Sub-section (1) deals with the deductor's own number. Clause (a) requires every person deducting or collecting tax to apply to the Assessing Officer for a tax deduction and collection account number within the prescribed time if one has not already been allotted, and clause (b) requires that number to be quoted in all challans, statements and certificates under this Chapter and in prescribed documents. Clause (c), as substituted by Act No. 4 of 2026 with effect from 1 October 2026, exempts four classes from clause (a): a person deducting under section 393(1) [Table: Sl. No. 2(i), 3(i) or 6(ii)] in respect of that transaction; a person referred to in section 393(4) [Table: Sl. No. 12.C(a)] in respect of a transaction where he deducts on consideration for transfer of a virtual digital asset under section 393(1) [Table: Sl. No. 8(vi)]; a resident individual or Hindu undivided family in respect of a transaction where he deducts on consideration for transfer of immovable property under section 393(2) [Table: Sl. No. 17]; and a person notified by the Central Government.
Sub-section (2) deals with the deductee's number. Clause (a) requires every person entitled to receive an amount on which tax is deductible, or paying an amount on which tax is collectible, to furnish his valid Permanent Account Number to the deductor or collector. Clause (b) fixes the consequence of failure: tax is deducted at the highest of the rate in the relevant provision, the rate or rates in force, and 5% where the deduction is under section 393(1) [Table: Sl. No. 8(ii) or 8(v)] or 20% in any other case; and tax is collected at the higher of twice the rate in the relevant provision and 5%, subject to an overall ceiling of 20%. Clause (c) spares a non-resident who is not a company or a foreign company from clause (b)(i) for interest on long-term bonds specified in section 393(2) (Table: Sl. Nos. 2, 3 and 4) and for other prescribed payments, and clause (d) spares a non-resident without a permanent establishment in India from clause (b)(ii). Clause (e) caps the higher deduction on rent under section 393(1) [Table: Sl. No. 2(i)] at the rent payable for the last month of the tax year or of the tenancy. Clause (f) invalidates a declaration under section 393(6) or 394(2) made without a valid Permanent Account Number and bars a certificate under section 395(1) or (3) on such an application, and clause (g) requires deduction or collection at the clause (b) rates once a declaration becomes invalid. Clause (h) requires the deductee or collectee to furnish his valid Permanent Account Number, which is then to be indicated in all bills, vouchers, correspondence and other documents passing between them.
Sub-section (3) is the payment and reporting machinery. Clause (a) requires the tax deducted, collected or determined under section 392(2)(b) to be paid to the credit of the Central Government within the prescribed time, and clause (b) requires a statement in the prescribed form and time to be delivered to the prescribed income-tax authority. Clause (c) requires that authority to deliver a statement to the buyer, licensor or lessee referred to in section 394(1) (Table: Sl. Nos. 1 to 4 or 9). Clause (d) requires anyone paying a non-resident who is not a company or a foreign company any sum, whether or not chargeable under the Act, to furnish information about it in the prescribed form. Clause (e) puts the equivalent statement obligation on the Pay and Accounts Officer, Treasury Officer, Cheque Drawing and Disbursing Officer or other responsible person where a government office credits tax without a challan. Clause (f) allows a correction statement within two years from the end of the tax year in which the original statement was due, whether under these clauses or under section 200 of the Income-tax Act, 1961. Clause (g) requires a banking company, co-operative society or public company referred to in Note 1 to section 393(1) (Table: Sl. No. 5) paying a resident interest not exceeding the threshold in Sl. No. 5(ii) and (iii) to deliver a statement, lets the Board extend that obligation to other payers, and allows correction statements. Clause (h) makes a person who fails to collect tax liable to pay it to the Central Government anyway.
Why it is there
Withholding only works if both sides of a payment can be identified, so the section puts a number on each — an account number for the person deducting, a Permanent Account Number for the person receiving — and makes the consequence of a missing Permanent Account Number a punitive rate rather than a penalty. The reporting clauses in sub-section (3) exist because the credit a deductee eventually claims can only be verified against a statement filed by the deductor. Clause (h) of sub-section (3) makes the collector's liability independent of whether he actually collected, so failure to collect is not a way out of paying.
Who it applies to
Every person deducting or collecting tax at source
A resident individual or Hindu undivided family deducting on consideration for transfer of immovable property under section 393(2) (Table: Sl. No. 17)
A person deducting on consideration for transfer of a virtual digital asset
Every person entitled to receive an amount on which tax is deductible, or paying an amount on which tax is collectible
A non-resident who is not a company or a foreign company, and a non-resident without a permanent establishment in India
A Pay and Accounts Officer, Treasury Officer or Cheque Drawing and Disbursing Officer of a government office
A banking company, co-operative society or public company paying interest to a resident below the section 393(1) (Table: Sl. No. 5) threshold
The figures, and what each one turns on
Read the condition in the same row. A figure quoted without it is a wrong answer with a citation attached.
What
Figure
The condition on it
Where
Floor rate for deduction where no valid Permanent Account Number is furnished
5%
Only where tax is required to be deducted under section 393(1) [Table: Sl. No. 8(ii) or 8(v)]; the deduction is at the highest of this, the rate in the relevant provision, and the rate or rates in force
Sub-section (2)(b)(i)(C)
Floor rate for deduction in any other case
20%
Again the highest of this, the rate in the relevant provision, and the rate or rates in force — so a higher specified rate still governs
Sub-section (2)(b)(i)(C)
Rate for collection where no valid Permanent Account Number is furnished
The higher of twice the rate in the relevant provision and 5%, but not exceeding 20%
The 20% is a ceiling on the collection rate, unlike the deduction limb which has no ceiling
Sub-section (2)(b)(ii)
Cap on the higher deduction from rent
The rent payable for the last month of the tax year, or of the tenancy
Rent specified in section 393(1) [Table: Sl. No. 2(i)] where tax must be deducted under clause (b)(i)
Sub-section (2)(e)
Window for a correction statement
Two years
From the end of the tax year in which the statement was required to be delivered under clause (b) or (e), or under section 200 of the Income-tax Act, 1961
Sub-section (3)(f)
What this means in practice
The two limbs of sub-section (2)(b) are not symmetrical and that is the point most often missed: for deduction, 5% or 20% is a floor with no ceiling, so where the relevant provision or the rates in force prescribe more, the higher rate applies; for collection, 20% is an express ceiling on the whole computation. Two escapes cut across it — a non-resident who is not a company or a foreign company is outside the deduction limb for long-term bond interest under section 393(2) (Table: Sl. Nos. 2, 3 and 4), and a non-resident without a permanent establishment is outside the collection limb altogether. The rent cap in clause (e) is a practical mercy: the higher rate cannot take more than one month's rent. On the deductor's side, the exemption from obtaining an account number is transaction-specific, not person-specific — clause (c) exempts a person only in respect of the listed transactions, so the same person deducting on anything else must still apply. And a correction statement has its own two-year clock running from the end of the tax year in which the original statement was due, not from when the error was found.
An example
Illustrative only, and invented for this page. The figures are chosen to show the rule biting, not taken from any real matter.
A company pays a resident contractor Rs. 50 lakh and the contractor does not furnish a valid Permanent Account Number. Deduction is at the highest of the rate specified for that payment, the rate in force, and 20% — so if the specified rate is 2%, the company must deduct 20%, or Rs. 10 lakh. If instead the company were collecting tax from a buyer who furnished no Permanent Account Number, sub-section (2)(b)(ii) would apply twice the specified rate or 5%, whichever is higher, but could never exceed 20%. A resident individual buying a flat and deducting under section 393(2) (Table: Sl. No. 17) need not apply for a tax deduction and collection account number for that transaction at all.
Where you meet this section
A deductor meets this section when applying for a tax deduction and collection account number, when quoting it on challans and certificates, and when filing the periodic statement whose particulars determine the credit his payees can claim. A payee meets it as the demand from a deductor for his Permanent Account Number, and as the higher rate withheld from his payment if he does not give one.
The words themselves
at the rate of 5% where tax is required to be deducted under section 393(1) [Table: Sl. No. 8(ii) or 8(v)]; or 20% in any other case
Section 397(2)(b)(i)(C), Income-tax Act, 2025.
tax shall be collected at the higher of the following rates, not exceeding 20%
Section 397(2)(b)(ii), Income-tax Act, 2025.
such deduction shall not exceed the amount of rent payable for the last month of the tax year or the last month of the tenancy, as the case may be
Section 397(2)(e), Income-tax Act, 2025.
any person responsible for collecting the tax who fails to collect the tax as per the provisions of section 394, shall, irrespective of such failure, be liable to pay the tax to the credit of the Central Government
Section 397(3)(h), Income-tax Act, 2025.
What people get wrong
Treating 20% as the rate where no Permanent Account Number is furnished. For deduction it is a floor under clause (b)(i), so a higher specified rate or rate in force prevails; only the collection limb in clause (b)(ii) carries 20% as a ceiling.
Deducting the higher rate from rent without limit. Clause (e) caps it at the rent payable for the last month of the tax year or of the tenancy.
Applying the higher deduction rate to every non-resident. Clause (c) excludes a non-resident who is not a company or a foreign company for interest on long-term bonds under section 393(2) (Table: Sl. Nos. 2, 3 and 4), and clause (d) excludes a non-resident without a permanent establishment from the collection limb.
Reading the account number exemption as covering the person generally. Clause (c), as substituted with effect from 1 October 2026, exempts the listed persons only in respect of the specified transactions.
Relying on a declaration filed without a valid Permanent Account Number. Clause (f)(i) makes it invalid and clause (g) then requires deduction or collection at the clause (b) rates.
Assuming that failing to collect ends the matter. Sub-section (3)(h) makes the collector liable to pay the tax to the Central Government irrespective of the failure.
What this replaced
The correspondence is the Income Tax Department’s own, from its comparison utility for the 1961 and 2025 Acts. A renumbering is the easy half; whether the words changed is the half that decides cases.
194-IA - Payment on transfer of certain immovable property other than agricultural land
194-IB - Payment of rent by certain individuals or Hindu undivided family
194M - Payment of certain sums by certain individuals or Hindu undivided family
194S - Payment on transfer of virtual digital asset
195 - Other sums
200 - Duty of person deducting tax
203A - Tax deduction and collection account number
206A - Furnishing of statement in respect of payment of any income to residents without deduction of tax
206AA - Requirement to furnish Permanent Account Number
206C - Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc.
206CC - Requirement to furnish Permanent Account number by collectee
Rules of the Income-tax Rules, 2026 that work section 397. Where the rule’s own heading names the section we say so; the rest are marked on reading the rule, which is our derivation and not the department’s. A rule that serves the section silently and that we have missed will not appear here.
Rule 162 — When PAN becomes inoperative under section 262(6) — on reading the rule
Rule 216 — Application for allotment of a tax deduction and collection account number — on reading the rule
Rule 217 — Conditions under section 397(2)(c) for non-application of deduction of tax at higher rate, in case of non-residents
Rule 219 — Statement of deduction or collection of tax at source under section 397(3)(b)
A circular binds the department, not you and not a court. Every one below was written under the 1961 Act; it reaches this section because the department’s own concordance carries the provision it names to this one.
Circular No. 8/2024 — Non applicability of higher rate of tds/tcs as per provisions of section 206aa/206cc of the income tax act 1961 in the event of de 2024-08-05
Circular No. 6/2024 — Partial modification of circular no.3 of 2023 dated 28.03.2023 regarding consequences of PAN becoming inoperative as per rule 114A 2024-04-23
Circular No. 10/2022 — Circular regarding use of functionality under section 206AB and 206CCA of the income tax act 1961 2022-05-17
Circular No. 20/2021 — Guidelines under sub section 4 of section 194 o sub section 3 of section 194Q and sub section 1 i of section 206C of the income ta 2021-11-25
Circular No. 31/2019 — Waiver of interest for TDS deducted under section 194M 2019-12-19
Circular No. 15/2019 — Issues in respect of payment of third installment under the Income Declaration Scheme, 2016- clarification on certain procedural i 2019-07-12
Circular No. 21/2017 — Non applicability of the provisions of section 194 1 of the i.t. act 1961 on remittance of passenger service fees psf by an airlin 2017-06-12
Circular 7/2014, dated 4-3-2014 — Dated 4 3 2014 section 200 of the income tax act 1961 deduction of tax at source duty of person deducting tax ex post facto extens 2014-03-04
Circular 1/2014, dated 13-1-2014 — Chapter Xvii-b of the Income-tax Act, 1961 - Collection and Recovery of TAX - Deduction at Source - Clarification Regarding TDS un 2014-01-13
Press Release — CBDT clarifies "Vodafone was warned" 2012-05-02
Circular No. 7 — Section 239 of the Income-tax Act, 1961 - Refunds - Procedure for Refund of TAX Deducted at Source under section 195 to the Person 2011-09-27
Circular No. 9/2009 — Section 195 of the Income-tax Act, 1961 - Deduction of tax at source - Payment to non-resident - Clarification regarding remittanc 2009-11-30
Circular No. 4/2009 — CBDT on Remittance to Non-residents under section 195 2009-06-29
Circular No. 4/2008 — Clarification on deduction of tax at source (TDS) on service tax component on rental income under section 194-I of the Income-tax 2008-04-28
Circular No. 1/2008 — Clarification regarding applicability of provisions of Section 194-I to payments made by the customers on account of cooling charg 2008-01-10
Circular No. 4/2004 — Tax Deduction at Source on income from Deep Discount Bonds 2004-05-13
Circular No. 8/2003 — Filing of returns relating to Tax Deduction at Source on computer media 2003-09-19
Circular No. 10/2002 — 1174. Submission of No Objection Certificate in case of remittance to a non-resident 2002-10-09
Circular No. 6/2002 — 1058. Finance Act, 2002 - Threshold limits for deduction of tax at source from income by way of dividends and income from units 2002-08-02
Circular No. 5/2002 — 1126. Clarifications on various provisions relating to tax deduction at source regarding changes introduced through Finance Act, 1 2002-07-30
Circular No. 5 — 1177. Problems faced by assessees in getting due credit for tax deducted at source under section 199 2001-03-02
Circular No. 790 — Section 195 of the Income-tax Act, 1961 - Deduction at Source - Other Sums - Procedure for Refund of TAX Deducted at Source under 2000-04-20
Circular No. 769 — 1167. Procedure for refund of tax deducted at source under section 195 1998-08-06
Circular No. 767 — Submission of No Objection Certificate in case of remittance to a non-resident 1998-05-22
Circular No. 759 — Submission of No Objection Certificate in case of remittance to a non-resident 1997-11-18
Circular No. 742 — Taxation of foreign telecasting companies—Guidelines for computation of income-tax, etc 1996-05-02
Circular No. 740 — 733. Taxability of interest remitted by branches of banks to the head office situated abroad, under the Foreign Currency Packing C 1996-04-17
Circular No. 736 — 1152. Clarification regarding applicability of provisions of section 194-I to film distributors and exhibitors 1996-02-13
Circular No. 735 — 1008. Clarification regarding payment of income by way of interest on securities and rent made to Regimental Funds or Non-public F 1996-01-30
Circular No. 728 — Applicable rates of taxes under the Double Taxation Avoidance Agreement between India and the United Arab Emirates 1995-10-30
Circular No. 718 — 1150. Clarification regarding deduction of tax at source from payment of rent 1995-08-22
Circular No. 715 — 1119. Clarifications on various provisions relating to tax deduction at source regarding changes introduced through Finance Act, 1 1995-08-08
Circular No. 695 — 1163. Streamlining the procedure for obtaining authorisation for payment of sums to non-residents after deduction of tax at source 1994-11-29
Circular No. 664 — Clarification regarding discontinuance of Form No. 16B 1993-09-29
Circular No. 660 — Section 206C l Profits and Gains from Business of Trading in Alcoholic Liquor, Forest Produce, ETC 1993-09-15
Circular No. 656 — Section 194D l Insurance Commission 1993-08-26
Circular No. 632 — Section 194C l Payments to Contractors and Sub-contractors 1992-08-20
Circular No. 597 — Clarification regarding discontinuance of Form No. 16B 1991-03-27
Circular No. 588 — 1162. Announcement by Finance Minister in Lok Sabha on 7-9-1990 regarding deduction of tax at source from payments in respect of s 1991-01-02
Circular No. 585 — Section 206C l Profits and Gains from Business of Trading in Alcoholic Liquor, Forest Produce, ETC 1990-11-27
Circular No. 370 — Clarification contained in Circular No. 155, dated 21-12-1974 reiterated to ensure proper computation of tax to be deducted at sou 1983-10-03
Circular No. 288 — 1058. Whether payer would be liable to deduct tax at source from interest in a case where he follows mercantile system of account 1980-12-22
Circular No. 282 — Section 44D l Royalty Income in Case of Foreign Companies 1980-09-22
Circular No. 277 — Instructions for deduction of tax at source from insurance commission during financial year 1980-81 at the rates specified in Part 1980-07-21
Circular No. 227 — Instructions for deduction of tax at source from insurance commission during financial year 1977-78 at the rates specified in Part 1977-07-14
Circular No. 168 — 1074. Instructions for deduction of tax at source from interest other than interest on securities during financial year 1975-76 at 1975-06-09
Circular No. 155 — Clarification contained in Circular No. 155, dated 21-12-1974 reiterated to ensure proper computation of tax to be deducted at sou 1974-12-21
Circular No. 152 — 1158. Where whole payment would not be income chargeable to tax in the hands of recipient non-resident, person responsible for pay 1974-11-27
Circular No. 139 — 1050. Instructions for deduction of tax at source from dividends during financial year 1974-75 at the rates specified in Part II o 1974-06-21
Circular No. 134 — 1073. Instructions for deduction of tax at source from interest other than interest on securities during financial year 1974-75 at 1974-05-16
A notification is made under a power the Act gives and, within that power, is law. These too were made under the 1961 Act and are placed here by the department’s concordance.
Read this before you rely on it. Every decision below was decided under the Income-tax Act, 1961. It appears here because it is tagged to a 1961 provision that the department’s own mapping carries to section 397. That is an inference we have drawn, not a holding on the new section: where the words changed in the move, the reasoning may not survive. Treat this as the place to start looking, not as authority on the 2025 Act.
AO v Nestle SASupreme CourtHelps departmenttagged s.195 My protocol has an MFN clause and I applied the lower rate India later agreed with an OECD member. Was I entitled to?
CIT v Reliance Telecom LtdSupreme CourtHelps departmenttagged s.195 The Tribunal recalled its whole order on my miscellaneous application. Will that recall survive?
Formula One World Championship Ltd v CITSupreme CourtHelps departmenttagged s.195 We had access to an Indian venue for only a few days in the year. Can that be a permanent establishment?
Hindustan Coca Cola Beverage P Ltd v CITSupreme CourtHelps taxpayertagged s.194-I I did not deduct TDS, but the person I paid has already paid tax on it. Can the department still recover it from me?
Japan Airlines Co Ltd v CITSupreme CourtHelps taxpayertagged s.194-I We pay landing and parking charges to the airport. Is that rent under 194-I at the higher rate?
UOI v Tata Chemicals LtdSupreme CourtHelps taxpayertagged s.195 I deducted tax under s.195 because the officer told me to, and the CIT(A) has now held it was not deductible. Do I get interest on the refund, or…
Court On Its Own Motion v CITHigh CourtHelps taxpayertagged s.200 CPC has refused my TDS credit and adjusted the refund against an old demand. What did the Delhi High Court actually direct?
Gwalior Rayon Silk v CITHigh CourtHelps taxpayertagged s.200 The TDS officer says I under-deducted on perquisites and wants the short tax under section 201(1) plus interest under section 201(1A). My estimate…
Van Oord ACZ India P Ltd v CITHigh CourtHelps taxpayertagged s.195 The remittance to my foreign parent bore no tax. Can s.40(a)(i) still hit me for non-deduction?
ACIT v SDV International Logistics LtdITATHelps taxpayertagged s.194-I My employees claim hra and home loan interest together. Must I treat that as a double benefit?
Raunaq Prakash Jain v ITOITATHelps taxpayertagged s.194S I sold Bitcoin in FY 2020-21, before the VDA regime — capital gains or income from other sources?
Sugee Seven Developers LLP v ITO (TDS)ITATCuts both waystagged s.194-IC Our redevelopment counterparty holds perpetual leasehold rights, not the freehold. Do we deduct 1 per cent under s.194-ia or 10 per cent under…
Vinod Soni v ITO (TDS)ITATHelps taxpayertagged s.194-IA Four of us bought jointly, each share under Rs 50 lakh — is 194-ia TDS due after the 2024 change?
CBDT Circular 1/2008CBDTHelps taxpayertagged s.194-I We pay cooling charges to a cold storage for our stock. Is that rent under s.194-I at 10%?
CBDT Circular 13/2021CBDTCuts both waystagged s.194-O Our purchase attracts both 194Q and 206C(1H). Do we deduct as buyer or does the seller collect?
CBDT Circular 13/2022CBDTCuts both waystagged s.194S I trade crypto on an exchange. Who deducts the 1% under s.194S, on what amount, and what changes if a broker is in the chain?
CBDT Circular 14/2022CBDTCuts both waystagged s.194S I bought crypto directly from the seller, no exchange — do I deduct? And what if I paid in crypto rather than cash?
CBDT Circular 23/2022 - the VDA regime's first yearCBDTCuts both waystagged s.194S From which assessment year does the flat 30% charge on crypto actually begin, and has the Board itself said anything about set-off?
CBDT Circular 5/2002CBDTCuts both waystagged s.194-I We book hotel rooms through the year for staff and guests. Is that rent under s.194-I?
CBDT Notifications 74 & 75/2022CBDTCuts both waystagged s.194S Are gift cards, loyalty points and NFTs backed by a physical asset caught by the crypto tax rules?
Notification 67/2022 — the 194S formsCBDTCuts both waystagged s.194-IA I deducted 1% under s.194S on a peer-to-peer purchase. Which challan and which certificate, and by when?
Notification 73/2022 — Form 26QF for exchangesCBDTCuts both waystagged s.194S The exchange agreed under the CBDT guidelines to pay the 1% on its own sale to me. How does that get reported, and where do I see it?
Explainers
194-IA, 194-IB and 194Mtagged s.194-IA I am an individual buying a flat, paying high rent and paying a contractor. Do I have to deduct tax without a TAN?
194Q and 206C(1H)tagged s.194-O My buyer deducts TDS on my invoice and I also collect TCS on the same sale. Which of us is right?
How crypto is taxed in Indiatagged s.194 of the Income-tax Act 2025 How is crypto taxed in India — what rate, what TDS, what do I report, and what happens when the department writes to me?
TDS on payments to non-residents: s.195tagged s.195 I am remitting money abroad to a foreign supplier. Must I deduct tax, and what do I file before the bank will send it?
What this page does not tell you. It does not reproduce the section. Everything above was written from the section’s own text as the Income Tax Department publishes it — the text is here, and nothing here is advice on your facts. Where a figure matters, read the sub-section it comes from.