Section 402 · Collection & recovery
Section 402 of the Income-tax Act, 2025 — Interpretation (TDS/TCS Definitions Explained)
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XIX
📜 What the law says — Section 402, Income-tax Act 2025
402. For the purposes of this Chapter,—
(1) “Administrator” shall have the same meaning as assigned to it in section
2(a) of the Unit Trust of India (Transfer of Undertaking and Repeal)
Act, 2002 (58 of 2002);
(2) “agricultural land” means agricultural land in India,—
(a) not being a land situated in any area referred to in section 2(22)
(iii), for the purposes of section 393(1) [Table: Sl. No. 3(i)];
(b) including a land situated in any area referred to in section 2(22)
(iii), for the purposes of section 393(1) [Table: Sl. No. 3(iii)];
(3) “an incorrect claim apparent from any information in the statement”
shall mean a claim, on the basis of an entry, in the statement—
(a) of an item, which is inconsistent with another entry of the same or
some other item in such statement;
(b) in respect of rate of deduction of tax at source or rate of collection
of tax at source, where such rate is not as per the provisions of the
Act;
(4) “authorised dealer” means a person authorised by the Reserve Bank of
India under section 10(1) of the Foreign Exchange Management Act,
1999 (42 of 1999) to deal in foreign exchange or foreign security;
94. Substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to its substitution, sub-section
(2) read as under :
“(2) The Board may issue guidelines with the previous approval of the Central Government,
to remove any difficulty arising in giving effect to the provisions of this Chapter and these
guidelines shall be laid before each House of Parliament.”
(5) “banking company” means a banking company to which the Banking
Regulation Act, 1949 (10 of 1949) applies;
(6) “buyer” for the purposes of provisions in column B of the Table below
means any person as specified in column C but does not include any
person as specified in column D:—
TABLE
Sl. Provisions Person Person not to be
No. included
A B C D
1. Purchase of goods A person whose total Any person, as the Central
referred to in section sales, gross receipts or
In plain language
What Section 402 actually does
Section 402 is the "Interpretation" (definitions) clause that sits at the end of the TDS/TCS chapter of the Income-tax Act, 2025 (the chapter on Deduction and Collection of Tax at Source, effective 1 April 2026). It does not by itself require anyone to deduct or collect tax. Instead, it supplies the meanings of the key words used throughout Sections 393 (TDS), 394 (TCS) and the surrounding compliance sections. Whenever those sections use a term like "rent", "professional services", "work" or "e-commerce operator", you look to Section 402 to know exactly what it covers.
This is a deliberate structural reform. Under the old Income-tax Act, 1961, each TDS section carried its own Explanation — the meaning of "work" was buried in Section 194C, "professional services" in Section 194J, "rent" in Section 194I, "scrap" and "buyer/seller" in Section 206C, and so on. The 2025 Act pulls all of these into one consolidated glossary so the same word means the same thing across the whole chapter.
Who needs to read it
- Every deductor and collector — businesses, firms, companies, trusts and even certain individuals/HUFs who pay contractors, professionals, rent, commission, interest or who collect tax on sale of scrap, motor vehicles, overseas remittances, etc.
- Tax professionals and accountants classifying a payment into the correct Section 393 table row and payment code.
- Deductees/recipients who want to check whether a payment made to them legitimately attracts TDS/TCS and at what rate.
The main terms Section 402 defines
- Work — carries forward the 194C meaning (advertising, broadcasting/telecasting, carriage of goods/passengers, catering, and manufacturing to customer specification using material bought from that customer). The 2025 Act clarifies scope so that manpower supply and similar contract work are captured within the contractual-payment framework.
- Professional services — legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, and notified professions. The Act aligns advertising with the professional-services stream (10% rate), removing the old inconsistency between 194H and 194J.
- Fees for technical services — managerial, technical or consultancy services (excluding "salaries" and construction/assembly-type contracts), broadly tracking the 194J and Section 9 meaning.
- Rent — any payment for the use of land, building (including a factory building), or land appurtenant to a building, whether taken separately or together; also extends to plant, machinery, equipment, furniture and fittings as under the old 194I.
- Royalty — consideration for use of patents, copyrights, trademarks, designs, secret formulae/processes and similar intellectual property.
- Banking company — a banking company to which the Banking Regulation Act, 1949 applies (a narrower scope than some 1961 references).
- Buyer, seller, scrap, immovable property, consideration for transfer of immovable property — the TCS and property-TDS building blocks previously found in 194-IA and 206C.
- E-commerce operator, e-commerce participant, online gaming intermediary, user and user account — the modern digital-economy definitions supporting TDS on online sales and online-game winnings.
How it interacts with other sections
Section 402 is the dictionary for the whole TDS/TCS machinery. Section 393 (the big table-driven TDS section that replaces the entire 194 series) and Section 394 (TCS, replacing 206C) constantly borrow these definitions. The consequences of getting a classification wrong flow through Section 398 (failure to deduct/collect), interest and penalty provisions, and disallowance of expenditure. Because a single definition now governs every occurrence, misreading Section 402 can cascade into wrong rates, wrong thresholds and wrong payment codes on the return.
Practical implications
- Classification is now cleaner — one place to confirm whether a payment is "work" (usually 1–2% TDS) or "professional/technical services" (usually 10%). The gap between these two rates makes correct classification financially important.
- Advertising moves to the higher lane — treating advertising as a professional service means 10% rather than the old 1% contractor rate in some fact patterns; check contracts signed around the 1 April 2026 changeover.
- Digital transactions are squarely covered — e-commerce and online gaming definitions remove earlier ambiguity for platforms.
- No standalone liability — remember Section 402 only defines; the actual rate, threshold and timing come from the Section 393/394 tables.
💡 Example
Worked example 1 — "work" vs "professional services". A company pays an agency ₹5,00,000. If the agency merely arranges carriage of goods (a "work" contract under Section 402), TDS under the contractor row of Section 393 is typically 1% (individual/HUF payee) or 2% (others) — here ₹10,000 at 2%. But if the same ₹5,00,000 is for creative advertising treated as a "professional service", the rate is 10% — i.e. ₹50,000. The definition in Section 402 alone changes the TDS from ₹10,000 to ₹50,000, so the classification is worth ₹40,000 of cash flow.
Worked example 2 — "rent". A firm pays ₹4,00,000 a year to use a factory building plus the land around it. Because Section 402 defines "rent" to include a factory building and its appurtenant land taken together, the whole ₹4,00,000 is "rent" for TDS purposes (not split), and the building/land rent row of Section 393 applies to the full amount once the annual threshold is crossed.
A relatable story. Meera runs a small design studio in Jaipur. Her accountant used to argue every year with a client's finance team over whether her invoices were "advertising work" (1%) or "professional services" (10%). After 1 April 2026, he simply opens Section 402, points to the single consolidated definition that now places advertising within professional services, and both sides deduct at 10% without a fight. The definition section did what years of Explanations under the 1961 Act could not — it gave everyone one honest answer.
| Term defined in Section 402 | What it covers (plain English) | Old 1961 Act home | Typical Section 393/394 rate |
|---|
| Work | Advertising contracts, broadcasting, carriage of goods/passengers, catering, customer-spec manufacturing, manpower supply | Explanation to Sec 194C | 1% (indiv/HUF) / 2% (others) |
| Professional services | Legal, medical, engineering, accountancy, technical consultancy, interior decoration, advertising, notified professions | Explanation to Sec 194J | 10% (2% for certain technical services) |
| Fees for technical services | Managerial, technical or consultancy services (excludes salary and construction contracts) | Sec 194J / Sec 9 | 2% (commonly) |
| Rent | Use of land, building (incl. factory building), appurtenant land, plant, machinery, equipment, furniture | Explanation to Sec 194I | 2% (plant/machinery) / 10% (land & building) |
| Royalty | Consideration for patents, copyrights, trademarks, designs, processes, IP | Sec 9 / 194J | As per relevant table row |
| Banking company | A company to which the Banking Regulation Act, 1949 applies | Various | Definitional only |
| Buyer / Seller / Scrap / Immovable property | Building blocks for TCS and property TDS | Sec 206C / 194-IA | 0.1%–1% (TCS) / 1% (property) |
| E-commerce operator / participant, online gaming intermediary, user account | Digital-economy platform and online-winnings definitions | Sec 194-O / 194BA | Per relevant table row |
Related sections
Section 393 — Tax to be deducted at source (consolidated TDS table) Section 394 — Collection of tax at source (TCS) Section 395 — Certificates for lower/nil deduction Section 397 — Statements, returns and compliance/reporting Section 398 — Consequences of failure to deduct/collect or pay Section 9 — Income deemed to accrue in India (royalty/FTS scope)
Frequently asked questions
Does Section 402 itself require me to deduct TDS?
No. Section 402 only defines the terms used in the TDS/TCS chapter. The obligation to deduct, the rate, the threshold and the timing all come from Section 393 (TDS) and Section 394 (TCS).
Why were all the definitions moved into one section?
Under the 1961 Act each term was defined by a separate Explanation inside individual sections like 194C, 194I and 194J, causing inconsistencies. The 2025 Act consolidates them into Section 402 so a word means the same thing throughout the chapter.
Is advertising treated as 'work' or 'professional services' now?
The 2025 framework aligns advertising with the professional-services stream, generally attracting a 10% rate, removing the earlier inconsistency between the 194H and 194J treatments. Confirm the specific Section 393 table row for your payment.
What is the equivalent of Section 402 in the old Income-tax Act, 1961?
There is no single equivalent. Section 402 replaces the scattered Explanations under Sections 194C, 194H, 194I, 194J, 194-IA and 206C by gathering their definitions in one place.
Does the definition of 'rent' cover a factory building?
Yes. Section 402 defines rent to include payment for the use of land, a building including a factory building, and land appurtenant to it, whether taken separately or together, along with plant, machinery, equipment and furniture.
Are e-commerce and online gaming defined in Section 402?
Yes. Section 402 includes modern digital-economy definitions such as e-commerce operator, e-commerce participant, online gaming intermediary, user and user account, supporting TDS on online sales and game winnings.
Where can I verify the exact clause numbers within Section 402?
Refer to the bare text of the Income-tax Act, 2025 on incometaxindia.gov.in, as sub-clause numbering (for example the exact clause for 'professional services' or 'rent') should be confirmed against the enacted Act before relying on it for compliance.
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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