Income Tax 2025

Appearance

Refund for denying liability to deduct tax in certain cases. ​

434(1) ​

Where,––

  • (a) under an agreement or other arrangement, in writing, the tax deductible on any income, other than interest in section 393(2) (Table: Sl. No. 17), is to be borne by the person by whom the income is payable; and
  • (b) such person having paid such tax to the credit of the Central Government claims that no tax was required to be deducted on such income, he may, within thirty days from the date of payment of such tax, file an application before the Assessing Officer for refund of such tax in such form and such manner, as prescribed.

434(2) ​

The Assessing Officer shall, by an order in writing, allow or reject the application.

434(3) ​

No application under sub-section (1) shall be rejected unless an opportunity of being heard has been given to the applicant.

434(4) ​

The Assessing Officer may, before passing an order under sub-section (2), make such inquiry as he considers necessary.

434(5) ​

The order under sub-section (2) shall be passed within six months from the end of the month in which application under sub-section (1) is received.

Explanation

Section Summary: ​

Section 434 of the new income tax law provides a mechanism for individuals or entities to claim a refund of tax deducted at source (TDS) in cases where they believe no tax was required to be deducted. This applies when, under a written agreement, the tax liability is borne by the person receiving the income (payee), but the payer has already deducted and paid the tax to the government. The section outlines the process for filing a refund claim and the timeline for the Assessing Officer to decide on the application.

Key Changes: ​

  1. New Refund Mechanism: Introduces a formal process for claiming refunds when tax is deducted in error under specific agreements.
  2. Timeframe for Application: The application for refund must be filed within 30 days from the date of tax payment.
  3. Decision Timeline: The Assessing Officer must pass an order within 6 months from the end of the month in which the application is received.
  4. Right to Hearing: The applicant must be given an opportunity to be heard before the application is rejected.

Practical Implications: ​

  1. For Payers (Deductors): If tax is deducted and paid to the government under a written agreement where the payee is responsible for the tax, the payer can now claim a refund if they believe no tax should have been deducted.
  2. For Payees (Recipients): This section ensures that payees are not unfairly burdened with tax deductions when they are responsible for the tax liability under an agreement.
  3. For Assessing Officers: They must process refund applications within a strict timeline and provide a hearing before rejecting any claim.

Critical Concepts: ​

  1. Written Agreement: The refund process applies only when there is a written agreement or arrangement specifying that the payee (recipient of income) will bear the tax liability.
  2. Exclusion of Interest Income: The section explicitly excludes interest income under Section 393(2) (Sl. No. 17 of the table), meaning this refund mechanism does not apply to interest income.
  3. Inquiry by Assessing Officer: The Assessing Officer has the authority to conduct necessary inquiries before deciding on the refund application.

Compliance Steps: ​

  1. File Application: If tax is deducted and paid in error, the payer must file an application for refund in the prescribed form within 30 days of the tax payment.
  2. Provide Documentation: Submit all relevant documents, including the written agreement and proof of tax payment, to support the claim.
  3. Await Decision: The Assessing Officer will review the application, conduct inquiries if necessary, and pass an order within 6 months.
  4. Respond to Hearing: If the Assessing Officer intends to reject the application, the applicant must be given an opportunity to present their case.

Example: ​

Scenario: Company A pays consulting fees to Consultant B under a written agreement stating that Consultant B will bear the tax liability. However, Company A mistakenly deducts TDS and pays it to the government.
Action: Company A realizes the error and files a refund application within 30 days of paying the tax. The Assessing Officer reviews the agreement, confirms that Consultant B is responsible for the tax, and approves the refund within 6 months.
Outcome: Company A receives the refund of the erroneously deducted tax.

This section ensures fairness and clarity in cases where tax is deducted in error under specific agreements, providing a streamlined process for refunds.