Section 401 of the Income-tax Act, 2025 — Bar Against Direct Demand on Assessee Where TDS Was Deductible

In plain language

What Section 401 says in plain English

Section 401 of the Income-tax Act, 2025 protects you, the taxpayer (called the "assessee"), from being asked to pay tax a second time on income from which tax was already deducted at source (TDS). In simple words: if the payer has deducted TDS from your income, the Income-tax Department cannot come back and directly demand that same tax from you. Section 401 is the re-numbered successor to Section 205 of the old Income-tax Act, 1961, carried forward almost word-for-word into the new Act which is effective from 1 April 2026.

The core rule is short but powerful: where tax is deductible at source under the TDS provisions of the Act, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income.

Who does it apply to

• Salaried employees whose employer deducts TDS under Section 393 (the 2025 Act's TDS chapter, replacing old Sections 192–194).
• Professionals, contractors and freelancers whose clients deduct TDS on fees or contract payments.
• Interest, rent, commission and dividend earners from whom banks, tenants or companies deduct TDS.
• Essentially any person whose income suffered TDS — the protection follows the act of deduction, not the type of income.

The key condition — deduction, not deposit, is what matters

This is the heart of Section 401 and the most common source of disputes. The bar on direct demand triggers the moment tax is deducted from your income. It does not matter whether:

• the deductor actually deposited the TDS with the government;
• the deductor filed the TDS return correctly;
• the entry appears in your Form 26AS / Annual Information Statement (AIS); or
• a TDS certificate (Form 16/16A) was issued to you.

Courts have repeatedly held that once deduction is proved (say, from your salary slip or invoice), the Department's recovery must be directed at the defaulting deductor, not at you. If your employer deducted TDS but pocketed it, the government chases the employer — you are protected.

How it interacts with related sections

• TDS provisions (Section 393): Section 401 only applies where tax was "deductible" and actually deducted under the TDS machinery.
• Credit for TDS (Section 397 / old Section 199): You still claim credit for the TDS in your return; Section 401 stops the demand even if the credit is temporarily denied due to mismatch.
• Assessee-in-default (old Section 201 / new equivalent): The deductor who fails to deposit becomes the "assessee-in-default" — the government's recovery route.
• CBDT protection: Instruction No. 275/29/2014-IT(B) dated 1 June 2015 and Office Memorandum dated 11 March 2016 direct Assessing Officers not to enforce demands on taxpayers arising from TDS credit mismatch caused by the deductor's non-deposit.

Practical implications

• If you get a tax demand or 143(1) intimation for tax already deducted, you can object citing Section 401, attach salary slips/invoices showing deduction, and quote the CBDT instructions.
• The demand cannot be coercively recovered (no bank attachment, no refund adjustment) to the extent of TDS deducted.
• Keep documentary proof of deduction — payslips, contracts, bank statements showing the net (post-TDS) amount received. This is your shield.
• Section 401 does not cover the portion of tax where TDS was not deducted at all — that balance remains payable by you.