for services and is required to deduct tax at source, but fails to do so, the contractor (deductee/assessee) must pay the tax directly to the government. This ensures that the liability to pay tax ultimately rests with the deductee/assessee and prevents loss of revenue. (Section 391(1))
Q9: How does Section 391 apply to specified securities or sweat equity shares allotted by eligible start-ups?
A: Section 391(2) deals with income arising from specified securities or sweat equity shares covered under section 17(1)(d), when these are allotted or transferred by an eligible start-up referred to in section 140 by current employer. In such cases, the direct payment of tax must follow the provisions of section 289(3). This ensures that tax liability aligns with the specific conditions applicable to employee stock benefits granted by eligible start-ups. The provision recognises the unique nature of these benefits and links tax payment to the deferred mechanism provided in section 289(3). (Section 391(2))
Q10: What happens when a person responsible for deduction of tax fails to deduct or pay it?
A: Where any person, including the principal officer of a company, who is required to deduct any sum in accordance with the provisions of this Act, or who is an employer referred to in section 392(2)(a), fails to deduct the whole or any part of the tax, or after deducting fails to pay such tax, wholly or partly, as required under this Act, and the assessee (deductee) has also failed to pay such tax directly, then such person shall, apart from any other consequences that may arise, be deemed to be an assessee in default within the meaning of section 398(1) in respect of such tax. (Section 391(3))
Q11: Do the provisions of this chapter relieve the assessee from tax liability if tax is not deducted at source?
A: No. Section 391 does not absolve the assessee of their tax liability. If tax is not deducted or collected as required, the assessee remains obligated to pay the tax directly under Section 391(1). Even though the deductor may be deemed an assessee in default under Section 391(3), this does not reduce the assessee’s responsibility. (Section 391(3))
Q12: Does section 391(3) absolve the deductor from being deemed an assessee in default solely on the ground that the assessee has paid tax?
A: Section 391(3) applies only where both the deductor and the deductee fail to pay tax. If the deductee/assessee has already paid the tax directly, the deductor may not be treated as an assessee in default, subject to the provisions of section 398(2). (Section 391(3)) Deduction and Collection at source.
Q13: With introduction of Income-tax Act, 2025 w.e.f. 1.04.2026, which provisions will apply for TDS for FY 2026-27?
A: The applicable legal framework for Tax Deducted at Source (TDS) is determined entirely by the date on which deduction is made or payment is credited, whichever is earlier, because withholding obligations arise at the time of payment or credit rather than when income is earned.
The Income-tax Act, 2025 comes into force on 1 April 2026 and replaces the earlier statute as the governing law for income-tax matters from that date onward. Thus, for Financial Year 2026-27 (1 April 2026 to 31 March 2027), all TDS compliances will be governed by the provisions of the 2025 Act.
The rates in force at which tax is to be deducted at source will also be in accordance to the Finance Act, 2026 which will detail the rates in force for TDS applicable to the Income-tax Act, 2025. Deductions made on or before 31 March 2026 will continue to be governed entirely by the earlier law, even if the tax is deposited or reported afterward, whereas deductions made on or after 1 April 2026 must comply with the new Act.
Example: For a salary payment made on 31.3.2026 – Provisions of section 192 of Income-tax Act, 1961 shall apply. For a salary payment on 2.4.2026 – Provisions of section 392 of Income-tax Act, 2025 shall apply.
Q14: How does the deduction of tax at source (TDS) apply to Salary payments and what are the obligations for an employer regarding TDS on salary payments to his employees?
A: Section 392(1) requires any person responsible for paying income chargeable under the head “Salaries” to deduct income tax at the time of payment. The deduction must be made at the average rate of income tax, which is computed based on the rates in force for the tax year and applied to the employee’s estimated salary income for that year.
This means the employer must estimate the total salary for the year, compute the total tax on that estimated income, and then determine an average rate to apply uniformly on each payment. The following steps should be followed to estimate the TDS which is to be deducted and paid monthly:
The employer should take into consideration salary from other employers, any relief allowable under section 157, any loss under the head “Income from House Property”, any tax deducted or collected at source for the same tax year and other particulars mentioned in Section 392(4) and accordingly estimate the total salary for the year;
Compute the total tax on that estimated income, and then determine an average rate to apply uniformly on each monthly salary pay-out. (Section 392(1))
Q15: Is TDS required to be deducted even if salary is paid in advance or arrears?
A: Yes. TDS under section 392 applies whenever salary is paid, whether in advance, arrears, or on regular basis. (Section 392)
Q16: Can an employer choose to pay tax on a non-monetary benefit instead of deducting it from the employee’s salary?
A: Yes. As per section 392(2)(a), an employer may opt to pay the tax on a non-monetary perquisite chargeable to tax under section 17(1), provided to an employee without recovering the tax from the employee’s salary, thereby bearing the tax liability itself.
Example: XYZ Pvt. Ltd. provides rent-free accommodation to its employee Neha. Instead of deducting tax from Neha’s salary, the employer company may pay the tax on this non-monetary benefit on her behalf. (Section 392(2)(a))
Q17: How is the tax calculated on non-monetary perquisites and treated, when the employer pays it?
A: The tax is calculated at the employee’s average tax rate, based on the total annual salary including the value of any income in the nature of non-monetary perquisite paid by the employer. The tax paid by the employer is treated as Tax Deducted at Source and credited to the employee.
Example: ABC Ltd. provides a company car to its employee Amit. The value of the car may be included in Amit’s total salary to determine his average tax rate. The tax paid by ABC Ltd. on this benefit is treated as TDS and reflected in Amit’s tax records.
Q18:When and how is tax paid on income arising from specified securities or sweat equity shares provided by an eligible start-up?
A: Under section 392(3), an eligible start-up referred to in section 140, paying income in the form of specified securities or sweat equity shares under section 17(1)(d), shall deduct or pay tax- at rates in force for the tax year of allotment or transfer, and the time prescribed for the employee under section 289(3) Example:If an employee of an eligible start-up receives ESOP shares in 2025, the employer must apply the tax rates applicable for tax year 2025 and remit TDS within the extended timeline allowed to the employee under Section 289(3). These details can either increase or decrease the TDS on the salary.
Q19:What obligations under Section 392(5) does an employer have who is responsible for paying any income under the head “Salaries” to the assessee?
A: Section 392(5)(a) requires the employer to furnish a prescribed statement containing correct and complete particulars of perquisites or profits in lieu of salary, along with their value. Under Section 392(5)(b), the employer must also obtain evidence, proof, or particulars of prescribed claims from the employee-(including claim of set-off of loss-before estimating income or computing TDS. Further, Section 392(5)(c) permits the employer to adjust TDS during the year by increasing or reducing subsequent deductions when excess or deficiency arises out of pervious “deduction” or failure to deduct during the tax year. (Section 392(5)(c))
Q20:How is tax deducted on payments from provident funds and superannuation funds?
A:Under Section 392(6)(a), trustees of a recognised provident fund must deduct tax at the time of paying accumulated balances to employees as per Part A of Schedule XI. Similarly, under Section 392(6)(b), if employer contribution (and related interest) in an approved superannuation fund is paid to the employee, trustees of the fund must deduct tax as specified in Part B of Schedule XI. Section 392(7) imposes a mandatory 10% TDS on accumulated PF balances of Rs.50,000 or more paid to an employee under the Employees’ Provident Funds Scheme, 1952, when the balance becomes taxable because paragraph 8 of Part A Schedule XI does not apply. This applies regardless of other provisions of the Act and ensures taxation of taxable PF withdrawals at source. (Section 392(6)(a))
Q21:How is tax deducted at source (TDS) calculated when an employee’s salary is paid in foreign currency?
A: When an employee’s salary is paid in foreign currency, it must first be converted into Indian rupees at the prescribed exchange rate before calculating TDS. (Section 392(8))
Q22:How does tax deduction at source (TDS) apply to various types of payments other than the salary during the tax year, and what rules determine when and how much tax must be deducted?
Section 393 prescribes for deduction of tax at source (TDS) on a wide range of payments made during the tax year. It prescribes when TDS must be applied, by whom, and at what rates, based on the nature of income listed in the detailed tables for residents and non-residents. The section ensures that tax is collected at the point of payment or credit-whichever occurs earlier. The provision also lays out threshold limits for each category so that small-value payments are not subjected to TDS unnecessarily. Additionally, the section includes specific notes and conditions to clarify calculation methods, exceptions, and priority rules when multiple categories may apply. Overall, Section 393 provides a comprehensive framework for TDS compliance across almost all major types of payments. (Section 393)
Q23:Who is required to deduct TDS on various payments other than the salary during the tax year, and at what point should the deduction be made?
A: Section 393(1)(c) requires the person responsible for paying the income listed in the table to deduct TDS. This applies regardless of whether the payer is an individual, company, business trust, e-commerce operator, bank, or any other specified entity. TDS must be deducted at the earlier of the following events: Credit of the income or sum to the account of the payee, or Actual payment, whether in cash, cheque, draft, or any other mode. It means that even if the income is not actually paid but is credited, the payment is liable for TDS deduction. Example:If rent for April is credited to the landlord’s account on April 30 but physically paid on May 5, tax is to be deducted on April 30 because credit occurred earlier. (Section 393(1)(c))
Q24:How the tax will be deducted, where the consideration or benefit or perquisite provided is wholly/partly in kind and partly in cash and when the cash component is not sufficient to meet the liability of deduction of tax in respect of whole of such payment?
A: In such cases the person responsible for paying or providing shall ensure that the tax required to be deducted has been paid, before releasing such consideration or providing such benefit or perquisite, as the case may be. Example:If an influencer receives a laptop worth Rs.80,000 and Rs.5,000 in cash as a promotional benefit, and the cash is insufficient for 10% TDS (Rs.8,500). The company must ensure that the Rs.8,500 TDS is deposited-either by collecting it from the influencer or paying it themselves-before handing over the laptop. (Section 393)
Q25: How TDS is calculated where material and labour cost are separately shown in the invoice?
A: If the contract involves work including both labour and material supply then TDS is required to be deducted on labour portion only, if material value is specified separately in the invoice; Otherwise, TDS applies on the whole of the invoice value.
Q26: Are the TDS provisions different for payments made to residents and non-residents?
A: Yes. The section 393 contains two distinct tables-one for payments to residents and one for payments to non-residents.
Q27: Who is a specified person for the purpose of TDS?
A: Specified person means- Any person who is not an individual /HUF (it may be a company, firm) or An individual /HUF whose gross receipts/sales/turnover from business or profession exceeds Rs.1,00,00,000 from business or Rs.50,00,000 from profession.
Q28: Whether TDS required to be deducted on interest paid to a non-resident who has no residence or place of business or business connection in India or any other presence in any manner whatsoever in India?
A: Note 3 under serial no 17 of Non-Resident Table clarifies that TDS is required even if the non-resident does not have a business connection, residence, or any form of presence in India.
Q29: How does TDS apply in respect of income of units of a Mutual Fund or units from specified company or securities mentioned at Sl. No. 10 and 15 of non-resident table, when specific agreements or certificates exist?
A: TDS in respect of income mentioned at Sl. No. 10 and 15 is ordinarily deducted at 20%. However, if the payee has a valid agreement under section 159(1) or 159(2), and furnishes a certificate under section 159(8), then the rate or rates of income-tax in that certificate shall be applied, if such rate is lower than 20%.
Q30: Explain TDS on income of non-resident sportsmen and sports associations/institutions.
A: Income referred to in section 211 paid to:
Non-resident sportsmen (not Indian citizens), or
Non-resident sports associations/institutions
Being an entertainer, who is not a citizen of India and is non-resident
…are subject to TDS @ 20%, irrespective of the nature of payment (appearance fee, prize money, etc.).
Q31: Whether TDS required on compensation or enhanced compensation for compulsory acquisition of land?
A: No, TDS is required where compensation or enhanced compensation is exempt under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.
Q32: Whether interest paid on compensation for compulsory acquisition of land subject to TDS?
A: Yes, TDS is required where interest is paid on compensation or enhanced compensation on compulsory acquisition, as interest is not exempt from tax.
Q33: Whether TDS required for payment on purchase of agricultural land?
A: No, for purchase of immovable property which in the nature of agricultural land, no TDS is required to be deducted.
Q34: “A” has purchased an apartment for Rs.75,00,000/-, however the stamp duty value of that apartment is Rs.80,00,000/-, what should be the TDS?
A: TDS is deductible on the higher amount of Rs.80,00,000/-, amounting to TDS of Rs.80,000/- at the rate of 1% which should be deducted while making the payment.
Q35: “A” has purchased an apartment for Rs.1,50,00,000/-. A has paid this amount by way of 3 instalments, each instalment equalling Rs.50,00,000/-. How should the tax be deducted?
A: TDS is to be made at the rate of 1% from each instalment. Therefore, TDS of Rs.50,000/- (at the rate of 1%) should be deducted when each instalment Rs.50,00,000/- is paid to the developer/builder. Total TDS deduction in this case would be Rs.1,50,000/-. The deductor should not wait for TDS deduction till the entire payment is completed but deduct TDS as and when the payment is made in instalments.
Q36: Explain TDS provision on cash withdrawals from banks/post office/co-op society.
A: TDS @ 2% applies on cash withdrawals from one or more accounts, by all persons with the threshold limit exceeding: Rs.3,00,00,000 – in case of withdrawals by co-operative societies, Rs.1,00,00,000 – in case of other recipients other than co-op society.
Q37: What is the scope of TDS on payments made by a firm to its partners?
A: Any sum above Rs.20,000 (threshold), paid or credited by way of salary, remuneration, commission, bonus or interest by a firm to its partner is subject to TDS @ 10%.
Q38: Whether capital account credit of a partner covered under TDS?
A: Yes. The provision expressly includes credit to capital account, preventing avoidance by re-characterisation of payments.
Q39: What are the provisions of TDS for payments to contractors engaged in plying, hiring or leasing of goods carriages?
A: Tax is required to be deducted for payments to contractors engaged in plying, hiring or leasing of goods carriages except when the contractor is engaged in plying/hiring goods carriages satisfies the following conditions:
Owns 10 or fewer vehicles;
Furnishes declaration with PAN to the person paying or creditng the sum;
and payer reports details to tax authorities in prescribed format within such time as may be prescribed.
Further if any individual /HUF makes payment to such contractor for purely personal purposes, no deduction of tax is required. (Section 393(4))
Q40: Whether credit of any sum to a suspense account or an account by any other name in the books of the person who is actually liable to pay this amount, exempts the person from TDS provisions?
A: No. As per the provisions of section 393(11) of the Act, credit to a suspense account/account by any other name, is deemed to be credit of such income or sum to the account of the payee and the provisions of TDS shall apply to all such credits.
Q41: When can individuals and other persons furnish declarations for non-deduction of TDS, and what are the limitations?
A: The “DECLARATION FOR NO DEDUCTION AT SOURCE” table below Section 393(6) allows individuals who are residents to declare that their estimated total income during the tax year will result in no tax liability, thereby avoiding TDS on specified payments such as accumulated employee balances, insurance commission, certain rent, interest on units, or dividends. However, this benefit cannot be used by individuals below 60 years of age if their total income (including the sums mentioned) exceeds the basic exemption threshold. Additionally, declarations must be submitted in duplicate to the payer and forwarded to the tax authorities by the payer by the seventh day of the following month. (Section 393(6))
Q42: Which payments are excluded from deduction of TDS and override all TDS obligations?
A: As per section 393(5), certain payments are categorically excluded from TDS, regardless of other provisions. These include payments to:
The Government
The Reserve Bank of India
Corporations established by Central Acts that are exempt from income tax
Mutual Funds as specifically provided in the Act
Q43: What happens in cases where the payer bears the tax liability under an agreement?
A: When an agreement requires that the payer must bear the income tax on behalf of the recipient, section 393(10) mandates grossing up of the income. This means the income amount must be increased so that, after deducting TDS from the increased amount, the net amount matches the agreed payment to the recipient.
Example: If a payer must ensure a net income of Rs.90,000 to the payee and TDS rate is 10%, the payer must gross up the income to Rs.100,000 and deduct Rs.10,000 as TDS. (Section 393(10))
Q44: What mechanism has been provided in the Act regarding the collection of tax at source?
A: The provisions in this regard are given in the table below Section 394(1) of the Act where tax has to be collected at source from the person mentioned in column C at the rate given in column D in respect of various receipts of the nature given in column B of the table.
Example: M/s Ramesh Traders, a scrap dealer in Mumbai, sells scrap worth Rs.5,00,000/- to M/s Vishwakarma Industries in Pune. When M/s Vishwakarma Industries makes the payment on March 15, 2026, M/s Ramesh Traders must collect TCS at 1% (i.e., Rs.5,000/-) at the time of receiving the payment or debiting Vishwakarma’s account, whichever is earlier. (Section 394(1))
Q45: At what point of time must TCS be collected?
A: As per section 394(1)(c) of the act, TCS must be collected at whichever of the following occurs earlier:
At the time of debiting the amount payable by the buyer’s/licensee’s/lessee’s account;
Or at the time of actual receipt of the amount (whether in cash, cheque, draft, or any other mode).
Example: Ananya runs a liquor shop in Bangalore. She sells alcoholic liquor worth Rs.2,00,000/- to Rajesh on credit on April 10, 2026, and debits his account on the same day. However, Rajesh makes the actual payment on April 25, 2026. Ananya must collect TCS at 1% of Rs.2,00,000/- (i.e., Rs.2,000/-) on April 10, 2026 itself (when the amount was debited to Rajesh’s account), as that is the earlier of the two dates. (Section 394(1)(c))
Q46: On which types of receipts are TCS applicable under Section 394?
A: TCS is applicable on nine categories of receipts as specified in Section 394(1) of the Act:
Sale of alcoholic liquor for human consumption.
Sale of tendu leaves.
Sale of timber (obtained under forest lease or otherwise).
Other forest produce (excluding timber and tendu leaves).
Sale of scrap.
Sale of minerals, being coal, lignite, or iron ore.
Sale consideration exceeding Rs.10,00,000/- for motor vehicles or other goods notified by the Central Government.
Remittance under the Liberalised Remittance Scheme (LRS) exceeding Rs.10,00,000/-.
Sale of overseas tour programme packages; and Use of parking lot, toll plaza, mine, or quarry for business purposes (excluding mining and quarrying of mineral oil, petroleum, and natural gas).
Example: M/s Priya Minerals Pvt. Ltd. in Ranchi sells coal worth Rs.50,00,000/- to M/s TejBihar Power Corporation in Patna. As coal is a specified mineral under Section 394(1), M/s Priya Minerals Pvt Ltd must collect TCS at 1% (i.e., Rs.50,000/-) from M/s TejBihar Power Corporation.
Q47: Are there any situations where TCS under Section 394(1) of the Act does not apply even though the transaction falls within the specified categories?
A: Yes. Section 394(2) of the Act provides an exemption from TCS for certain items (specifically S. No. 1 to 5 of the table, including alcoholic liquor, tendu leaves, timber/forest produce, scrap, and minerals) if the following conditions are met:
The buyer is a resident in India.
The buyer furnishes a written declaration in the prescribed form and manner to the seller.
The declaration states that the goods will be utilized for manufacturing, processing, producing articles or things, or for generation of power.
The declaration confirms that the goods will not be used for trading purposes.
Example: M/s Vikram Steel Industries in Jamshedpur purchases scrap worth Rs.20,00,000/- from a Scrap Dealer in Kolkata for use in manufacturing steel products. If M/s Vikram Steel Industries furnishes a prescribed declaration to the Scrap Dealer, then no TCS needs to be collected on this transaction. (Section 394(2))
Q48: What procedure must be followed when TCS is not collected based on the buyer’s declaration under Section 394(2) of the Act?
A: When the seller does not collect TCS based on the buyer’s declaration under Section 394(2) of the Act, the seller must comply with the procedure specified in Section 394(3) of the Act. The seller must deliver or cause to be delivered one copy of this declaration to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. This copy must be submitted on or before the 7th day of the month following the month in which the declaration was received.
Example: M/s Raj Power Generation Ltd. in Jaipur purchases coal worth Rs.1,00,00,000/- from Coal Trader in Dhanbad on February 20, 2026, and furnishes a declaration that the coal will be used for power generation. The Coal Trader receives this declaration on February 20, 2026. Under Section 394(3) of the Act, he must submit one copy of this declaration to the department on or before March 7, 2026.
Q49: If a buyer is already liable to deduct TDS on a transaction, will the seller still be required to collect TCS?
A: No. Section 394(5) of the Act specifically provides that TCS shall not be collected by the authorized dealer or seller in respect of receipts covered under Section 394(1), specifically LRS remittances and overseas tour packages, if the buyer is liable to deduct tax at source (TDS) under any other provisions of the Act and has deducted such tax.
Example: ABC Corporation in Bangalore sends its employee Suresh on an official overseas tour to the USA. The company books a tour package worth Rs.6,00,000/- from International Travel Services. If ABC Corporation has deducted TDS on such payment, International Travel Services will not collect TCS on this transaction as per Section 394(5) of the Act.
Q50: What are the special provisions for TCS on remittances under the Liberalised Remittance Scheme (LRS)?
A: For remittances under LRS exceeding Rs.10,00,000/-, Section 394(1) of the Act provides for differential TCS rates based on the purpose:
@2% for remittances made for purposes of education or medical treatment.
@20% for remittances made for all other purposes.
However, Section 394(4) of the Act provides that TCS shall not be collected if the remittance is a loan obtained from a financial institution as defined in Section 129(3)(b) for the purpose of pursuing education.
Example 1: Rakesh from Ahmedabad remits Rs.20,00,000/- through ICICI Bank for purchasing property abroad. The bank will collect TCS at 20% on the amount exceeding Rs.10,00,000/-, i.e., 20% of Rs.10,00,000/- which equals Rs.2,00,000/-.
Example 2: Ankit’s parents obtain an education loan of Rs.25,00,000/- from State Bank of India for his MBA in the USA. When the bank remits this amount abroad, no TCS will be collected under Section 394(4) as it is a loan for education purposes from a financial institution. (Section 394(4))
Q51: How is the term “forest produce” defined for TCS purposes under Section 394 of the Act?
A: Section 394(6) of the Act provides that the term “forest produce” has the same meaning as defined in any State Act for the time being in force, or in the Indian Forest Act, 1927.
Example: A timber merchant in Uttarakhand sells various forest products including bamboo, sandalwood, and medicinal plants. To determine whether TCS applies and at what rate, the merchant must refer to the definition of “forest produce” under the Uttarakhand Forest Act or the Indian Forest Act, 1927.
Q52: Can a parking lot owner collect TCS when renting parking space to individual car owners for personal use?
A: No, TCS under Section 394(1) of the Act applies only when parking lots, toll plazas, mines, or quarries are used “for the purpose of business” (excluding mining and quarrying of mineral oil, petroleum, and natural gas). If an individual uses parking space for personal purposes (not for business), no TCS is applicable.
Example 1: Sharma Logistics in Gurgaon rents parking space from Delhi Parking Services for parking their fleet of 20 commercial trucks used for business purposes. Delhi Parking Services must collect TCS at 2% on the parking charges under Section 394(1) as this is for business purposes.
Example 2: Ramesh, a private individual, rents monthly parking at a mall in Pune for his personal car. Since this is for personal use and not for business purposes, no TCS will be collected on the parking charges.
Q53: If a person makes multiple remittances under LRS in the same financial year, how is the Rs.10,00,000/- threshold applied?
A: The threshold of Rs.10,00,000/- specified in Section 394(1) of the Act applies to the “amount or aggregate of the amounts” remitted under LRS. This means all remittances made during the financial year are aggregated to determine if the threshold is exceeded. Once the aggregate remittances exceed Rs.10,00,000/-, TCS must be collected on the amount exceeding the threshold at the applicable rate.
Q54: Does TCS apply to the sale of electric vehicles?
A: Yes, if the sale consideration for an electric vehicle exceeds Rs.10,00,000/-, TCS at 1% must be collected as specified in Section 394(1) of the Act. Electric vehicles are treated the same as conventional motor vehicles for TCS purposes.
Example: Aditi from Bangalore purchases a luxury electric SUV from EV Motors for Rs.14,00,000/-. EV Motors must collect TCS at 1% (i.e., Rs.14,000/-) from Aditi.
Q55: From whom, the TCS should be collected for the use of parking lot or toll plaza?
A: Under Section 394(1) of the Act, TCS at 2% is applicable only when a parking lot or toll plaza is licensed or leased for business use, and the licensor or lessor must collect TCS from the business user.
Example: Highway Toll Services leases a toll plaza to Logistics Operations Ltd. for operating the toll collection for a monthly fee of Rs.5,00,000/-. Highway Toll Services must collect TCS at 2% (i.e., Rs.10,000/-) from Logistics Operations Ltd. under Section 394(1) as this is a business use of the toll plaza facility. (Section 394(1))
Q56: Can a payee (deductee) apply to the department for lower or nil deduction of tax at source?
A: Yes. Under Section 395(1) of the Act, a payee can apply to the Assessing Officer for lower or nil tax deduction if their actual tax liability is expected to be less than the standard rate or is non-taxable. The Assessing Officer on being satisfied, issues a certificate permitting lower or nil deduction. The payer must then deduct tax as per the certificate until it expires.
Example: M/s Ramesh Sharma & Co., a partnership firm operating in Mumbai receives BMC contracts. BMC needs to deduct 2% TDS on contractual payments to the firm. However, due to the expenses incurred by the firm, its estimated effective tax rate comes to 1%. Thus, the firm can apply to the Assessing Officer for a certificate for lower deduction of tax at the rate 1%. After verifying his income details, the Assessing Officer issues a certificate under section 395(1)(b) of the Act for lower deduction at the rate of 1%.
Q57: Is a payer legally bound to deduct tax at the lower rate once a certificate is issued by the Assessing Officer?
A: Yes. The payer is legally obligated to deduct tax at the rate specified in such certificate or deduct no tax, as the case may be, till the validity of the certificate. (Section 395(1))
Q58: Can a payer responsible for making payments to a non-resident apply for determination of the appropriate proportion of sum chargeable to tax in India?
A: Yes. Under section 395(2)(a) of the Act, the person responsible for paying to a non-resident any sum mentioned in section 393(2) (Table: Sl. No. 17) may make an application to the Assessing Officer in the prescribed form and manner, where the payer considers that the whole of such sum would not be chargeable to tax in the case of the recipient. The application is made for determination of the appropriate proportion of the sum chargeable to tax by the Assessing Officer as per section 395(2)(b) of the Act in the manner prescribed. When the determination is made, section 395(2)(c) of the Act provides that tax shall be deducted only on that proportion of the sum which is chargeable to tax under the Act.
Example: XYZ Tech India Ltd., hires a non-resident software consultant based in the United States, for a project involving both work performed in India and work performed in the USA. The total fees payable are Rs. 10,00,000. XYZ Tech believes that only 40% of the fees (Rs. 4,00,000) are chargeable to tax in India. The company applies to the Assessing Officer under section 395(2)(a) for determination of the appropriate proportion. After examining the facts, the Assessing Officer determines the portion chargeable to tax in India. As per section 395(2)(c), XYZ Tech will deduct TDS only on such portion instead of the entire Rs. 10,00,000.
Q59: Can TCS be collected at a lower rate under any circumstances?
A: Yes, under Section 395(3) of the Act, a buyer, licensee, or lessee may apply to the Assessing Officer for collection of tax at a lower rate. If the Assessing Officer is satisfied, he will issue a certificate specifying the lower rate at which TCS should be collected. The person responsible for collecting tax must then collect TCS at the rate specified in the certificate until the validity of the certificate expires.
Example: A Small Business Enterprise in Indore purchases alcoholic liquor worth Rs.50,00,000/- annually from various sellers for use in its restaurant business. If it can demonstrate to the Assessing Officer that its total income is low and does not justify TCS collection at 1%, it can apply for a certificate under Section 395(3) of the Act for collection at a lower rate. Once the certificate is issued, sellers must collect TCS at the reduced rate specified in the certificate.
Q60: Are both residents and non-residents eligible to apply for lower or nil deduction certificates under section 395 of the Act?
A: Yes. Both residents and non-residents are eligible to apply for lower or nil deduction certificates under section 395 of the Act.
Q61: Whether the persons who deduct or collect tax are obligated to provide a certificate to the deductee or collectee?
A: Yes. Under section 395(4)(a) of the Act, every person deducting or collecting tax shall issue a certificate to the deductee or collectee, as the case may be. The certificate must specify the following:
The amount of tax that has been deducted or collected.
The rate at which tax has been deducted or collected.
Any other particulars, as may be prescribed.
The certificate must be issued within such period as may be prescribed.
Example: Vijay Constructions Ltd., a company in Chennai, deducts TDS at 10% on professional fees of Rs. 5,00,000 paid to architect Kavita Rao. The company is required to issue a TDS certificate to Kavita in the prescribed format.
Q62: What certificate must an employer issue when tax has been paid on behalf of an employee under section 392(2)(a) of the Act?
A: An employer referred to in Section 392(2)(a) of the Act must provide a certificate to the employee for whose income the tax has been paid by the employer. The certificate must confirm that the tax has been paid to the Central Government and specify the following:
The amount of tax so paid.
The rate at which tax has been paid.
Any other particulars, as may be prescribed.
The certificate must be issued within such period as may be prescribed. (Section 395(4)(b))
Example: A company provides non-monetary perquisites worth Rs. 2,00,000 to its employee, Rajesh Kumar. The company opts to pay the tax on these perquisites under section 392(2)(a) of the Act. After paying tax to the Central Government, the company must issue a certificate to Rajesh under section 395(4)(b) of the Act within the prescribed timeline.
Q63: Can the Assessing Officer cancel a certificate granted under section 395(1) or section 395(3) of the Act?
A: Yes. Under section 395(5) of the Act, the Assessing Officer may cancel the certificate granted under section 395(1) or section 395(3) of the Act. However, the cancellation can be done only after giving reasonable opportunity to the applicant. (Section 395(5))
Q64: Can a person apply for a fresh certificate after the expiry of a previously issued certificate?
A: Yes. Section 395 does not prohibit a person from applying for a fresh certificate after the expiry of a previously issued certificate. If the circumstances continue to justify lower or nil deduction or lower collection, the applicant may submit a fresh application to the Assessing Officer in the prescribed form and manner. The Assessing Officer will examine the application afresh and issue a new certificate if satisfied that the conditions warrant it. In case of cancellation of previously issued certificate, the applicant can re-apply for issuance of lower/nil deduction certificate during the same tax year.
Example: Neha Gupta of Lucknow had obtained a certificate under section 395(1) for nil deduction of TDS, valid from April 1, 2025, to March 31, 2026. As the certificate is due to expire on March 31, 2026, and her income situation remains unchanged for the next year, she may again apply to the Assessing Officer for a fresh certificate for the period April 1, 2026, to March 31, 2027.
Q65: A retired person receives pension and interest income. The total income is below the taxable limit. Can the person obtain a certificate to avoid TDS on interest income from fixed deposits?
A: Yes. The person can apply to the Assessing Officer under section 395(1)(a) of the Act for a certificate for nil deduction of tax at source. The application should demonstrate that the total income during the tax year, is below the taxable limit.
Example: Mohan Das, a retired government employee receives a monthly pension of Rs. 15,000 (annual Rs.1,80,000) and interest income of Rs. 90,000 from fixed deposits. His total income of Rs.2,70,000 which is below the basic exemption limit. Currently, banks are required to deduct TDS at 10% on his interest income. Mohan can apply to the Assessing Officer for a certificate under section 395(1) of the Act for nil deduction. (Section 395(1))
Q66: How long does a certificate issued under section 395 of the Act remain valid?
A: Section 395 of the Act does not specify the validity period of certificates issued under these provisions. The validity period is determined by the Assessing Officer at the time of issuing the certificate and is mentioned in the certificate itself. The certificate will remain valid till the date specified by the Assessing Officer or till it is cancelled. (Section 395)
Q67: Whether the sums deducted as TDS are treated as ‘income received’ for the purposes of computing the income of an assessee under the Income Tax Act?
A: Section 396(a) of the Act provides that sums deducted as TDS are considered as income deemed to be received for the purposes of computing the income of the assessee. In other words, the amount of TDS is treated as if the assessee has received the income, even though the actual amount was withheld as tax—except tax paid u/s 392(2)(a) and tax deducted as per section 393(3) (table S. No. 5).
Example: Amit, a chartered accountant, provides consultancy services to M/s. Sharma Enterprises. The parties agree on a total professional fee of Rs.1,00,00,000. As per tax regulations, M/s. Sharma Enterprises deducted Rs.10,00,000 as TDS and credit the remaining Rs.90,00,000 to Amit’s bank account. Even though Amit physically received only Rs.90,00,000, the full amount of Rs.1,00,00,000 is considered to be income received by him. The remaining Rs.10,00,000 deducted as TDS will be available as tax credit when computing his final tax liability. (Section 396)
Q68: Does the income-tax paid outside India by way of deduction in respect of which an assessee is allowed a credit against the tax payable under this Act, will be considered as income received?
A: Yes. Under Section 396(b) of the Act, income-tax paid outside India by way of deduction is also deemed to be income received, but only when the assessee is allowed a credit for that foreign tax against the tax payable under this Act—except tax paid u/s 392(2)(a) and tax deducted as per section 393(3) (table S. No. 5). (Section 396)
Example: Meera provides IT consulting services to a Singapore based company. She earns a fee of Singapore Dollars 20,000 (equivalent to Rs.12,00,000) for this assignment. As per Singapore tax laws, the company deducts withholding tax of Singapore Dollars 3,000 (equivalent to Rs.1,80,000) and remits the net amount of Singapore Dollars 17,000 (equivalent to Rs.10,20,000) to her bank account in India. For income tax purposes in India, Meera must include the full amount of Rs.12,00,000 (gross income before foreign tax deduction) as income received in her Indian income tax return. For the Tax withheld in Singapore, she can claim credit subject to fulfilment of prescribed conditions.
Q69: Who needs to apply for a Tax Deduction and Collection Account Number (TAN) under the Income Tax Act?
A: Any person who is responsible for deducting tax (TDS) or collecting tax (TCS) at source must apply for a TAN within the prescribed time, unless they already have one. Once a TAN is allotted, it must be quoted in all tax challans, TDS/TCS statements, certificates issued to taxpayers, and other prescribed documents related to such transactions.
Example: ABC Pvt Ltd in Mumbai starts making payments to contractors in April 2025. Since the company will be deducting TDS on contractor payments, it must apply for a TAN within the prescribed time if it does not already have one.
Q70: In which documents must a person quote the TAN after it has been allotted?
A: Section 397(1)(b) of the Act mandates that once a TAN has been allotted to a person, such person shall quote the TAN in all challans for tax payment, statements filed with the tax department, certificates issued to deductees or collectees, and in all other documents pertaining to such transactions as may be prescribed.
Q71: Which categories of persons are exempt from the requirement to apply for a TAN?
A: Section 397(1)(c) of the Act provides that the requirement to apply for TAN does not apply to three categories of persons:
Persons required to deduct tax under Section 393(1) Table Sl. No. 2(i) (rent by individuals/HUF), 3(i) (purchase of immovable property), and 6(ii) (payments to contractors/professionals by individuals/HUF).
Persons referred to in Section 393(4) Table Sl. No. 12.C(a) (certain notified transactions).
Any person notified by the Central Government for exemption from this requirement.
Example: Mr. Ramesh from Chennai pays monthly rent of Rs. 60,000 to his landlord. Even though he must deduct TDS under Section 393(1) Table Sl. No. 2(i), he is not required to apply for a TAN as per Section 397(1)(c)(i) of the Act. (Section 397(1)(c))
Q72: Does the exemption granted under section 397(1)(c) from obtaining a TAN imply that such persons are not responsible for deducting tax at source (TDS)?
A: No. The exemption only relates to obtaining a TAN. Other TDS obligations, as applicable, must still be complied by quoting the PAN as per the law.
Q73: What happens if a person required to have a TAN does not apply or quote in challans, certificates, statements or other documents for TDS/TCS?
A: Failure to apply for or quote TAN may lead to levy of penalty of Rs. 10,000/- under section 468 of the Act.
Q74: Should government deductors also apply for TAN?
A: Yes. The government deductors are also required to apply for TAN. In case of multiple DDOs, the name of the Division, name and location of branch or the designation of the person responsible for deducting/collecting tax, whichever is applicable, should be clearly given in the application for allotment of TAN.
Q75: Is a separate TAN required to be quoted for Tax Collection at Source?
A: No. In case a TAN has already been allotted for the purpose of TDS, then no separate application needs to be made for obtaining separate TAN for the purpose of TCS. The same TAN number can be quoted in all returns, challans and certificates for TCS.
Q76: Should branches of company have separate TANs?
A: Yes. In such a case, the name and location of branch or the designation of the person responsible for deducting/collecting tax, whichever is applicable, should be clearly given in the application for allotment of TAN.
Q77: Is it mandatory for a deductee or collectee to provide PAN to the deductor or collector?
A: Yes. Any person who is entitled to receive a payment on which tax is deductible, or who pays an amount on which tax is collectible, must provide their valid Permanent Account Number (PAN) to the person deducting or collecting tax.
Q78: What happens if PAN is not furnished to the deductor or collector?
A: If PAN is not provided to the deductor, tax will be deducted or collected at a higher rate than normal, as prescribed under section 397(2)(b) of the Act.
Q79: At what rate is tax deducted if PAN is not furnished by deductee (TDS cases)?
A: Under Section 397(2)(b)(i) of the Act, if the deductee fails to furnish PAN, tax shall be deducted at the higher of the following rates:
The rate specified in the relevant provision of the Act;
Or the rate or rates in force;
Or 5% where tax is required to be deducted under Section 393(1) Table Sl. No. 8(ii) or 8(v);
Or 20% in any other case.
Example: ABC Ltd in Surat pays Rs. 5,00,000 as professional fees to Mr. Verma, a consultant. The normal TDS rate is 10%. However, since Mr. Verma does not furnish his PAN, ABC Ltd must deduct TDS at 20% (being higher than 10%), resulting in TDS of Rs. 1,00,000 instead of Rs. 50,000.
Q80: At what rate is tax collected if PAN is not furnished (TCS cases) by collectee?
A: Under Section 397(2)(b)(ii) of the Act, if the collectee fails to furnish PAN, tax shall be collected at the higher of the following rates, not exceeding 20%:
Twice the rate specified in the relevant provision;
Or @5%.
Q81: Whether non-residents are also subject to higher TDS/TCS for not furnishing PAN?
A: Yes. Non-residents are also subject to higher TDS/TCS for not furnishing PAN. However, as per section 397(2)(c), provisions of TDS at a higher rate do not apply to a non-resident (not being a company or foreign company) receiving interest on specified long-term bonds or any other prescribed payments, subject to conditions. Further, provisions of TCS at a higher rate do not apply to a non-resident who does not have a permanent establishment in India. (Section 397(2)(c) and (d))
Q82: What is the maximum tax that can be deducted at source on rent payments if the PAN is not furnished by the payee?
A: When rent is paid by any person other than specified person and it exceeds the threshold of Rs. 50,000 for month or part of month and the payee does not furnish PAN, then the total tax deducted cannot exceed the amount of rent payable for the last month of the tax year or the last month of tenancy, whichever is applicable. (Section 397(2)(e))
Q83: What happens if PAN is not mentioned in certain declarations made regarding no deduction of TDS/TCS?
A: If a person does not furnish a valid PAN in any declaration under Section 393(6) or Section 394(2) of the Act, then such declaration becomes invalid.
Example: Mr. Nair, a senior citizen in Thiruvananthapuram, submits a declaration under Section 393(6) to avoid TDS on interest income, but fails to mention his PAN. The declaration becomes invalid, and the bank must deduct TDS at the higher rate.
Q84: What happens if PAN is not provided in an application for lower or nil deduction or collection?
A: If PAN is not furnished in such an application, no certificate for lower or nil deduction or collection will be granted.
Q85: Who is responsible for depositing the tax deducted or collected with the Central Government, and within what timeframe?
A: Any person who deducts or collects tax must pay the deducted or collected tax to the Central Government within the prescribed time. The actual time limits are specified in the rules framed under the Act.
Example: ABC Constructions Pvt Ltd deducts TDS of Rs. 1,50,000 from payments made to contractors during the month of August 2025. It is the primary responsibility of ABC Constructions to deposit this amount of Rs. 1,50,000 to the credit of the Central Government within the prescribed time limit.
Q86: Does the deductor/collector need to report taxes deducted/collected after paying the tax to the credit of the Central Government?
A: Yes. After paying the tax, the deductor or collector must submit a statement to the prescribed income-tax authority in the prescribed Form, manner, and within the prescribed time.
Q87: Can discrepancies, errors, or omissions in the submitted statements be corrected, or can the information furnished in the statement already delivered be updated?
A: Yes. Any person who has submitted a TDS/TCS statement may file a correction statement to rectify errors or update information.
Q88: What is the time limit for filing a correction statement?
A: Section 397(3)(f) clarifies that a correction statement can be filed within two years from the end of the tax year in which the original statement was required to be filed.
Q89: Is there any reporting requirement for payments made to non-residents?
A: Yes. Section 397(3)(d) of the Act mandates that every person responsible for paying to a non-resident, not being a company or a foreign company, any sum, whether or not chargeable under this Act, shall furnish the information relating to payment of such sum in such form and manner as may be prescribed.
Example: XYZ Solutions Ltd in Hyderabad pays Rs.8,00,000 as consultancy fees to Mr. Robert, a non-resident individual consultant. Regardless of whether this payment is taxable in India or not (depending on tax treaty provisions), XYZ Solutions must furnish information relating to this payment in the prescribed form and manner to the tax authorities.
Q90: How are Government offices required to report tax payments made without a challan?
A: Where tax is credited to the Central Government without using a challan, the responsible officer must submit a prescribed statement to the prescribed tax authority within the prescribed time. However, this shall be limited to the TDS or TCS prescribed under section 397(3)(e). (Section 397(3)(e))
Q91:Are banking companies, co-operative societies and certain pubic companies required to file statements even if interest paid is below the TDS threshold?
A: Yes. These entities must file statements for interest paid to residents even when the amount does not exceed the specified threshold limit for the purposes of TDS.
Q92:What is the key compliance and reporting requirements of Section 397 for deductors/collectors?
A: Section 397 specifies compliance and reporting requirements for deductors/ collectors which include: (Section 397(3))
Q93:What happens if a person responsible for TCS fails to collect tax as required under Section 394 of the Act?
A: Section 397(3)(h) of the Act provides that if a person responsible for collecting tax fails to collect it, collector(seller) shall be liable to pay the tax to the Central Government regardless of such failure.
Q94:In what situations does a person become an assessee in default for failure to comply the TDS/TCS obligations?
A: Under Section 398(1) of the Act, a person including the principal officer of a company shall be deemed to be an assessee in default when the person is required to deduct/collect tax under the Act but does not deduct/collect the tax or after deduction/collection fails to pay the whole or any part of such tax to the Government. However, this shall be subject to the provisions of section 398(2) of the Act. Example:M/s Ramesh Industries Pvt Ltd was required to deduct tax at source of Rs. 50,000 from a payment made to a contractor in March 2026. The company’s principal officer, Mr. Suresh Kumar, failed to deduct this tax. Under Section 398(1) of the Act, Mr. Suresh Kumar and M/s Ramesh Industries Pvt Ltd will be deemed assessees in default for the entire sum of Rs. 50,000. (Section 398)
Q95:When does a person not treated as an assessee in default despite failure to deduct or collect tax?
A: Under Section 398(2) of the Act, a person who fails to deduct or collect tax, will not be treated as an assessee in default if following three conditions are satisfied by the payee, buyer, licensee, or lessee: They have filed their return of income under Section 263 of the Act; They have included the relevant amount in computing income in that return; and They have paid the tax due on the declared income in such return of income. Additionally, the deductor or collector must furnish an accountant’s certificate in the prescribed Form, confirming compliance with these conditions. This relief is available only to failures to deduct or collect tax and is not available to failures to pay tax after deduction or collection. Example 1: M/s Bangalore Enterprises in Bengaluru made a payment of Rs. 5,00,000 to contractor Mr. Vijay Reddy in June 2026 but failed to deduct TDS. Mr. Vijay Reddy filed his return of income for the relevant tax year, included the Rs. 5,00,000 in his income computation, and paid taxes due on his total income. M/s Bangalore Enterprises obtained an accountant’s certificate confirming these facts. In this case, M/s Bangalore Enterprises will not be considered as an assessee in default. Example 2:M/s XYZ failed to collect TCS of Rs. 25,000 on sale of scrap to buyer Mr. Anil Mehra in September 2026. Mr. Anil filed his return, included the relevant amount in his income computation, and paid the applicable tax. M/s XYZ obtained the prescribed accountant certificate. M/s XYZ will not be considered as assessees in default.
Q96:At what rate is interest payable for failure to deduct or collect tax?
A: Interest is payable at 1% per month or part of a month from the date on which such tax was deductible or collectible to the date it is actually deducted or collected.
Q97:At what rate is interest payable for failure to deposit tax after deduction or collection?
A: Interest is payable at 1.5% per month or part of a month from the date of deduction or collection until the date of actual payment to the Government.
Q98:By when this interest chargeable on account of short deduction, non-deduction, late deduction or late deposition of TDS/TCS as per TDS/TCS provisions must be paid?
A: Interest must be paid before filing the prescribed statement relating to tax deduction or collection.
Q99:Is interest payable even if relief from assessee-in-default status is available under section 398(2) of the Act?
A: Yes. Interest liability applies independently and is payable even if the person is not treated as an assessee in default by applying the provisions of section 398(2) of the Act. (Section 398(3)(c))
Q100:How interest is calculated when relief under section 398(2) of the Act applies?
A: In such cases, interest @1% is payable from the date tax was deductible or collectible up to the date on which the payee or buyer files their return of income. (Section 398(3)(c))
Q101:What happens when the Assessing Officer passes an order by holding the person as ‘deemed to be an assessee in default’?
A: Under Section 398(3)(d) of the Act, when the Assessing Officer makes an order declaring a person as deemed to be an assessee in default under Section 398(1) of the Act, the interest must be paid by such person as per the order. The Assessing Officer’s order will determine: The exact amount of tax in respect of which the person is in default; The period for which interest is applicable; The rate of interest (1% or 1.5% as applicable); and The total interest payable. Once such order is passed, the person must comply with the tax and interest payment requirement as specified in the order. Example: M/s Surat Textiles failed to deposit TDS of Rs. 2,00,000 deducted during April 2026. The Assessing Officer may conduct proceedings against the said company and shall pass an order by holding it as an assessee deemed to be in default. In such order, the AO shall compute the interest payable by the said company which shall be computed @1.5% per month. Surat Textiles shall be required to pay the tax of Rs. 2,00,000 plus interest for the period of default as per the order.
Q102:What happens if tax deducted or collected is not paid to the Government?
A: The unpaid tax along with applicable interest becomes a charge upon all the assets of the person who failed to pay the TDS/TCS. It means the Government has a legal claim over the person’s assets for recovery of unpaid tax and interest.
Q103:What is the time limit for passing an order treating the assessee in default for failure to deduct/collect the TDS/TCS?
A: Under Section 398(5) of the Act, an order declaring a person as assessee in default cannot be made: After six years from the end of the tax year in which tax was deductible or collectible; or After two years from the end of the tax year in which the correction statement is delivered under Section 397(3)(f), Whichever is later. Additionally, Section 398(6) of the Act provides that the provisions of Sections 286(1) and 286(3) apply to these time limits, which relate to exclusion of certain periods and extension of limitation in certain circumstances specified therein. Example: ABC Limited in Bhopal was required to deduct TDS on a payment made on 15th July 2025 (tax year 2025-26) but failed to do so. The six-year period ends on 31st March 2032 (six years from the end of tax year 2025-26). The Assessing Officer must pass any order under Section 398(1) before 31st March 2032. If ABC Limited files a correction statement on 10th November 2027 (tax year 2027-28), then the two-year period from the end of that tax year expires on 31st March 2030. Since 31st March 2032 is later, the effective time limit remains 31st March 2032.
Q104:What is meant by processing of TDS/TCS statements?
A: The section 399(1) of the Act establishes a structured and automated process for handling all statements filed for tax deducted at source (TDS) or tax collected at source (TCS), including correction statements. The processing begins by identifying the correct amount deductible or collectible and making adjustments for any detectable errors. The purpose of this provision is to ensure consistency, accuracy, and formal verification of TDS/TCS information. The steps laid out under clauses (a) to (f) ensure that interest, fees, taxes paid, and adjustments are systematically applied before determining the final amount payable or refundable. This results in an intimation that reflects the final computation outcome for the deductor or collector.
Q105:What types of statements are subject to processing?
A: The section 399 of the Act applies to processing of the following statements: Statements of tax deducted at source, Statements of tax collected at source, and Correction statements relating to TDS or TCS. Example: ABC Constructions files its TDS statement for the quarter July to September 2026 in October 2026. In November 2026, the company discovers errors in PAN details of some deductees and files a correction statement. Both the original statement filed in October and the correction statement filed in November will be processed under Section 399 of the Act.
Q106:What adjustments are made to a TDS/TCS statement during processing under section 399 of the Act?
A: Under Section 399(1)(a) of the Act, the system makes two specific adjustments while computing the correct amount of TDS/TCS: Arithmetical errors, in the statement; and Incorrect claims that are apparent from the information available within the statement itself. Example: A company filed its TDS statement showing total TDS deducted as Rs.8,50,000. However, when the column-wise figures for different types of payments were added, the correct total came to Rs.8,65,000. This Rs.15,000 difference was an arithmetical error. During processing under Section 399(1)(a) of the Act, this error will be corrected and the TDS amount will be recomputed as Rs.8,65,000. In another case, if a deductor showed TDS deducted at 5% when the rate specified in the Act for that payment was 10%, and this rate was apparent from the nature of payment shown in the statement itself, this incorrect claim would also be corrected during processing.
Q107:What constitutes an “incorrect claim apparent from any information in the statement”?
A: As per section 402(3) of the Act, an “incorrect claim apparent from any information in the statement” means a claim which is inconsistent with another entry based on the details provided in the statement itself and/or where the rate of TDS/TCS applied is not in accordance with the rate prescribed under the Act. (Section 402(3))
Q108:How does processing for TDS/TCS/Correction statement take place?
A:The work flow of processing as provided in section 399 of the Act is as under:
Q109:How is interest calculated during processing?
A: Under Section 399(1)(b) of the Act, the interest, if any shall be computed on the basis of amounts deductible or collectible as reflected in the statement. (Section 399(1)(b)) Example:A firm was required to deduct TDS of Rs.2,00,000 on contractor payments made in January 2026 and deposit it by February 7, 2026. However, the company deposited this amount only on March 20, 2026. When the TDS statement for the quarter January to March 2026 was processed, interest will be calculated for the period of delay from February 8, 2026 to March 20, 2026, which is 40 days.
Q110:When is a fee charged during processing of the statement?
A: Under Section 399(1)(c), a fee is charged during processing if the statement is filed late or if there is any default in filing as specified under Section 427. Section 427 contains provisions relating to fees for late filing or non-filing of TDS/TCS statements. During processing, if it is found that the statement was not filed within the prescribed due date or if there was any other default covered by Section 427, then he shall be liable to pay a sum of Rs.200 for every days during which the failure continues, subject to condition that the amount of few shall not exceed the amount of tax deductible or collectible and be paid before delivering the statement.
Q111:Will the deductor or collector be informed about the outcome of the processing?
A: Yes. Under Section 399(1)(e) of the Act, once processing is complete, an intimation is generated and sent to the deductor or collector. This intimation contains the final computation and clearly specifies whether an amount is payable or refundable.
Q112:What is the time limit for sending an intimation on processing of TDS/TCS statements?
A: Under Section 399(2) of the Act, the intimation must be sent within one year from the end of the tax year in which the TDS/TCS statement is filed.
Q113:Can Central Government relax the provisions of the chapter ‘Collection and Recovery of Tax’?
A: Yes. Section 400(1) of the Act empowers the Central Government to issue notifications specifying that tax deduction or tax collection shall either not be made at all or shall be made at a lower rate. This power applies to specified payments or receipts, and to specified persons or classes of persons.
Q114:Does the relaxation provided under Section 400(1) apply to everyone automatically?
A:No. The relaxation provisions apply to only those payments/receipts, persons or classes of persons as specified in the notification issued by the Central Government under Section 400(1) of the Act.
Q115:What authority does the Board have to resolve difficulties in administration of TDS/TCS provisions?
A: Section 400(2) of the Act allows the Board, with prior approval of the Central Government, to issue guidelines to remove difficulties in implementing the TDS/TCS provisions. These guidelines must be laid before each House of Parliament.
Q116:What provision of this Act, bars direct demand on assessee if the tax at source has already been deducted from his income.
A: Section 401 of the Act states that once tax has been deducted at source from an assessee’s income under the chapter ‘Collection and Recovery of Tax’, that amount cannot be demanded again from the assessee.
Q117:Does Section 401 of the Act eliminate the assessee’s entire tax liability?
A: No. Section 401 of the Act only covers the extent of tax actually deducted at source. If the total tax liability exceeds the amount deducted, the assessee must still pay the remaining balance through advance tax, self-assessment tax, or regular assessment.
Q118:Can tax be recovered from the assessee (deductee) if the deductor deducts tax at a lower rate without issuing a Lower Tax deduction Certificate to the deductee?
A: Yes. Where tax is deducted at a rate lower than the prescribed rate, the assessee continues to be liable for the shortfall, in addition to any action may be taken against the deductor. The relief under the provision is limited to the amount of tax actually deducted.
Q119:Does this provision of section 401 apply where tax is deductible but has not been deducted?
A: No. The provision is applicable only when tax has actually been deducted at source. If tax was deductible but not deducted, the assessee can be required to pay the tax directly, in addition to any action may be taken against the deductor. (Section 401)
Q120:Whether key terms are defined to support the correct application of TDS and TCS provisions
A: Section 402 of the Act provides a comprehensive set of definitions of 47 terms relating to TDS and TCS for clarity and proper implementation e.g. “buyer,” “seller,” “agricultural land,” “designated person,” “professional services,” “rent,” etc. (Section 402)
Q121:How the term agricultural land is defined for the purpose of TDS/TCS provisions?
A: The definition of “agricultural land” provided in this provision is for the purpose transactions covered under section 393(1) [Table: Sl. No. 3]. (Section 402(2))
Q122:Explain the meaning of “commission or brokerage” for TDS/TCS purposes.
A: As per section 402(7) of the Act, “Commission or brokerage” includes payments received or receivable, directly or indirectly, by a person acting on behalf of another for- services rendered (excluding professional services), services in the course of buying or selling of goods, or in relation to any transactions relating to any asset, valuable article, or thing (excluding securities).
Q123:What is the meaning of “professional services” for TDS/TCS purposes?
A: Section 402(28) clarifies that the term “Professional services” refers to services provided by a person in the course of carrying on legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration, advertising, or any other profession notified by the Board under section 402 or Section 62 of the Act. Example: Aditi Sharma, a Chartered Accountant in Delhi, provides tax consultancy and audit services and charges Rs. 3 lakhs for the financial year. Since accountancy is specifically mentioned in Section 402(28) of the Act, the fees paid to Aditi constitute professional services. Therefore, the payer must deduct TDS on this payment as applicable to fees for professional services.
Q124:What is the meaning of “rent” for TDS/TCS purposes?
A: The term “Rent” means any payment, by whatever name called, made under a lease, sub-lease, tenancy, or any other agreement for the use of land, buildings (including factory buildings), land attached to a building, machinery, equipment, furniture, or fittings, whether or not these are owned by the payee. However, for the purposes of Section 393(1) [Table: Sl. No. 2(i)], only payments for the use of land, buildings (including factory buildings), land attached to a building are considered.
Q125:What is the meaning of “Consideration for transfer of any immovable property” for TDS/TCS purposes?
A: As per section 402(9) of the Act, consideration for transfer of any immovable property shall include all charges incidental to the transfer, such as club membership fees, car parking fees, electricity or water facility fees, maintenance fees, advance fees, or any other charges of similar nature.
Q126:Can maintenance fee be excluded from consideration for transfer of immovable property for TDS/TCS purposes?
A: No. Maintenance fee is included as part of consideration for transfer of immovable property under Section 402(9).
Q127:Is TDS required to be deducted on sub-contract payments also?
A: Yes. As per section 402(10), the term contract shall include sub-contract also for the purposes of TDS/TCS provisions.
Q128:What is the meaning of terms, e-commerce operator and e-commerce participant for TDS/TCS purposes?
A: These terms are defined in sub-section (12), (13) and (14) of section 402 respectively. In brief, “e-commerce” means supplying goods, services, or digital products over a digital or electronic network. An “e-commerce operator” is a person who owns, runs, or manages a digital platform for e-commerce, while an “e-commerce participant” is a person in India who sells goods or provides services, including digital products, through such a platform.
Q129:What is a “foreign exchange asset” for TDS/TCS purposes?
A: As per section 402(16) of the Act, a foreign exchange asset is specified asset purchased or acquired or subscribed in convertible foreign exchange. Example: An Indian resident invests in a U.S.-based tech startup by paying in dollars.
Q130:What is meant by “immovable property” for TDS/TCS purposes?
A: As per section 402(19) of the Act, Immovable property includes land (excluding agricultural land) or buildings, or any part of a building.
Q131:Who is considered a “licensee or lessee” of a toll plaza, mine, or quarry for TDS/TCS purposes?
A: As per section 402(21) of the Act, a licensee or lessee is any person other than a public sector company that has been granted rights to use a parking lot, toll plaza, mine, or quarry for business purposes.
Q132:Who is a “licensor or lessor” for TDS/TCS purposes?
A: As per section 402(22) of the Act, A licensor or lessor is the person granting rights, through lease or license to any person other than a public sector company, to use a business asset such as a parking lot, toll plaza, mine, or quarry.
Q133:What is an “online gaming intermediary” for TDS/TCS purposes?
A: As per section 402(25) of the Act, it is an intermediary that provides one or more online games.
Q134:What is meant by an “overseas tour programme package” for TDS/TCS purposes?
A: As per section 402(26) of the Act, it is a tour package that includes travel to a foreign country, with expenses like flights, hotels, boarding, lodging, or similar costs.
Q135:What is “scrap” for TDS/TCS purposes?
A: As per section 402(31) of the Act, Scrap is waste material or leftover from manufacturing or mechanical working of materials, that cannot be reused as-is due to breakage, cutting up, wear and other reasons.
Q136:Who is a “seller” for TDS/TCS purposes?
A: As per section 402(33) of the Act, for the purpose of section 394(1) table S. No. 1 to 6 a “seller” means the Central or State Government, any local authority, corporation, company, firm, cooperative society, or an individual/HUF whose business turnover exceeds Rs.1 crore or professional turnover exceeds Rs.50 lakh in the preceding tax year for specified goods. For the purposes of section 394(1) table S. No. 8, i.e. for ‘overseas tour program packages’, the term seller means any person selling such packages. (Section 402(33))
Q137:What are “time deposits”?
A: As per section 402(41), time deposits are bank deposits that earn interest and are repayable after a fixed period, including recurring deposits.
Q138:Who is a “specified senior citizen” for TDS/TCS purposes?
A: As per section 402(39) of the Act, a “specified senior citizen” means an individual resident in India who is 75 years or older at any time during the tax year, has only pension income and interest from an account in the same specified bank where the pension is received, and has submitted a prescribed declaration to that bank.
Q139:What activities are considered “work”?
A: As per Section 402(47) of the Act, “Work” includes the following activities:
Advertising, broadcasting, or telecasting, which includes program production.
Transporting goods or passengers by any mode other than railways.
Catering.
Manufacturing or supplying products according to a customer’s specifications using materials provided by that customer or their associate.
However, “work” does not include products made from materials purchased from others or certain payments specified in Section 393(1) [Table: Sl. No. 6(iii)].
Q140:Who is a “specified person” for TDS/TCS purposes?
A: Under Section 402(37) of the Act, a “specified person” refers to:
Any entity that is not an individual or a Hindu Undivided Family (HUF).
An individual or HUF whose total sales, gross receipts, or turnover from business exceeds Rs. 1 crore, or from a profession exceeds Rs. 50 lakh, in the tax year immediately preceding the year in which the income or payment is credited or made.
Q141:When is a taxpayer required to pay advance tax during the year?
A: Section 403(1) of the Act requires advance tax to be paid during the financial year on the assessee’s current income as per provisions of this Part of the Act, ensuring tax is collected in instalments rather than at year-end.
Q142:What is “current income” as defined in Section 403 of the Act?
A: Section 403(2) of the Act defines “current income” as the total income of the assessee chargeable to tax for such tax year.
Q143:How can I estimate my “current income” for the tax year?
A: To estimate your “current income” for the tax year, you should make a reasonable and updated projection of your total taxable income likely to arise during the year. This estimation is not a one-time exercise and should be reviewed as the year progresses. Indicatively, you may follow the following steps: Start with known and recurring income Estimate income that is predictable, such as salary, pension, business or professional receipts, rental income, and interest from deposits or securities. Project variable or seasonal income For business or professional income, one may use past trends, current contracts, expected turnover, and market conditions to arrive at a realistic estimate of profits for the year. It is to be noted that advance tax on income by way of capital gains is required to be paid as and when such capital gains arise. Include other expected taxable receipts Factor in bonuses, commissions, incentives, dividends (where taxable), or any other income that you reasonably expect to receive during the year. Consider deductions and exemptions Reduce the estimated gross income by eligible deductions, exemptions, and set-offs that you intend to claim, to arrive at the expected taxable income. Update estimates periodically Since “current income” is based on expected income for the year, your estimate should be revised whenever there is a material change in income, expenses, or tax position during the year.
Q144:Is there any category of taxpayers who is exempted from payment of advance tax?
A: An individual resident in India is exempt from paying advance tax if he does not have income chargeable under the head “Profits and gains of business or profession” and is 60 years or more at any time during the tax year.
Q145:Which category of senior citizens is exempt from payment of advance tax?
A: The exemption is limited to resident individuals aged 60 years or more who do not have income chargeable under the head “Profits and gains of business or profession”. Senior citizens having income from business or profession remain liable to advance tax.
Q146:Can one claim the deduction of Advance tax payments against his profits?
A: No. Advance Tax is not an expense but a charge on income. It is to be finally adjusted against one’s tax liabilities at the time of filing of return.
Q147:What if at the end of the financial year, the assessee ends up paying more taxes since the advance tax payment is made on an estimated income?
A: If an assessee ends up paying more advance tax than his final liability, he can claim a refund of the excess amount when filing his Income Tax Return.
Q148:Is advance tax payable on income already subjected to tax deduction at source?
A: Advance tax is payable only on the net tax liability after adjusting TDS and TCS, and accordingly, credit for TDS and TCS must be considered while computing advance tax.
Q149:Is there any threshold of tax liability above which an assessee is required to pay advance tax during a financial year?
A: Section 404 states that an assessee must pay advance tax during a financial year only if the amount of advance tax payable for that year is Rs.10,000 or more.
Q150:How is the Rs.10,000 threshold computed for determining advance tax liability?
A: The threshold is based on the amount of advance tax payable, which is calculated after estimating the total tax liability for the Financial Year and subtracting tax already deductible or collectible at source. If the remaining tax payable is less than Rs.10,000, advance tax provisions do not apply. If the remaining tax payable is Rs.10,000 or more, the assessee becomes liable to pay advance tax in instalments.
Q151:How is amount of advance tax computed and how does it account for tax already covered through TDS or TCS?
A: Section 405(1) provides a formula for determining the amount of advance tax payable in the Financial Year. The formula is: A = B – C
Where; A is the advance tax payable in a financial year, B is the income-tax on the “specified sum” at the rates in force for the Financial Year, where specified sum shall have the meaning assigned to it in Section 406 and 407 of this Act, and C is the amount of income-tax that would be deductible or collectible at source during the same year from any income subject to following: such amount is calculated before allowing any deduction admissible under this Act and has been taken into account in computing specified sum, and (i) the person responsible for deducting tax has paid or credited such income after deduction of tax; or (ii) the person responsible for collecting tax has received or debited such income after collection of tax. Example: Company ABC estimates income tax on ‘specified sum’ at rates in force as Rs.50,00,000 and TDS deductible is Rs.10,00,000. Thus, advance tax payable in the financial year is Rs.40,00,000 (Rs.50,00,000 – Rs.10,00,000).
Q152:Which tax rates are to be used for computing advance tax liability?
A: For computing the advance tax liability, the prevailing tax rates or the rates in force in the Financial Year for which the advance tax is to be computed, are to be used.
Q153:What does “specified sum” represent in Section 405 of the Act?
A: The term “specified sum” refers to the amount defined in Section 406 (self-computed amount liable for tax) or Section 407 (amount liable for tax as determined by an Assessing Officer). By calculating tax on the specified sum at current-year rates, the law ensures that advance tax is aligned with actual expected income.
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Q154:What are the conditions that must be met to allow deduction of TDS or TCS from the tax liability when calculating advance tax?
A: As per section 405(1), TDS or TCS may be reduced provided following two conditions are met: The corresponding income must be included in the specified sum. The income must have been paid or credited after deduction of tax, or received or debited after collection of tax.
Q155:What is the significance of agricultural income as far as calculations of advance tax are concerned?
A: Agricultural income is tax-exempt and does not form part of taxable current income. However, it may be taken into account for rate purposes while computing advance tax if the Finance Act of the Financial Year so provides that, net agricultural income shall be taken into account for the purposes of computing advance tax.
Q156:Is a taxpayer required to calculate and pay advance tax on their own, or is it payable only after receiving a notice from the tax authorities?
A: Section 406(1) of the Act mandates that every person liable to pay advance tax shall compute and pay advance tax under section 404 of this Act on his own accord, even if he has not been assessed before by way of regular assessment. The assessee must calculate the amount of advance tax payable on specified sum in the manner laid down in Section 405, and pay it in the prescribed instalment by the specified due dates. Example:Rajesh, a consultant in Mumbai, estimates his total income for the Financial Year to be Rs.15 lakh. He must compute and pay advance tax [if due,] in instalments without waiting for any notice from the department.
Q157:Does the Income-tax Act, 2025 require periodical monitoring of income by an assessee for the purposes on advance tax payments?
A: Yes.
Q158:Can an assessee modify advance tax payments during the tax year?
A: Yes. Section 406(2) allows an assessee who has already paid one or more instalments to increase or reduce the advance tax amount in remaining instalments. This adjustment is permitted when the assessee’s estimate of income (the specified sum) changes during the Financial Year. If income increases, the remaining instalments must be increased to cover the revised advance tax. If income decreases, the instalments may be reduced accordingly. Example:Mrs. Priya Sharma, a consultant in Bangalore, paid her first two instalments of advance tax based on an estimated annual income of Rs.15 lakh. In December, she receives a large project contract that would increase her total income to Rs.22 lakh for the year. She can increase her remaining instalments (third and fourth) to cover the additional estimated tax liability on the higher income.
Q159:Can the liability to pay advance tax arise even if no tax was payable in earlier years?
A: Yes. The liability to pay advance tax depends on current income of the tax year, not on past assessments.
Q160:Can the Assessing Officer direct a taxpayer to pay advance tax?
A: Yes. As per section 407(1) of the Act, when a person has already been assessed for any tax year through regular assessment and the Assessing Officer is of the opinion that such a person is liable to pay advance tax for the current financial year, he may issue a written order requiring the said person to pay advance tax on the specified sum. The advance tax should be computed in the manner prescribed under section 405 of this Act. An order under section 407(1) of this Act can be passed by the assessing Officer at any time during the financial year on or before last date of February of that financial year.
Q161:What is the difference between sections 406 and 407 of the Act?
A: As per Section 406, advance tax is required to be paid voluntarily by the assessee on his own accord whereas section 407 deals with requirement of advance tax payment following an order of the Assessing Officer.
Q162:How is the “specified sum” determined for the purposes of section 407 of the Act on which the Assessing Officer is required to compute the advance tax?
A: Under Section 407(3) of the Act, the “specified sum” is the higher of the following two figures: the total income of the latest tax year for which the assesse has been assessed by way of regular assessment; or the total income returned by the assessee in any return of income furnished by him for any subsequent tax year.
Q163:Can the Assessing Officer amend an order regarding the advance tax liability as passed under section 407(1) of the Act?
A: Section 407(4) of the Act allows the modification of the earlier order passed under section 407(1) of the Act, in following two situations: when the assessee files a return of income under Section 263 or in response to a notice under Section 268, or (ii)when a regular assessment of a later tax year is completed. In such cases, the Assessing Officer may amend the order and direct the assessee to pay the advance tax on the revised “specified sum”.
Q164:What are the time limits for passing an amended order under section 407(4) of the Act?
A: As per Section 407(5) of the Act, an amended order under Section 407(4) must be made before 1st March of the tax year. It must also be followed by issuance of a demand notice under Section 289 of the Act.
Q165:How is “specified sum” defined for amended orders under section 407(4) of the Act?
A: Section 407(6) of the Act provides that for amended orders under section 407(4) of the Act, the “specified sum” is the total income: declared in the return filed under Section 263 or in response to Section 268, or computed in the regular assessment referred to in Section 407(4)(b) which is made after the regular assessment in section 407(1).
Q166:How is advance tax payable if the demand notice is served after one or more due dates for payment of advance tax?
A: In accordance with Section 407(7), If a notice of demand is served after one or more advance tax due dates, the assessee must pay the relevant portion or the entire advance tax specified in the demand notice on or before the remaining due dates that fall after the notice is served.
Q167:What remedy is available to an assessee who estimates current income to be lower than that determined in the Assessing Officer’s order?
A: If a person served with an order under section 407(1) or 407 (4) estimates that the advance tax payable on current income would be lower than the amount specified in the order, he may intimate the Assessing Officer in the prescribed form and pay advance tax based on his own estimate, in the applicable instalments due after the date of such intimation.
Q168:What if the assessee estimates higher advance tax than what was ordered?
A: If a person served with an order under 407(1) or 407 (4) estimates that the advance tax on current income would exceed the amount specified in the order or previously intimated, he must pay the higher advance tax based on his estimate, on or before the due date of the last instalment under section 408.
Q169:How must assessees pay advance tax in instalments, and how does the prescribed schedule help distribute the tax liability throughout the year?
A: Section 408(1) requires every assessee liable to pay advance tax (except those covered under sub-section (2)) to pay advance tax in four instalments during the Financial Year. These instalments must be based on current income calculated under Section 405. The due dates and minimum percentages of total advance tax are fixed through a table mentioned in this sub-section. This structured schedule ensures progressive payment throughout the year and reduces the burden of a single lump-sum payment.
Q170:What is meant by “not less than” in the instalment table used in section 408 of the Act?
A: The phrase “not less than” indicates the minimum cumulative amount that must be paid by each due date. The assessee can pay more than the prescribed percentage.
Q171:Is payment of advance tax in instalments mandatory for assessees declaring income under presumptive taxation regime?
A: No. Section 408(2) provides that such assesses are exempt from payment of advance tax in four instalments and they may discharge the whole advance tax liability in a single instalment by 15th March. The manner of computation of advance tax liability remains the same as mentioned in section 405 of the Act.
Q172:How are advance tax payments made between 15th March to 31st March treated?
A: Under Section 408(3) of the Act, any amount paid as advance tax on or before 31st March is treated as advance tax paid for that Financial Year. This means that the payments made after the final instalment date (15th March) but before 31st March shall still be counted as advance tax.
Q173:When is a person treated as an assessee in default related to advance tax liability?
A: A person is deemed to be an assessee in default if he fails to pay advance tax instalments as required to pay by an Order of the Assessing Officer under Section 407(1) and Section 407(4), or does not submit the required intimation under section 407(8) on or before the date on which such instalment as is not paid becomes due, or fails to pay advance tax based on his own estimate of current income under section 407(9).
Q174:Can the assessee be treated as in default only when he fails to make payment of advance tax in pursuance of order under section 407(1) or 407(4) of the Act?
A: Yes, the assessee is considered to be in default in payment of advance tax, if an order under section 407(1) or 407(4) of the Act is issued by the Assessing Officer and the assessee defaults in paying the advance tax as directed.
Q175:How does failure to send an intimation under Section 407(8) of the Act result in default under Section 409 of the Act?
A: default results when the person, believing that his actual advance tax liability is lower than what the Assessing Officer ordered, does not pay the advance tax and also does not send the required intimation under Section 407(8) before the due date of the instalment that he failed to pay. In other words, if an instalment is not paid and no valid intimation is submitted in time, the person is treated as an assessee in default.
Q176:Is the assessee deemed to be in default for the entire advance tax liability?
A: No. The default is only in respect of such instalment or instalments which is/are unpaid or non-complied with.
Q177:How is credit for advance tax given to the assessee?
A: Any amount paid or recovered as advance tax (excluding penalty or interest) is treated as tax paid for the income of relevant tax year and credit shall be given to such assessee in the regular assessment. (Refer Section 410)
Q178:What is the time limit for paying a demand raised?
A: Section 411(1) of the Act states that any amount (other than advance tax) specified as payable in a notice of demand must be paid within 30 days from the date of service of the notice ,or such period being less thirty days as specified in the notice of demand issued with prior approval of the Joint Commissioner of Income tax in cases where assessing Officer has a “reason to believe” that it shall be detrimental to Revenue if full period of 30 days is allowed.
Q179:What is effect of appellate proceedings on the notice of demand?
A: The demand specified in the demand notice continues to be valid until the appeal is finally disposed of by the last appellate authority or other proceedings. However, as per Section 411(12), the Assessing Officer may, at his discretion and subject to conditions, treat the assessee as not in default in respect of the amount in dispute in appeal, while the appeal remains pending.
Q180:Is any interest charged for delay in payment of tax demand and if so, how is the interest calculated?
A: In accordance with Section 411(3), if the assessee fails to pay the demand within the allowed period, he must pay simple interest @1% per month (or part of a month) on the outstanding amount. The interest period begins the day after the due date as specified in the demand notice and ends on the day the amount is paid.
Q181:If tax is paid in instalments without any explicit order of the Assessing Officer allowing payment in such instalments, and after the due date, how is interest computed?
A: Interest is computed at 1% per month or part thereof on the outstanding unpaid amount, from the due date specified in the demand notice till the date of payment of each instalment.
Q182Can the assessee request extension of time or payment in instalments?
A: Yes. As per Section 411(5), if the assessee files such application before the expiry of the original time limit provided in the notice of demand under section 289, the Assessing Officer may: extend the time for payment, or allow payment in instalments, subject to any conditions he considers appropriate. This gives administrative flexibility to ease taxpayer hardship while safeguarding revenue.
Q183:How is interest adjusted if the tax amount is later reduced or increased under appellate or revisionary orders (Section 411(6))?
A: In case any subsequent orders (under Sections 287, 288, 359, 363, 365(10), 368, 378, etc.) change the tax amount: if the tax amount is reduced: the corresponding interest reduces and any excess interest paid is refunded. If increased: interest becomes payable again under Section 411(3) from the day after the due date of the original notice of demand under section 289 until the increased amount is paid. This ensures correct recalculation of interest after final liability is settled.
Q184:Under what circumstances can interest under Section 411(3) be waived or reduced?
A: As per section 411(7) of the Act, the income tax authorities specified in that sub-section may reduce or waive interest on the demand specified in any of notice of demand under section 289, if the assessee files an application and satisfies all three following conditions: paying the interest has caused or would cause genuine hardship, default occurred due to circumstances beyond the assessee’s control, and the assessee co-operated in any inquiry related to assessment or recovery.
Q185:Within what time frame must the application to reduce or waive interest must be decided and what procedural safeguard must be provided before rejecting it?
A: Section 411(8) of the Act provides that the order accepting or rejecting the assessee’s application be passed within 12 months from the end of the month in which the application is received after giving due opportunity of being heard to the assessee.
Q186:When can an assessee be treated as in default regarding the tax demand conveyed through demand notice?
A: When a demand is conveyed through a demand notice, the assessee can be treated as ‘assessee in default’ when: he fails to pay the demand within the time specified in the demand notice or extended time allowed by Assessing Officer under section 411(5) if payment is allowed in instalments but the assessee defaults in any of the instalments.
Q187:What are the consequences if an assessee defaults even in one instalment allowed under Section 411(5) of the Act?
A: As per Section 411(11) of the Act, if an assessee defaults on any instalment, the assessee shall be deemed to be in default for the entire outstanding amount, and all remaining instalments are treated as due on the date of the instalment actually in default.
Q188:Can an assessee be treated as not in default during pendency of appeal?
A: As per the provisions of section 411(12) of the Act, if an assessee files an appeal under sections 356 or 357, the Assessing Officer may, at his discretion and subject to conditions, treat the assessee as not in default for the disputed amount until the appeal is decided.
Q189:Is there any penalty for default in payment of tax?
A: Yes. When an assessee is in default or is deemed to be in default in making a payment of taxes, the taxes, in addition to the arrears of tax and the interest under Section 411(3), the assessee becomes liable to pay a penalty under section 412 of the Act.
Q190:What is the quantum of penalty leviable under section 412 of the Act when the assessee is in default?
A: Under sub-section 412(1) of the Act, the assessee is liable to pay: such amount of penalty as the Assessing Officer may direct; and in the case of a continuing default, such further penalty as may be directed from time to time. Collection and Recovery
Q191:Is there a limit on the quantum of penalty that can be levied under section 412 of the Act?
A: Yes. Section 412(2) of the Act provides that the total penalty cannot exceed the amount of tax in arrears.
Q192:What safeguards are available in the Income-tax Act before a penalty under section 412 is levied for default in payment of taxes?
A: No penalty under sub-section (1) of section 412 shall be levied unless the assessee is given a reasonable opportunity to be heard. Further no penalty shall be levied where the assessee proves to the satisfaction of the Assessing Officer that the default occurred for good and sufficient reasons.
Q193:Does payment of the outstanding tax extinguish penal liability?
A: No. Section 412(4) of the Act specifically provides that an assessee remains liable for penalty under sub-section (1) of section 412 even if the tax is paid before the penalty is imposed.
Q194:What happens to the penalty if due to the final order, the tax arrears are later cancelled?
A: If a final order wholly reduces the tax amount relating to the default, then the penalty levied on that amount shall be cancelled, and any penalty already paid shall be refunded.
Q195:How does the Tax Recovery Officer recover the outstanding demand in cases where the assessee is in default?
A: Section 413(1) of the Act authorises the Tax Recovery Officer to initiate recovery proceedings when an assessee is in default or deemed to be in default in making a payment of tax. The TRO may draw up a Statement under his signature in the prescribed form, specifying the amount of arrears due from the assessee, which is referred to as certificate. Once the certificate is issued, recovery can proceed through one or more of the following modes: attachment and sale of the assessee’s movable property attachment and sale of immovable property, arrest and detention of the assessee in prison, or appointment of a receiver to manage the assessee’s movable and immovable properties. Further, the TRO can draw up the afore-mentioned certificate, whether or not other recovery modes under the Act have been taken.
Q196:What does a “Certificate by TRO” mean and what is its significance?
A: A “certificate” under Section 413 is a statement drawn up and signed by the Tax Recovery Officer (TRO), specifying the amount of tax arrears due from the assessee. After such a certificate is drawn, it authorises a TRO to recover the amount specified in the certificate by one or more of the modes prescribed in Section 413.
Q197:Can the Tax Recovery Officer use multiple recovery modes simultaneously under Section 413(1) of the Act?
A: Yes. Section 413(1) explicitly allows the TRO to recover tax arrears by using one or more of the modes mentioned therein. As per Section 413(2), these multiple modes of recovery may be undertaken regardless of whether other recovery proceedings have already been initiated.
Q198:Can the assessee challenge the correctness of a certificate drawn by TRO?
A: No. Section 413(3) of the Act prohibits the assessee from disputing the correctness of the certificate drawn by the Tax Recovery Officer on any ground.
Q199:Can the TRO amend or cancel the recovery certificate drawn by him?
A: Yes. The TRO may cancel the certificate if necessary or correct any clerical or arithmetic mistakes in it. This ensures accuracy and allows rectification of errors without affecting the validity of recovery proceedings.
Q200:How does the law treat property transferred by an assessee to his close relatives without adequate consideration for the purpose of recovering tax arrears?
A: For the purposes of recovery by TRO, the movable or immovable property of an assessee includes any property transferred on or after 1st June 1973, directly or indirectly, without adequate consideration to the assessee’s spouse, minor child, son’s wife, or son’s minor child and held by them, and in the case of property transferred to a minor child or son’s minor child, it continues to be included in the assessee’s property for recovery of arrears even after the minor attains majority.
Q201:How the jurisdiction of TRO is decided?
A: The TRO shall be: having jurisdiction over the area where the assessee carries on his business or profession or has the principal place of such business or profession; or having jurisdiction over the area where the assessee resides or where any of his movable or immovable property is situated. The jurisdiction is assigned through orders or directions of the Board or through an authorised income-tax authority not below the rank of Commissioner under Section 241.
Q202:Can more than one Tax Recovery Officer have jurisdiction over an assessee?
A: Yes. Section 414 of the Act contemplates situations where more than one TRO can exercise jurisdiction over an assessee by virtue of the fact assessee reside or can possess movable/immovable properties in multiple jurisdictions.
203:What power does the Tax Recovery Officer have regarding granting time for payment of outstanding tax?
A: Section 415(1) authorizes the Tax Recovery Officer (TRO) to grant additional time to the assessee for paying any outstanding tax. Once such time is granted, the TRO must stay all recovery proceedings for that tax until the extended time expires. This provides relief to the assessee and prevents immediate coercive recovery, while still keeping the recovery process controlled and supervised.
Q204:Can a TRO stay recovery proceedings to allow a taxpayer to pay the tax arrears, after a certificate u/s 413 has been drawn?
A: Yes. The TRO (as per the provisions of section 415(1)) can grant time to allow a taxpayer to tax arrears and during this time the recovery proceedings for such tax can be stayed.
Q205:Under what circumstances can the recovery proceedings be stayed after a certificate for recovery is drawn by TRO?
A: Under the following circumstances, stay can be granted by TRO from recovery proceedings: The TRO (as per the provisions of section 415(1)) can grant time to allow a taxpayer to deposit tax arrears and during this time the recovery proceedings for such tax can be stayed. If the underlying tax demand gets reduced due to an appellate order or any other proceeding under the Act, Section 415(2) (b) allows the TRO to make appropriate adjustments. If the demand is further contested in appeal/other proceedings are pending, then TRO shall stay the recovery for such demand. However, if the subject matter of appeal /other proceedings has become final, then TRO shall amend/cancel the certificate.
Q206:Can the Assessing Officer (AO) recover tax arrears without drawing a recovery certificate?
A: Section 416(1) empowers the Assessing Officer to recover tax without drawing up a certificate as required under Section 413. The Assessing Officer may use any of the recovery modes provided in Section 416 of the Act. This gives flexibility to initiate recovery of tax arrears even before the formal recovery certificate is drawn.
Q207:From which kinds of properties can the Assessing Officer recover tax arrears?
A: The Assessing officer can recover tax arrears through movable properties such as Bank account, salaries, debts owed to the taxpayer, etc.
Q208:Can a salary of an employee be used for recovery of taxes?
A: Yes. As per section 416(3) of the Act, the Assessing Officer or Tax Recovery Officer may require the employer to deduct arrears of tax from the salary payments due to such assessee and the sum so deducted shall be credited to the Central Government. However, salary that are exempt from attachment in execution of a court decree under Section 60 of the Code of Civil Procedure, cannot be used for recovery purposes.
Q209:What are the main features of the third-party recovery mechanism under Section 416(5) of the Act?
A: Section 416(5) of the Act allows the AO or TRO to issue a notice to any person from whom money is due or may become due to the assesseee; or who holds or may subsequently hold money for or on account of the assesseee. The notice requires the person to pay that money directly to the tax authorities to satisfy arrears. Key features of this mechanism include: The notice may cover present or future amounts due. In case of joint accounts with the assessee, it shall be presumed that the shares of all persons is equal unless proved contrary. A copy of notice must be sent to the assessee and all joint holders (if applicable) at their last addresses known to the Assessing Officer or TRO. Every person to whom a notice is issued under Section 416(5) shall mandatorily comply with these notices. Banks, insurers, and post offices must comply even without production of deposit receipts or passbooks. In case of non-compliance, such persons are treated as an assessee in default for that amount.
Q210:What happens if a person on whom notice section 416(5) for attachment of bank account /debts owed is served, defaults and does not make payment to the Assessing Officer or Tax Recovery Officer?
A: Such persons are treated as an assessee in default for the amount specified in the notice. The recovery machinery mentioned in Sections 413-415 of the Act may then be used against them. Further the notice is treated as an attachment of debt by the TRO in exercise of powers u/s 413.
Q211:What if the person served with a notice under Section 416(5) denies holding money for the assessee?
A: The recipient of the notice under section 416(5) of the Act may object under oath that the amount demanded or any part thereof is not due to the assessee, or he does not hold money on behalf of the assessee. If this statement is made, the obligation to pay ceases, unless the statement is later found to be false. However, if the statement is found false, the person becomes personally liable, up to the amount of his own liability to the assessee, or the arrears due from the assessee, whichever is lower.
Q212:How can the Assessing Officer or TRO recover tax from money held in a court?
A: If money belonging to the assessee is in the custody of a court, the Assessing Officer or TRO may apply to the court for payment of either: (i)The entire amount of such money in its custody, or (ii)An amount sufficient to discharge the tax liability.
Q213:How can taxes of foreign country be recovered in India?
A: Section 418(1) provides that where the Central Government has entered into an agreement with a foreign country for the mutual recovery of income-tax under the respective tax laws of both countries, and the foreign government or its authorised authority sends a certificate of tax arrears to the Indian Board for recovery from a resident of India, or a person having property in India, The Board may forward the certificate to the appropriate Tax Recovery Officer (TRO). The TRO shall recover the amount in the same manner as tax recoverable under a certificate issued under section 413. Any amount so recovered shall be remitted to the Board after deducting recovery expenses.
Q214:How does the Tax Recovery Officer execute foreign tax recovery under Section 418(1)(i)?
A: Once the foreign recovery certificate is forwarded by the Board, the TRO proceeds exactly as he would for Indian tax arrears. This means he may use any of the recovery mechanisms available to him under the Act, including attachment and sale of property, arrest, or garnishee notices.
Q215:How is the amount recovered on the basis of a request received from a foreign country dealt with?
A: Upon recovery of the tax amount specified in the certificate, the Tax Recovery Officer shall remit the recovered sum to the Board, after deducting only the expenses incurred in the course of recovery. The Board shall thereafter deal with the amount in accordance with the relevant international agreement, ensuring a structured and accountable mechanism for cross-border tax recovery.
Q216:Under what circumstances can a Tax Recovery Officer forward a certificate under section 413 to the Board for recovery of tax under an international agreement?
A: Where an assessee who is in default or deemed to be in default in payment of tax is either a resident of a country with which the Central Government has entered into an agreement for recovery of income-tax, or has property in such country, the Tax Recovery Officer may forward a certificate drawn up under section 413 to the Board, which may then take appropriate action in accordance with the terms of the relevant international agreement.
Q217:How does recovery of taxes may take place in pursuance of international agreements?
A: TAN or Tax Deduction and Collection Account Number is a unique ten-digit alpha-numeric number required to be obtained by all persons who are responsible for deducting or collecting tax. Under Section 203A of the Income Tax Act, 1961, it is mandatory to quote Tax Deduction Account Number (TAN) allotted by the Income Tax Department (ITD) on all TDS statements.
Q218:Is procedure for recovery of interest, fine, penalty, or any other amount payable under this Act different than recovery of tax arrears?
A: No. Section 419 provides that any sum imposed under the Act, whether it is interest, a fine, a penalty, or any other amount payable, shall be recoverable in the same manner as arrears of tax. This means all recovery procedures available for collecting unpaid tax apply equally to these types of outstanding sums. Example:Ms. S is liable to pay a penalty of Rs. 5,00,000 levied for underreporting of income. Even though it is in the nature of penalty and not tax per se, the amount can be recovered using all the modes/mechanisms of tax recovery.
Q219:Can penalty or interest be recovered even if tax has already been paid?
A: Yes. Even if the principal tax liability has been discharged, interest, penalty, or other sums remain independently recoverable as arrears.
Q220:What is Tax Clearance Certificate?
A: It is a ‘no due’ or ‘no objection’ certificate related to Income Tax which is required to be obtained by a person traveling outside the country, subject to conditions mentioned in section 420 of the Act.
Q221:Explain the requirement of a Tax Clearance Certificate for a person who is not domiciled in India before leaving the country.
A: Section 420(1) of the Act provides that a person who is not domiciled in India; has come to India for business, profession, or employment, and has income derived from any source in India. Such person cannot leave the territory of India unless he furnishes an undertaking (in a prescribed form) from his employer, or the person through whom he receives income, stating that all tax payable by the non-domiciled individual shall be paid by the employer or the person through whom such person is in receipt of the income. Once the undertaking is furnished, the prescribed authority shall issue a no objection certificate (NOC) for departure. This ensures security of recovery of tax before such individual leaves India.
Q222:Are all non-domiciled persons required to obtain a Tax Clearance Certificate?
A: No. Under Section 420(2), non-domiciled individuals visiting India as foreign tourists or for purposes not connected to business, profession, or employment are exempt from this requirement. This means the above restrictions apply only to those having taxable income through commercial or professional activities in India, not casual or tourist visitors.
Q223:What information is required to be furnished by a person domiciled in India at the time of departure from India?
A: Subject to any exceptions notified by the Central Government, every person who is domiciled in India at the time of departure is required to furnish the following details to the prescribed income-tax authority or any other specified authority, in the prescribed form: the Permanent Account Number (PAN) allotted under section 262; the purpose of the visit outside India; and the estimated duration of stay outside India.
Q224:How can the above requirement be complied with by a person who does not have a Permanent Account Number (PAN) or is not required to obtain one?
A: Section 420(4) specifies that where a person does not have a PAN, or his total income is not chargeable to income-tax, or he is not otherwise required to obtain a PAN under the Act, he must furnish a certificate in the prescribed form to the appropriate authority, in lieu of the PAN.
Q225:What safeguards restrict the tax authority’s power to require a tax clearance certificate for a domiciled individual under Section 420 of the Act?
A: An income-tax authority can require a domiciled Indian to obtain a tax clearance certificate only when: the case is covered by circumstances which render it necessary for that person to obtain a certificate under this section, records reasons for doing so, and obtains prior approval from the Principal Chief Commissioner or Chief Commissioner.
Q226:Does recovery under this Act bar/ limit other legal remedies?
A: Section 421 clarifies that the recovery mechanisms provided in this Act do not limit or replace any other legal methods available to the Government for recovering tax arrears. It emphasizes that the above specified modes of recovery are additional options rather than exclusive remedies. This means that even if the Assessing Officer (AO) is already using one of the recovery modes under this Part, the Government is still free to rely on other applicable laws. The purpose is to ensure that the Government retains full authority and flexibility to recover unpaid taxes using any lawful means.
Q227:Does section 421 allow the Government to use other laws for recovery even if tax recovery has already begun under this Act?
A: Yes. Section 421 clearly states that the use of recovery methods under this Part does not prevent the Government from simultaneously or subsequently using other laws that enable the recovery of Government dues. This applies regardless of whether recovery is already underway through the procedures provided in this Chapter. The Government is not required to choose one method exclusively; it may pursue multiple legal avenues if necessary to recover arrears from the assessee.
Q228:Does it bar the Government from filing a separate suit for tax recovery, when recovery actions are already ongoing?
A: Yes. The section 421(b) explicitly preserves the Government’s right to institute a suit in a court of law to recover arrears from the assessee. This right remains intact even if the AO is already pursuing recovery under the modes specified in this Part. The provision makes clear that legal action through courts is always available as an additional remedy. Interest Chargeable in certain cases
Q229:What are the provisions for charging interest when a taxpayer files his income tax return late or fails to file it at all, and how is the interest amount calculated?
A: Section 423 stipulates the provisions for levying simple interest in cases where a taxpayer files their income return after the due date or fails to file it altogether. According to this section, simple interest at the rate of 1% per month or part thereof shall be charged on the specified tax amount as provided in sub-section (2) Sub-section (1) specifies a formula: I = 1\% \times A \times T, where I = is the interest payable, A = is the specified amount of tax on which interest is payable, and T = is the number of months in the period determined under sub-section (2). Example: If a taxpayer files a return two months after the due date and the amount of tax on which interest is payable is Rs. 20,000, interest u/s 423 = 1\% \times 2 \times 20,000 = Rs. 400.
Q230:How are the period for which interest is payable, are determined?
A: Section 423(2) and the accompanying table specify different starting and ending dates for various circumstances. The starting date is determined based on factors such as the due date for furnishing the return, the last date of time allowed under a notice. Similarly, the ending date as per the given table means the date on which the return is actually furnished or the date of completion of assessment under section 271, or date of completion of reassessment/re-computation under section 279. Accordingly, interest is charged only for the period during which the delay persists, and each row in the table provides clarity of applicable scenario. (refer section 423(2), 271 and 279)
Q231:Mr A is an individual whose due date for filing the return of income under section 263(1) is 31.07.2026. He actually furnished his return on 30.11.2026, i.e., after the due date. No regular assessment was made in his case. Total tax liability determined under section 270(1) is Rs.1,20,000 and advance tax and TDS already paid is Rs.70,000. How much interest shall be levied u/s 423?
A: Mr A filed the return after the due date of filing of return u/s 263(1). Thus, he is liable to pay interest u/s 423 as per the formula: 1% x A x T. Amount on which interest is payable: Tax on total income as determined under section 270(1), reduced by tax already paid (Rs.1,20,000 – Rs.70,000 = Rs.50,000) Time: (a) Starting date: The due date for furnishing the return, i.e., 31.07.2026 (b) Ending date: The date of furnishing the return, i.e., 30.11.2026 (c) Time/delay in furnishing return: 4 months Rate of interest: 1% per month or part thereof Calculation of simple interest: Interest = 1% x Rs.50,000 x 4 months = Rs.2,000 Therefore, Mr A is liable to pay interest of Rs.2,000 for furnishing the return after the due date.
Q232:Does interest change if tax liability changes due to reassessment, appeal or rectification?
A: Yes. As per Section 423(3) where as a result of an order under section 287 or 288 or 359 or 363 or 365(110) or 368 or 377 or 378, the amount of tax on which interest was payable under sub-section (1) and (2) has been increased or reduced, the interest shall be increased or reduced accordingly, and in a case- where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in such form as may be prescribed specifying the sum payable, and such notice of demand shall be deemed to be a notice under section 289 and the provisions of this Act shall apply accordingly; where the interest is reduced, the excess interest paid, if any, shall be refunded.
Q233Whether any additional income-tax payable while filing updated return u/s.267 is included for calculating interest under section 423?
A: No. Section 423(4) specifies that the additional income-tax, if any payable under section 267 is specifically excluded while computing interest under Section 423.
Q234:Can interest paid earlier under section 266 be adjusted?
A: Yes. Section 423(4) provides that Interest payable under Section 423 shall be reduced by the interest, if any, paid under section 266 towards the interest chargeable. (refer section 423(4) and 266)
Q235:What does “tax paid” mean for computing interest under Section 423?
A: As per Section 423(4) “Tax paid” includes: advance tax, if any paid; TDS or TCS, relief of tax allowed under section 157; relief of tax allowed under section 159(1) on account of tax paid outside India; relief of tax allowed under Section 159(2) on account of tax paid in a specified territory outside India, any deduction from the Indian income-tax payable, allowed under section 160, on account of tax paid outside India and any tax credit allowed to be set-off as per section 206(1)(m) to (p) and 206(2) (e ) to (h).
Q236:If assessment is made for the first time under reassessment provisions, how is it treated for the purposes of charging the interest for defaults in filing the returns of income?
A: Section 423(5) specifies that such assessment under section 279 is treated as a regular assessment for the purposes of charging interest. (refer section 423(5) and 279)
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Q237:How the interest charged when a taxpayer fails to pay advance tax or pays a lower amount of advance tax?
A: Section 424 provides for charging interest when an assessee who is liable to pay advance tax either fails to pay it or pays less than the required amount. Interest applies when: (i)no advance tax is paid at all, or (ii)the advance tax paid is less than 90% of the assessed tax. The assessee shall be liable to pay simple interest at the rate of 1% for every month or every part of a month, for the period, beginning from 1st April following such tax year. Example: The assessed tax of Mr A is Rs.1,00,000. He pays advance tax of only Rs.80,000. Since this is less than 90% of assessed tax, interest at 1% per month is payable on the shortfall of Rs.20,000 from 1st April till the date of assessment.
Q238:Which amount shall be considered to calculate interest under Section 424 if advance tax is not paid?
A: Where the assessee has the liability to pay the advance tax, but he failed to pay the same, the interest shall be charged on the assessed tax u/s 270(1) or where regular assessment is done, on amount by which advance tax falls short of assessed tax.
Q239:What is the period for which interest is charged for defaults in payment of advance tax?
A: As per section 424, Interest for defaults in payment of advance tax is calculated from 1st April following the relevant tax year and is charged up to: the date of determination of total income u/s 270(1) where a regular assessment is made, up to the date of completion of such regular assessment.
Q240:What does the term “assessed tax” mean for computing interest for defaults in payment of advance tax?
A: Assessed tax means tax on total income determined under section 270(1) and where a regular assessment is made, the tax on total income determined under such regular assessment as reduced by certain credits & reliefs such TDS, TCS, Foreign Tax Credit, other tax credits as specified u/s.424(2). (refer section 270(1) and 424(2)
Q242:How is interest computed when tax is paid before assessment or completion of regular assessment?
A: Section 424(4) specifies the procedure of computation of interest when tax is paid before assessment or completion of regular assessment.
Q243:Which period shall be considered for interest under Section 424 if self-assessment tax is paid?
A: If the assessee has paid the self-assessment tax, the interest under this provision shall be computed for the two periods: The first period starts on April 1 of the following tax year and ends on the date on which the self-assessment tax is paid The second period starts from the date on which the self-assessment tax was paid and ends on the date on which the assessment is completed (applicable in cases where the tax liability is increased during the assessment).
Q244:Whether payment of tax after the demand notice reduces interest already charged for defaults in payment of advance tax?
A: No. Payment made after the interest period has ended does not reduce interest already accrued under section 424.
Q245:If advance tax is paid after the end of the tax year but before assessment, will interest be levied u/s 424 for defaults in payment of advance tax?
A: Yes. Interest is calculated up to the date on which such tax is paid.
Whether the section 424 applies where income is assessed on a best judgment basis?
Yes. Interest applies based on the assessed tax determined, including cases where assessment is made on a best judgment basis.
Q246:What factors are considered to calculate interest for deferment of advance tax?
A: TAN or Tax Deduction and Collection Account Number is a unique ten-digit alpha-numeric number required to be obtained by all persons who are responsible for deducting or collecting tax. Under Section 203A of the Income Tax Act, 1961, it is mandatory to quote Tax Deduction Account Number (TAN) allotted by the Income Tax Department (ITD) on all TDS statements.
Q247:Does payment of self-assessment tax after the end of the year reduce interest under the section 425?
A:No. Interest under section 425 is calculated only with reference to advance tax instalments. Payment of self-assessment tax after the end of the year does not reduce or eliminate the interest already attracted for deferment of advance tax.
Q248:Is interest still payable if the total advance tax paid by year end equals or exceeds the final tax liability?
A: Yes. Even if the total advance tax paid equals or exceeds the final tax liability, interest is still payable if quarterly instalments were not paid as required on their respective due dates. (refer section 425)
Q249:Is interest calculated separately for each quarterly instalment or cumulatively for the year?
A :Interest is calculated separately for each quarterly instalment based on the shortfall for that instalment and the prescribed period.
Q250:How is interest calculated for deferment of advance tax for assessee under presumptive taxation?
A: If the assessee has opted for presumptive taxation under 58(2) (Sl No 1 or 3 of the table), he can pay the whole amount of his advance tax liability on or before March 15th of the financial year. Thus, he can pay the 100% of advance tax in a single instalment on or before March 15th of the financial year. For any shortfall from the tax due on returned income, and simple interest at the rate 1% per month is the liability to pay. (refer section 425(3))
Q251:What happens in situations when instalments are not estimated accurately due to the nature of income such as capital gains, dividends etc.?
A: Interest is not payable on shortfall arising due to failure to estimate certain types of income such as capital gains, income from any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature; income from newly commenced business or profession, and dividend income. Further, the assessee shall pay the tax on such income in full as part of remaining instalments or by 31st March of the tax year. Example:If a taxpayer earns sudden capital gains in January and pays advance tax on it by 31st March, no interest for deferment of advance tax will apply.
Q252: A new company ‘A’ is incorporated on December of a Tax Year. As it began its operations for the first time in December, it did not pay any advance tax till March of that Tax Year. Is company liable to pay interest for deferment of advance tax?
A: No. Section 425(4) specifies that no interest shall be levied if it has income under the head of profits and gains of business or profession accruing or arising for the first time during the tax year. Thus, company ‘A’ is not liable to pay any interest for deferment of advance tax provided it pays the due advance tax by 31st March of that tax year.
Q253:How is “tax due on the returned income” defined for this section?
A: Section 425(5) defines “tax due on the returned income” as the tax chargeable on the total income declared in the return of income furnished by the assessee for that tax year in which advance tax is paid or payable as after allowing relief and deduction enumerated in this section. Example:If total tax is Rs.1,20,000 and TDS is Rs.20,000, then tax due on returned income, for the purposes of computation of interest for deferment of advance tax shall be Rs.1,00,000, which forms the basis for instalment percentages.
Q254:Whether interest for deferment of advance tax is calculated on assessed income or returned income?
A: Interest for deferment of advance tax is always calculated on returned income.
Q255:What are the provisions related to interest on excess refund granted before regular assessment?
A: Section 426 provides that where any refund is granted to the assessee under section 270(1) and no refund is due on regular assessment or amount refunded under section 270(1) exceeds the amount refundable on regular assessment. Then assessee shall be liable to pay simple interest at the rate of 0.5% on the whole or the excess amount so refunded, for every month or part of a month from the date of grant of refund to the date of such regular assessment. (Section 426) Example:Refund of Rs.2,00,000 was granted at the time of processing under section 270(1). However, on regular assessment it was found that the refund should have been only Rs.50,000. Thus, interest applies on excess refund of Rs.1,50,000 @ 0.5% for every month or part of a month from the date of grant of refund to the date of such regular assessment.
Q256: How is the interest on excess refund calculated under section 426 of the Act?
A: The interest rate is fixed at 0.5% per month or part of a month.
Q257: Which amount shall be taken to calculate interest on excess refund under Section 426(1)?
A: The interest on excess refund shall be computed on following amount: Where the amount is refunded on assessment u/s 270(1), but no refund is found due on regular assessment, the interest shall be charged on the whole amount of the tax refund. Further, if any refund is granted to the assessee after assessment u/s 270(1) and the refund so granted exceeds the amount refundable on regular assessment, the interest shall be charged on the such excess amount refunded to the assessee.
Q258:Whether appellate or revisional orders modify interest liability under section 426 on excess refund?
A: Yes. As a result of a rectification order, other amendment, revisional order or appeal order passed by authority and that amount of refund is held to be correctly allowed, either in whole or in part, then the interest chargeable, if any shall be reduced accordingly. (refer section 426(2)) Example:If appellate order holds refund correct up to Rs.1,20,000 out of Rs.2,00,000 originally refunded, excess reduces to Rs.80,000, and interest must be recalculated only on Rs.80,000.
Q259:Mr. X received refund of Rs.5,00,000 u/s 270(1). The regular assessment determined the refund to be Rs.1,50,000. Later, a rectification order was passed u/s 287 determining the refund as Rs.4,00,000. On what amount shall the assessee pay interest u/s 426(1)?
A: As the rectification order passed u/s 287 determined the refund as Rs.4,00,000, the assessee shall pay interest on excess amount of refund of Rs.1,00,000.
Q260:What is the fee for late filing of statements by a person deducting TDS/collecting TCS?
A: Section 427 mandates an automatic fee for failure to file the required statement within the time specified under section 397(3)(b) he shall be liable to pay by way of fee a sum of Rs.200/- for every day during which the failure continues. Example:If the statement is filed 10 days late, the fee = Rs.200 x 10 = Rs.2,000.
Q261:Is there any upper limit on the total fee payable under section 427?
A: Yes. Section 427(2)(a) prescribes an upper limit on the fee by providing that it shall not exceed the amount of tax deductible or collectible. Example:For instance, if the amount of tax deductible is Rs.4,000 but the late fee computed for delayed filing works out to Rs.7,000, the assessee’s liability shall be restricted to Rs.4,000 only, in accordance with the statutory cap that the fee cannot exceed the amount of tax deductible.
Q262:Whether filing the return of income after the due date/ prescribed time attracts any fee?
A: Yes. Section 428 imposes a fee when a person who is required to furnish a return of income under section 263 fails to do so within the prescribed time than a sum not exceeding Rs.1000/- is payable if total income of such person does not exceed Rs.5,00,000/- and a sum of Rs.5,000/- in any other case.
Q263: Whether default in filing of statement or certificate by research associations, universities, colleges, other institutions, companies, or funds as required under sections 45(3), 45(4) and 354(1) attracts fee?
A: Yes. Section 429 imposes a daily fee of Rs.200 for every day for such default for the period during which such failure continues.
Q264: Is there an upper limit on the total fee payable u/s.429?
A: Yes. Under Section 429(2)(a), the total fee shall not exceed the amount in respect of such failure as referred in section 429(1). The fee shall be paid before delivering or causing to be delivered the statement or before furnishing the statement u/s.45(3) and 45(4).
Q265:How is failure to intimate Aadhar Number wherever required dealt with?
A: Section 430 imposes a fee when a person who is required to intimate their Aadhaar number under section 262(6) fails to do so by the prescribed date. In case of default, fee not exceeding Rs.1000/- shall be levied at the time of making intimation under the said section after the said date.