Income Tax 2025

Appearance

CHAPTER XIX COLLECTION AND RECOVERY OF TAX A.—General

Deduction or collection at source and advance payment. ​

390(1) ​

The tax on income shall be payable as per this Chapter by way of–– (a) deduction or collection at source; or (b) advance payment; or (c) payment under section 392(2)(a).

390(2) ​

The tax referred to in sub-section (1) shall be payable as per the provisions of this Chapter, irrespective of the assessment to be made later than the relevant tax year.

390(3) ​

Nothing contained in this section, shall affect the charge of tax on such income under section 4(1).

390(4) ​

The payment of tax referred to in sub-section (1) shall be in addition to any other mode of tax collection to discharge the liability in respect of income assessed for a tax year.

390(5) ​

The tax deducted or collected at source or sum referred to in section 392(2)(a) under this Chapter and paid to the Central Government shall be treated as payment of tax on behalf of the person––

  • (a) from or in respect of whose income or payment, such tax has been deducted or paid; or
  • (b) from whom such tax has been collected.

390(6) ​

The Board may make rules for—

  • (a) giving credit of tax deducted or collected or paid to a person referred to in sub-section (5) and also a person other than the person referred to in the said sub-section;
  • (b) the tax year for which the credit shall be given.
Explanation

Section Summary: ​

Section 390 of the Income Tax Act outlines the methods through which income tax is to be paid: (1) deduction or collection at source, (2) advance payment, or (3) payment under Section 392(2)(a). It emphasizes that these payments are mandatory and must be made regardless of whether the final tax assessment for the year has been completed. The section also clarifies that these payments do not override the general charge of tax under Section 4(1) and are in addition to other tax collection methods. Additionally, it provides rules for how tax deducted or collected at source is treated as payment on behalf of the taxpayer.

Key Changes: ​

  1. Clarification of Tax Payment Methods: The section explicitly lists the three primary methods of tax payment (deduction/collection at source, advance payment, and payment under Section 392(2)(a)), making it clearer for taxpayers and businesses to understand their obligations.
  2. Treatment of Tax Deducted/Collected at Source: The section now explicitly states that tax deducted or collected at source is treated as payment on behalf of the taxpayer, ensuring clarity on how such payments are credited.
  3. Rule-Making Authority: The Central Board of Direct Taxes (CBDT) is empowered to make rules for giving credit for taxes deducted, collected, or paid, including specifying the tax year for which such credit is applicable.

Practical Implications: ​

  1. Taxpayers: Taxpayers must ensure that taxes are deducted or collected at source or paid in advance as required. Failure to comply may result in penalties or interest.
  2. Businesses and Deductors: Entities responsible for deducting or collecting tax at source must ensure timely remittance to the government and proper documentation to avoid compliance issues.
  3. Credit for Taxes Paid: Taxpayers must verify that taxes deducted or collected at source are correctly credited to their accounts, as these amounts reduce their final tax liability.

Critical Concepts: ​

  1. Deduction or Collection at Source: This refers to the process where tax is deducted or collected by a payer (e.g., employer, contractor) before making a payment to the recipient (e.g., employee, vendor).
  2. Advance Payment: This refers to taxes paid in advance, typically through installments, based on estimated income for the year.
  3. Section 392(2)(a): This likely refers to specific payments or sums that are treated as tax payments under the law.
  4. Section 4(1): This is the general charging section of the Income Tax Act, which imposes tax on total income. Section 390(3) clarifies that the methods of payment under this section do not override the general charge of tax.

Compliance Steps: ​

  1. For Deductors/Collectors:
    • Identify payments subject to tax deduction or collection at source.
    • Deduct or collect the correct amount of tax as per applicable rates.
    • Deposit the tax with the government within the prescribed timelines.
    • Issue Form 16 or 16A to the taxpayer, detailing the tax deducted or collected.
  2. For Taxpayers:
    • Ensure taxes are deducted or collected at source where applicable.
    • Verify that the deducted or collected tax is reflected in Form 26AS or AIS (Annual Information Statement).
    • Pay advance tax if required, based on estimated income.
    • Reconcile tax credits with final tax liability during filing.

Examples: ​

  1. Deduction at Source (TDS):
    • An employer pays a salary of ₹1,00,000 per month to an employee. The employer deducts TDS of ₹10,000 (assuming a 10% rate) and pays ₹90,000 to the employee. The ₹10,000 is deposited with the government and credited to the employee’s tax account.
  2. Advance Tax:
    • A freelancer estimates their annual income to be ₹15,00,000. They calculate their tax liability and pay advance tax in four installments during the year. These payments are credited against their final tax liability when filing their return.
  3. Collection at Source (TCS):
    • A car dealer sells a car for ₹10,00,000 and collects TCS of 1% (₹10,000) from the buyer. The dealer deposits ₹10,000 with the government, and the buyer can claim this amount as a credit against their tax liability.

This section ensures that tax collection is streamlined and that taxpayers receive proper credit for taxes paid through various methods.