Income Tax 2025

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Direct payment. ​

391(1) ​

The income-tax on any income shall be payable directly by the assessee if—

  • (a) there is no provision under this Chapter to deduct income-tax on such income at the time of payment; or
  • (b) income-tax has not been deducted as per the provisions of this Chapter.

391(2) ​

If an assessee has any income of the nature of specified security or sweat equity shares as specified in section 17(1)(d) allotted or transferred directly or indirectly by the current employer which is an eligible start-up referred to in section 140, then direct payment of tax for the purposes of sub-section (1) shall be made within the time specified in section 289(3).

391(3) ​

Where any person, including the principal officer of the company,––

  • (a) who is required to deduct any sum as per the provisions of this Act; or
  • (b) referred to in section 392(2)(a), being an employer, does not deduct, or after so deducting fails to pay, or does not pay, the whole or any part of the tax, as required under this Act, and where the assessee has also failed to pay such tax directly, then, such person shall, apart from any other consequences that he may incur, be deemed to be an assessee in default within the meaning of section 398(1), in respect of such tax.
Explanation

Section Summary: ​

Section 391 of the new income tax law outlines the circumstances under which an assessee (taxpayer) is required to pay income tax directly to the government. This applies when tax is not deducted at source (TDS) as per the provisions of the Income Tax Act, or when TDS has not been deducted correctly. Additionally, it specifies the direct payment requirements for income from specified securities or sweat equity shares allotted by eligible start-ups. The section also imposes liability on employers or other entities responsible for deducting tax if they fail to deduct or pay the tax, making them "assessees in default."

Key Changes: ​

  1. Direct Payment Obligation: The section explicitly mandates direct payment of tax by the assessee in cases where TDS is not applicable or has not been deducted.
  2. Start-up Specific Provision: For income from specified securities or sweat equity shares allotted by eligible start-ups, the assessee must pay tax directly within a specified time frame.
  3. Liability on Employers/Entities: If an employer or other entity responsible for deducting tax fails to do so or fails to pay the deducted tax, they are deemed "assessees in default," subject to penalties and other consequences.

Practical Implications: ​

  1. For Taxpayers:
    • Assessees must ensure they pay tax directly if TDS is not deducted on their income.
    • Employees receiving specified securities or sweat equity shares from eligible start-ups must pay tax directly within the prescribed time.
  2. For Employers/Entities:
    • Employers or entities responsible for deducting tax must ensure compliance with TDS provisions. Failure to deduct or pay TDS will result in being treated as an "assessee in default," leading to penalties and interest.
  3. For Start-ups:
    • Start-ups issuing specified securities or sweat equity shares must communicate the tax payment obligations to their employees clearly.

Critical Concepts: ​

  1. Specified Securities or Sweat Equity Shares: These are shares or securities issued by a company (often start-ups) to employees as part of their compensation. The value of such shares is taxable as perquisites under Section 17(1)(d).
  2. Assessee in Default: A person or entity that fails to deduct or pay tax as required by law is treated as an "assessee in default," making them liable for penalties, interest, and other legal consequences.
  3. Section 289(3): Refers to the time limit within which direct tax payments must be made for income from specified securities or sweat equity shares.

Compliance Steps: ​

  1. For Assessees:
    • Identify income where TDS has not been deducted.
    • Pay the tax directly to the government within the due dates.
    • For income from specified securities or sweat equity shares, ensure payment is made within the time specified under Section 289(3).
  2. For Employers/Entities:
    • Deduct TDS as per the provisions of the Income Tax Act.
    • Ensure timely payment of the deducted TDS to the government.
    • Maintain proper documentation and records of TDS deductions and payments.

Examples: ​

  1. Direct Payment by Assessee:
    • An individual receives freelance income of ₹5 lakh from a client who does not deduct TDS. The individual must pay the applicable tax directly to the government.
  2. Start-up Scenario:
    • An employee of an eligible start-up receives sweat equity shares worth ₹10 lakh. Since TDS is not deducted on this income, the employee must pay the tax directly within the time specified under Section 289(3).
  3. Employer Default:
    • A company fails to deduct TDS on salary payments to its employees. The company is deemed an "assessee in default" and is liable for penalties and interest on the unpaid tax amount.

This section ensures that tax liabilities are met, even when TDS mechanisms fail, and holds employers and entities accountable for their TDS obligations.