Section 400 · Collection & recovery
Section 400 of the Income-tax Act, 2025 — Power of Central Government to Relax TDS/TCS Provisions
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XIX
📜 What the law says — Section 400, Income-tax Act 2025
400. (1) The Central Government may, by notification provide that deduction or
collection of tax shall not be made or is to be made at such lower rate, from
such payment or receipt and in respect of such person or class of persons.
93. Substituted for “427” by the Finance Act, 2026, w.e.f. 1-4-2026.
[(2) The Board may, with the previous approval of the Central Government, issue
94
guidelines to remove any difficulty arising in giving effect to the provisions of this
Chapter and such guidelines shall be—
(a) binding on the income-tax authorities and on the person liable to deduct
or, as the case may be, collect income-tax; and
(b) laid before each House of Parliament.]
(3) The Board may notify, a class of person, or cases, where the person responsible
for paying to a non-resident, not being a company, or to a foreign company, any
sum, whether or not chargeable under the provisions of this Act, to make an appli-
cation in such form and manner as may be prescribed, to the Assessing Officer, to
determine the appropriate proportion of sum chargeable in the manner as may be
prescribed, and accordingly tax shall be deducted under section 393(2) (Table: Sl.
No. 17) on that proportion of the sum which is so chargeable.
(4) The Board may by notification, make rules specifying the cases in which, and the
circumstances under which, an application may be made for grant of a certificate
under section 395(1) and (3), and the conditions subject to which such certificate
may be granted and providing for all other matters connected therewith.
Bar against direct demand on assessee.
In plain language
What Section 400 actually does
Section 400 sits inside Chapter XIX of the Income-tax Act, 2025 — the chapter that governs TDS (tax deducted at source) and TCS (tax collected at source). It is the master "relaxation and control" clause: it does not itself impose any tax, but it gives the Central Government and the Central Board of Direct Taxes (CBDT / "the Board") the power to soften, modify or fine-tune how the rest of the TDS/TCS chapter operates. Think of it as the safety valve that lets the government say, in specific situations, "deduct less, or don't deduct at all," and lets the CBDT issue binding guidelines to iron out practical problems.
The four powers packed into Section 400
- Section 400(1) — power to notify nil or lower deduction/collection: The Central Government may, by notification, provide that TDS or TCS shall not be made at all, or shall be made at a lower rate, from specified payments/receipts and for specified persons or classes of persons. This is the legal basis for blanket exemptions (for example, certain payments to specified institutions, sovereign wealth funds, or notified categories).
- Section 400(2) — CBDT guidelines to remove difficulty: The Board may issue guidelines, with the previous approval of the Central Government, to remove any difficulty in giving effect to the TDS/TCS chapter. These guidelines must be laid before each House of Parliament. As amended by the Finance Act, 2026 (effective 1 April 2026), these guidelines are expressly made binding on income-tax authorities AND on the person liable to deduct or collect tax — restoring the position that existed under the 1961 law.
- Section 400(3) — apportionment for payments to non-residents: The Board may notify classes of persons/cases where a person paying a non-resident (non-company) or a foreign company — whether or not the sum is chargeable to tax — may apply to the Assessing Officer (AO) to determine the appropriate proportion of the sum that is actually chargeable. TDS under Section 393(2) is then deducted only on that chargeable proportion, not on the gross remittance.
- Section 400(4) — rule-making for lower/nil certificates: The Board may, by notification, make rules on the cases and circumstances in which an application can be made for a lower/nil-deduction certificate under Section 395(1) and (3), the conditions for granting it, and all connected matters.
Who it applies to
- Deductors and collectors — companies, firms, banks, employers, e-commerce operators, buyers/sellers — who rely on notifications and certificates to deduct less or nothing.
- Payees / collectees — taxpayers who benefit from a nil or lower rate because their final tax liability is low or nil.
- Payers to non-residents — importers, service recipients and remitters who need certainty on how much of a foreign remittance is taxable.
- Income-tax authorities — who are now bound by CBDT guidelines issued under 400(2).
How it interacts with the rest of the chapter
Section 400 is a wrapper around the operative sections. A certificate under Section 395 (lower/nil TDS/TCS) is issued using the rules framed under Section 400(4). The apportionment mechanism in Section 400(3) plugs directly into Section 393(2) (TDS on payments to non-residents). Self-declarations of the "Form 15G/15H" type flow from the relaxation logic that Section 400(1) enables. And CBDT guidelines under 400(2) sit alongside its general administrative powers, but with the crucial difference that Chapter-XIX guidelines are now binding.
Practical implications
- If a CBDT guideline under 400(2) is issued after 1 April 2026, a deductor cannot ignore it — non-compliance can trigger disallowance, interest and penalty exposure. Equally, an AO cannot act against a deductor who followed the guideline.
- Notifications under 400(1) create legal certainty: once a payment class is notified for nil TDS, the deductor is protected from "failure to deduct" consequences.
- For cross-border payments, using the 400(3) route avoids over-deduction on the gross amount and locks in cash flow for genuine trade.
💡 Example
Worked example 1 — apportionment on a foreign remittance (Section 400(3) + 393(2)): Bharat Tech Pvt. Ltd. must pay ₹50,00,000 to a US company for software plus support. It believes only 30% of the sum (₹15,00,000) is "income chargeable in India" and the rest is reimbursement of costs. Instead of deducting TDS on the full ₹50,00,000, it applies to the AO under the Section 400(3) mechanism. The AO determines the chargeable proportion as ₹15,00,000. If the applicable rate is 20%, TDS is ₹3,00,000 (20% of ₹15,00,000) rather than ₹10,00,000 (20% of ₹50,00,000) — a cash-flow saving of ₹7,00,000 while staying fully compliant.
Worked example 2 — lower-rate notification (Section 400(1)): Suppose the government notifies that interest paid to a specified sovereign wealth fund attracts TDS at 5% instead of the normal 10%. On ₹1,00,00,000 of interest, TDS drops from ₹10,00,000 to ₹5,00,000. The bank paying the interest deducts only ₹5,00,000 and is fully protected because it relied on a valid Section 400(1) notification.
Relatable story: Meena runs a small guest-house and receives commission from an overseas booking platform. Her actual profit margin is thin, so full TDS on the gross commission would lock up money she needs for salaries. Her CA notes a CBDT guideline issued under Section 400(2) that clarifies how the deduction should work for such operators. Because the guideline is now binding on both Meena's payer and the tax officer, everyone applies the same rule — no dispute, no over-deduction, and Meena's working capital stays healthy.
| Sub-section | Power it grants | Who exercises it | Rough 1961 Act equivalent | Key effect from 1 April 2026 |
|---|
| 400(1) | Notify NIL or LOWER TDS/TCS for specified payments/receipts and persons | Central Government (by notification) | s.197A(1F) / s.206C control notifications | Blanket relief with legal certainty for deductors/collectors |
| 400(2) | Issue guidelines to remove difficulty; laid before Parliament | CBDT (with Govt approval) | s.119 read with removal-of-difficulty powers | Guidelines made expressly BINDING on tax authorities AND deductors/collectors |
| 400(3) | Apply to AO to fix the chargeable proportion of a sum paid to a non-resident | CBDT notifies class; payer applies to AO | s.195(2) / s.195(7) | TDS under s.393(2) only on the chargeable portion, not the gross |
| 400(4) | Make rules for lower/nil-deduction certificates under s.395 | CBDT (by notification) | s.197(2A) / s.206C(9) | Framework for granting certificates and connected conditions |
Related sections
Section 393 — Deduction of tax at source (including on payments to non-residents) Section 395 — Certificate for deduction/collection at lower or nil rate Section 394 — Tax collection at source (TCS) Section 397 — TDS/TCS statements, returns and processing Section 398 — Consequences of failure to deduct or pay tax Section 399 — Certificate/furnishing of TDS-TCS particulars to the payee
Frequently asked questions
What is Section 400 of the Income-tax Act, 2025 in simple words?
It is the clause that lets the Central Government relax TDS/TCS rules and lets the CBDT issue binding guidelines. It allows nil or lower deduction/collection by notification, apportionment of taxable amounts on foreign payments, and rules for lower-deduction certificates.
Are CBDT guidelines under Section 400(2) binding?
Yes. As amended by the Finance Act, 2026 (effective 1 April 2026), guidelines issued under Section 400(2) are expressly binding on income-tax authorities as well as on persons liable to deduct or collect tax, restoring the position under the 1961 Act.
What was the corresponding provision in the Income-tax Act, 1961?
There is no single mirror section; Section 400 consolidates powers that were spread across the 1961 Act — notably section 195(2)/(7) for apportionment on non-resident payments, section 197/206C rule-making for certificates, and CBDT's guideline/administrative powers under section 119.
How does Section 400(3) help someone paying a foreign company?
The payer can apply to the Assessing Officer to fix the exact proportion of the remittance that is actually chargeable to tax in India. TDS under Section 393(2) is then computed only on that chargeable portion, avoiding over-deduction on the gross amount.
Does Section 400 change TDS or TCS rates by itself?
No. It does not fix rates; it empowers the Central Government to reduce or waive deduction/collection by notification and empowers the CBDT to frame guidelines and rules. The actual rates and thresholds live in the operative sections of Chapter XIX.
Who benefits most from Section 400?
Payees with low or nil final tax liability, exporters and importers dealing with non-residents, and deductors/collectors who want legal certainty. Notifications and certificates under this section protect them from over-deduction and from 'failure to deduct' penalties.
Where can I verify the exact text of Section 400?
The authoritative source is the Income-tax Act, 2025 (as amended by the Finance Act, 2026) published on incometaxindia.gov.in. Tax portals like Taxmann, ClearTax and TaxGuru also carry section-wise explanations.
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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