Section 391 Income Tax Act 2025: When Must an Assessee Pay Tax Directly?
Section 391 establishes that an assessee must pay income-tax directly where tax is not required to be deducted at source or where tax that should have been deducted has not been deducted. It also addresses certain employee share benefits from eligible start-ups and the consequences for persons who fail to deduct or pay tax.
Chapter: XIX - Collection and recovery of tax; Part A - General.
Law: Income-tax Act, 2025 (Act 30 of 2025), as amended by the Finance Act, 2026.
Official statutory source: Income Tax Department - amended Act (PDF).
What does Section 391 require?
Tax deducted at source is a method of collection, not a substitute for the assessee's underlying tax liability. Under Section 391(1), an assessee must pay tax directly if the Chapter does not provide for deduction on that income at payment, or if tax has not been deducted in accordance with the Chapter. The actual amount payable depends on the applicable computation, credits and payment provisions; this section does not itself prescribe a universal payment date or rate.
Section 391 explained, subsection by subsection
| Provision | Rule | Practical significance |
|---|---|---|
| 391(1)(a) | Direct payment where no provision requires deduction of tax on the income at the time of payment. | The recipient remains responsible for applicable income-tax. |
| 391(1)(b) | Direct payment where tax has not been deducted as required by this Chapter. | A failure to deduct TDS does not, by itself, remove the recipient's tax liability. |
| 391(2) | Special direct-payment rule for specified security or sweat equity share benefits under Section 17(1)(d) allotted or transferred by a current employer that is an eligible start-up under Section 140. | Payment is governed by the timing mechanism in Section 289(3). |
| 391(3) | A person required to deduct tax, or an employer covered by Section 392(2)(a), who fails to deduct or pay the required tax may be treated as an assessee in default under Section 398(1), where the assessee has also failed to pay that tax directly. | The provision preserves consequences for the responsible deductor or employer, subject to the statutory conditions. |
Section 391(1): No deduction provision or actual non-deduction
Clause (a) applies where no deduction-at-source provision covers the relevant income at the time of payment. Clause (b) applies where the law provides for deduction but the tax has not actually been deducted as required. In either case, the assessee's obligation to discharge the applicable tax remains.
Section 391(2): Eligible start-up employee share benefits
Where an employee receives income of the nature specified in Section 17(1)(d) from specified securities or sweat equity shares allotted or transferred, directly or indirectly, by the current employer qualifying as an eligible start-up under Section 140, the direct payment of tax must follow Section 289(3). This is a targeted rule; it does not extend automatically to every employee stock option or share award.
Section 391(3): When can the deductor be an assessee in default?
The provision covers a person (including a company's principal officer) required to deduct a sum under the Act, or an employer referred to in Section 392(2)(a), who does not deduct, fails to pay after deduction, or otherwise does not pay the whole or part of the tax required. Where the assessee has also failed to pay that tax directly, the responsible person is deemed an assessee in default within the meaning of Section 398(1), in addition to other applicable consequences. The precise legal consequences must be assessed with Section 398 and other relevant provisions.
Relevant statutory terms
- Assessee
- The person whose income-tax liability is being considered; the statutory meaning is governed by the Act's definition provisions.
- Tax deducted at source (TDS)
- Income-tax required to be deducted by a responsible payer under the applicable provisions of Chapter XIX.
- Eligible start-up
- An employer satisfying the conditions referenced by Section 140 for the specific treatment addressed by Section 391(2).
- Specified security or sweat equity shares
- Employee benefit instruments relevant to the income described in Section 17(1)(d).
- Assessee in default
- A statutory status and related consequences governed by Section 398(1), referenced by Section 391(3).
Practical illustrations
Example 1: Income without an applicable TDS requirement
An individual receives taxable income on which no provision of the Chapter requires deduction at payment. If tax is due on that income, the individual must discharge it directly, taking account of the applicable payment and credit rules.
Example 2: Tax should have been deducted but was not
A payer fails to deduct tax from a payment for which deduction is required. Section 391(1)(b) makes clear that the recipient's own obligation to pay applicable income-tax is not eliminated merely because the payer failed to deduct.
Example 3: Eligible start-up share benefit
An employee receives qualifying specified securities from a current employer that meets the eligible start-up conditions. Section 391(2) directs the employee to the special payment timing under Section 289(3), rather than treating the share benefit like every ordinary cash salary payment.
Frequently asked questions
Does failure to deduct TDS mean the income is tax-free?
No. Section 391(1)(b) expressly requires direct payment by the assessee where income-tax has not been deducted in accordance with the Chapter.
Does Section 391 apply only to salary income?
No. Subsection (1) applies to income generally within its stated conditions. Subsection (2) specifically deals with certain employee share benefits from eligible start-ups.
Does the employer always become an assessee in default if an employee does not pay?
No automatic conclusion follows without examining all conditions in Section 391(3), including the employer's statutory obligation and whether the assessee also failed to pay the relevant tax directly, together with Section 398.
Where is the payment deadline for eligible start-up share benefits found?
Section 391(2) refers to Section 289(3), which provides the applicable timing mechanism.
Related statutory provisions
- Section 390 - Deduction or collection at source and advance payment
- Section 392 - Salary and accumulated balance due to an employee
- Section 398 - Consequences of failure to deduct or pay tax
- Income-tax Act, 2025 - Section index
Editorial note: This article explains the statutory framework and does not substitute for examining the full Act, applicable rules and the facts of a particular case.