Section 391 · Collection & recovery
Section 391 of the Income-tax Act, 2025 — Direct Payment of Tax When TDS Is Not Deducted
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XIX
📜 What the law says — Section 391, Income-tax Act 2025
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.
(2) If an assessee has any income of the nature as specified in section 17(1)(d) and
such specified security or sweat equity shares are 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
in accordance with in section 289(3).
(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.
B.—Deduction and collection at source
Salary and accumulated balance due to an employee.
In plain language
What Section 391 says in plain English
Section 391 of the Income-tax Act, 2025 (the successor to Section 191 of the old Income-tax Act, 1961) lays down a simple but powerful rule: the ultimate responsibility to pay income-tax on any income rests with the person who earns it — the assessee. TDS (Tax Deducted at Source) is only a collection mechanism. If tax is not deducted at source, the income does not become tax-free — the recipient must pay the tax directly.
The section applies effective 1 April 2026 (Tax Year 2026-27 onwards). It kicks in in two situations:
- No TDS provision exists — the Chapter on TDS simply does not require any deduction on that particular income (for example, interest below the threshold, or certain payments between residents where no section applies).
- TDS was required but not deducted — a section did require the payer to deduct, but the payer failed to do so.
In both cases, the assessee must pay the income-tax directly — through advance tax and/or self-assessment tax.
Who does it apply to?
- Salaried employees whose employer did not deduct TDS on salary.
- Professionals, contractors and freelancers paid without TDS under Section 393 (the 2025 successor to Sections 194C/194J).
- Interest, rent, commission and other recipients where the payer skipped deduction or the income fell below a threshold.
- Employees of eligible start-ups who receive ESOPs/sweat equity — Section 391(2) requires them to pay the tax directly within the timeline specified in Section 289(3) (the deferred-taxation window for start-up ESOPs).
Key conditions and how the three sub-sections work
- Section 391(1): Tax is payable directly by the assessee if (a) there is no provision to deduct, or (b) tax was not deducted as required.
- Section 391(2): Special rule for specified securities / sweat equity shares (ESOPs) from an eligible start-up employer — direct payment must be made within the time specified in Section 289(3).
- Section 391(3): If the deductor fails to deduct or fails to deposit, and the assessee also fails to pay the tax directly, then the deductor is deemed an assessee-in-default under Section 398(1). Crucially, if the recipient has already paid the tax directly, the deductor is generally not treated as an assessee-in-default (relief mirroring the old first proviso to Section 201).
How it interacts with related sections
- Section 393 (TDS on payments) and Section 190-type deduction/advance-tax framework tell you when TDS should have applied. Section 391 is the fallback when it did not.
- Section 398 defines the consequences for a defaulting deductor (assessee-in-default, interest, recovery).
- Section 35(b) (successor to Section 40(a)(ia)) disallows 30% of a business expense if TDS was deductible on a resident payment but not deducted/deposited — the payer's separate cost.
- Section 289(3) governs the start-up ESOP deferred-tax timing referenced in 391(2).
Practical implications
- You cannot escape tax by pointing at the payer. Even if your Form 26AS / AIS shows no TDS, you must declare the income and pay tax on it.
- Advance tax matters. If TDS was not deducted and your net liability crosses ₹10,000 in a year, you should pay advance tax to avoid interest under Sections 424/425 (successors to 234B/234C).
- You are not penalised for the payer's default. Section 391 makes you pay your tax; the penalty for non-deduction falls on the deductor, not you.
- Keep proof of direct payment. A challan showing you paid the tax protects the deductor from being an assessee-in-default and settles your liability cleanly.
💡 Example
Example 1 — Freelancer paid without TDS. Riya, a graphic designer, invoices a company ₹8,00,000 for a project. The company was required to deduct TDS under Section 393 but forgot, so ₹0 shows in her AIS. Under Section 391, Riya must still pay tax on the full ₹8,00,000. If, after her deductions, her total income is ₹8,00,000 under the new-regime slabs, she computes and pays the tax herself as advance/self-assessment tax. The company (deductor) may face 30% expense disallowance under Section 35(b) and interest — but Riya's job is simply to pay her own tax.
Example 2 — Salary with no TDS. Arjun earns ₹90,000/month (₹10,80,000/year) from a small firm that never deducted TDS. He cannot treat the salary as tax-free. Under Section 391 he must pay the tax directly. Suppose his tax works out to ₹65,000 for the year — he pays it as advance tax in instalments and squares off any balance as self-assessment tax before filing. Because his liability exceeds ₹10,000, skipping advance tax would also attract interest under Sections 424/425.
A relatable story. Meena assumed that because her bank showed "no TDS" on her fixed-deposit interest of ₹45,000 (it was below the deduction threshold), the interest was tax-free. At assessment, the officer pointed to Section 391: no TDS does not mean no tax. Meena had to pay the tax on the interest plus a small interest charge. The lesson she learned: "TDS not deducted" is never the same as "income not taxable."
| Scenario | Was TDS deducted? | Who pays the income-tax? | Governing rule |
|---|
| No TDS provision applies to the income | No (not required) | Assessee, directly (advance/self-assessment tax) | Section 391(1)(a) |
| TDS was required but payer did not deduct | No (default by payer) | Assessee pays directly; payer separately liable | Section 391(1)(b) |
| Start-up ESOP / sweat equity received | Deferred | Assessee, within time under Section 289(3) | Section 391(2) |
| Payer failed to deduct AND assessee failed to pay | No | Payer deemed assessee-in-default | Section 391(3) r/w Section 398(1) |
| Recipient has already paid tax directly | No | Liability settled; payer generally not in default | Section 391(3) relief |
Related sections
Section 393 — TDS: payments covered, rates and due dates Section 398 — Consequences of failure to deduct or pay (assessee-in-default) Section 35(b) — 30% disallowance of expense for non-deduction of TDS Section 289(3) — Timing of tax on start-up ESOPs / sweat equity Section 395 — Lower / nil TDS deduction certificate Section 190 — Deduction at source and advance payment framework
Frequently asked questions
If my employer did not deduct TDS on my salary, is the salary tax-free?
No. Under Section 391 the tax liability stays with you. You must pay the tax directly as advance tax and self-assessment tax and declare the salary in your return.
What is the 1961 Act equivalent of Section 391?
Section 391 of the Income-tax Act, 2025 corresponds to Section 191 of the old Income-tax Act, 1961, which dealt with direct payment of tax where TDS was not deducted.
Will I be penalised because the payer forgot to deduct TDS?
No. Section 391 only requires you to pay your own tax. The penalty and interest for non-deduction fall on the deductor under Section 398, not on you.
What happens if neither the payer deducts nor I pay the tax?
Under Section 391(3) read with Section 398(1), the payer is treated as an assessee-in-default and can be pursued for the tax, interest and penalty. You still owe your own tax as well.
Does Section 391 apply to interest below the TDS threshold?
Yes. Even where no TDS was required because the amount was below the threshold, the interest is still taxable and you must pay tax on it directly under Section 391(1)(a).
How do I pay tax directly under Section 391?
You pay it as advance tax during the year (if liability exceeds ₹10,000) and clear any balance as self-assessment tax before filing your income-tax return.
Does paying the tax directly protect the payer who missed TDS?
Largely yes. If the recipient has already paid the tax on that income, the deductor is generally not treated as an assessee-in-default, though the deductor may still owe interest for the period of delay.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 05 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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