TDS, TCS and Advance Tax: Sections 390 to 412

Most income tax is collected before assessment. Payers deduct tax when they pay salary, interest, rent and many other sums; sellers collect tax on specified sales; and taxpayers pay advance tax in instalments during the year. The Income-tax Act, 2025 consolidates the many deduction provisions of the 1961 Act into a few sections built around tables. This note covers deduction and collection at source, advance tax and the consequences of default.

1. The Provisions Mapped

Figure 1: Collection provisions, 2025 Act and 1961 Act

• Section 390. Tax is payable by deduction or collection at source and by advance payment, in addition to tax payable on assessment.
• Section 392 (old s.192). An employer deducts tax from salary at the average rate applicable to the employee's estimated income.
• Section 393 (old ss.193 to 196D). Deduction on other payments, such as interest, rent, commission, contract payments, professional fees and payments to non-residents, set out in tables with rates and thresholds.
• Section 394 (old s.206C). Collection of tax at source by sellers on specified goods and transactions; the Finance Act, 2026 rationalised the multiple collection rates towards uniform rates from 1 April 2026.
• Credit. Tax deducted is treated as income received (s.396) and is credited to the payee, who cannot be asked to pay it again directly where it has been deducted (s.401)

2. Consequences of Default

Figure 2: When the payer fails

• Assessee in default, s.398 (old s.201). A person who fails to deduct, or after deducting fails to pay, is treated as an assessee in default for the tax and is liable to interest.
• Disallowance. Expenditure on which tax was not deducted or paid is disallowed in computing business income, wholly for payments to non-residents and partly for residents (Topic 15)
• Higher rate without PAN. Where the payee does not furnish a permanent account number, tax is deducted at a higher rate.
• Statements and certificates. Deductors file periodic statements and issue certificates to payees (ss.395, 397); fees apply for late filing (s.427)

3. Advance Tax: Sections 403 to 412

Figure 3: Instalments of advance tax

• Liability. Advance tax is payable where the tax estimated for the year, after deduction and collection at source, is Rs 10,000 or more; a resident senior citizen without business or professional income is exempt.
• Instalments, s.408. At least 15, 45 and 75 per cent of the tax by 15 June, 15 September and 15 December, and the whole by 15 March; taxpayers under the presumptive scheme pay the whole by 15 March.
• Interest. Interest is charged for failure to pay at least ninety per cent of the assessed tax as advance tax (s.424, old s.234B) and for deferment of instalments (s.425, old s.234C); and for late filing of the return (s.423, old s.234A)

4. Frequently Asked Questions

Who is exempt from paying advance tax?

A resident senior citizen who has no income from business or profession, and any person whose tax liability for the year, after deduction and collection at source, is below Rs 10,000.

Can the department recover tax from the payee if the payer deducted it but did not deposit it?

No. Where tax has been deducted, s.401 bars a direct demand on the payee to that extent; the payer is the assessee in default.

5. Related Topics

• Topic 13: Income from Salaries. Deduction from salary.
• Topic 15: Profits and Gains of Business or Profession. Disallowance for non-deduction.
• Topic 25: Penalties and Prosecution. Penalty and prosecution for default.