Bar against direct demand on assessee.

401.

Where tax is deductible at the source under this Chapter, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income.

Explanation

Section Summary:

Section 401 of the new income tax law in India establishes a bar against direct demand on the assessee in cases where tax is required to be deducted at source (TDS) under the relevant chapter. This means that if tax has already been deducted from the assessee's income by the payer (e.g., an employer or a client), the assessee cannot be asked to pay that tax again directly to the government.

Key Changes:

This section reinforces the principle of TDS, which has been a part of Indian tax law for a long time. However, it explicitly clarifies that once tax is deducted at source, the assessee is relieved from the obligation to pay that portion of tax directly. This ensures that there is no double taxation or overlapping demands on the assessee.

Practical Implications:

• For Taxpayers: If tax has been deducted at source, the taxpayer does not need to worry about paying that portion of tax again. This reduces the compliance burden and avoids confusion.
• For Businesses/Entities Deducting TDS: They must ensure accurate and timely deduction and deposit of TDS, as the assessee relies on this to avoid direct tax demands.
• For the Government: This provision ensures smoother tax collection and reduces disputes related to double taxation.

Critical Concepts:

• Tax Deducted at Source (TDS): A mechanism where the payer deducts tax from the payment made to the payee (e.g., salary, interest, professional fees) and deposits it with the government on behalf of the payee.
• Assessee: The person or entity whose income is being taxed. In this context, it refers to the recipient of income from which TDS has been deducted.

Compliance Steps:

1. For Payers (e.g., employers, clients):
   • Deduct TDS at the prescribed rates.
   • Deposit the deducted tax with the government within the stipulated time.
   • Issue Form 16/16A to the assessee, showing the TDS details.
2. For Assessees (e.g., employees, professionals):
   • Verify that TDS has been deducted and reflected in Form 26AS or the Annual Information Statement (AIS).
   • Ensure that the TDS amount is credited against their tax liability while filing their income tax return.

Example:

• Scenario: Mr. A is a salaried employee. His employer deducts TDS from his salary every month and deposits it with the government. At the end of the financial year, Mr. A files his income tax return and claims credit for the TDS already deducted.
• Application of Section 401: Under this section, Mr. A cannot be asked to pay tax again on the portion of his income from which TDS has already been deducted. The TDS amount is adjusted against his total tax liability.

This section ensures clarity and fairness in the TDS process, preventing unnecessary tax demands on assessees.