Section 401 of the Income-tax Act 2025: Can Tax Be Demanded Again After TDS?
Section 401 protects an assessee from a direct demand for tax to the extent tax has already been deducted at source from the relevant income. This article explains the rule, its limits and practical steps when a TDS credit is missing.
What does Section 401 say?
Marginal heading: Bar against direct demand on assessee.
Where tax is deductible at the source under this Chapter, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income.
The protection concerns tax actually deducted from income. It does not automatically extinguish any remaining tax payable on the assessee's total income.
How does Section 401 protect taxpayers?
If a payer deducts income tax at source, the tax authority cannot require the recipient to pay that same deducted amount again merely because there is a problem with the deductor's reporting or remittance. Whether deduction actually occurred is a factual question that may require documentary proof.
For example, a salary slip, Form 16, bank credit record or correspondence with the deductor may help demonstrate the amount withheld. A mismatch in Form 26AS or the Annual Information Statement should be examined rather than treated as conclusive proof that no deduction occurred.
Relevant statutory terms
Examples of the operation of Section 401
Example 1: TDS deducted but not reflected
An employer deducts Rs. 30,000 as TDS from salary, but the amount does not appear in the employee's tax credit statement. If the employee establishes actual deduction, Section 401 supports resisting a direct demand for that Rs. 30,000. The employer's compliance failure may need separate correction or enforcement.
Example 2: Only part of the tax was deducted
Tax liability on the income is Rs. 50,000, and Rs. 20,000 was actually deducted at source. Section 401 protects the assessee against direct recovery of the Rs. 20,000 already deducted; the remaining liability is not waived by this section.
Example 3: Deduction was required but never made
A payer was required to deduct TDS but made payment without withholding it. The express protection in Section 401 is tied to tax that has been deducted; the provision should not be assumed to protect an amount never withheld.
What should an assessee do when tax is demanded despite TDS?
- Compare the demand with the return, Form 26AS, AIS, TDS certificates and payment records.
- Collect evidence of the actual deduction, including payslips, invoices, statements or a deductor's confirmation.
- Ask the deductor to correct any TDS statement or deposit/reporting discrepancy, where applicable.
- Submit a response to the outstanding demand and seek rectification or other appropriate statutory relief, specifically citing Section 401 and enclosing supporting evidence.
- Observe any applicable appeal, rectification or recovery-response deadlines; obtain professional advice where recovery is imminent.
Frequently asked questions
Can the department recover tax from an employee if the employer deducted TDS but failed to deposit it?
Section 401 bars direct demand on the employee to the extent tax was actually deducted from that income. Evidence of deduction is important where the employer has not reported or deposited it correctly.
Does Section 401 apply when TDS is merely deductible but was not deducted?
The provision expressly limits protection to the extent tax has been deducted. It should not be read as an automatic exemption for tax never withheld.
Which earlier provision corresponds to Section 401?
Section 205 of the Income-tax Act, 1961 addressed the same protection against direct demand where tax had been deducted at source.
Does Section 401 eliminate all other tax payable?
No. It prevents direct demand only to the extent of tax deducted from the relevant income, not the balance of any lawful tax liability.
Official statutory sources
Last reviewed: 12 November 2026. General legal information; individual facts and applicable procedures may differ.