Circular No. 686

What it does

Assures employees that assessments will not be reopened or otherwise disturbed merely because their employers, acting on circular No. 685 dated 20 June 1994, have now disclosed excess salary payments. Circular No. 685 had provided that proceedings under sections 221, 276B and 271C would not be initiated against employers who had failed to deduct tax at source on salaries and allowances paid abroad, or perquisites provided abroad, to employees for services rendered in India. This circular carries the same protection across to the employees whose short-deducted tax and interest the employer pays up under that scheme.

Why it was issued

Doubts had been raised as to whether the employer's disclosure would draw consequential action in the hands of the employees, which would have defeated the purpose of circular No. 685 of encouraging immediate voluntary compliance by employers.

Who it reaches

Employees paid salary, allowances or perquisites abroad for services rendered in India
Employers who made good short deduction and interest under circular No. 685
Assessing Officers considering reopening such employees' assessments

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.201	s.2, s.398
s.221	s.412

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

SECTION 201 l CONSEQUENCE OF FAILURE TO DEDUCT OR PAY
Non-initiation of penalty and prosecution proceedings in certain cases of defaulters under Chapter XVII-B

Reference is invited to Board’s Circular No. 685, dated 20-6-1994 (File No. 275/69/94-ITB) providing for non-initiation of proceedings under section 221/276B/271C of the Income-tax Act, 1961 in respect of employers defaulting in deducting tax at source on the salaries and allowances paid abroad or perquisites provided abroad to their employees for services rendered in India. Doubts have been raised in some quarters as to whether, due to the disclosure of the excess salary payments by the employers, any consequential action will be taken in the hands of the employees.
2. The Board has considered the matter. The spirit behind issue of Circular No. 685 dated 20-6-1994 was to encourage immediate voluntary compliance on the part of the employers defaulting in tax deduction. In order that this intention is fully achieved. Accordingly the Board has decided that the assessments of the employees, in respect of whom payments of short-deduction and interest thereon are made by the employers in pursuance of Circular No. 685 dated 20-6-1994, will not be reopened or otherwise disturbed merely on account of the excess salary payments now disclosed by the employers.
Circular : No. 686, dated 12-8-1994.

What to watch

The protection is limited to reopening merely on account of the excess salary payments now disclosed; other grounds for reopening are untouched.
It applies only where the employer has actually made payment of the short-deduction and interest under circular No. 685.
It has to be read with circular No. 685 dated 20 June 1994, which carries the conditions of the underlying scheme.
The scheme it supports was a one-time compliance measure of 1994.

Where you meet it

In a notice proposing to reopen an expatriate employee's assessment for a year in which the employer disclosed offshore salary under the 1994 scheme.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Circular No. 8/2025 — Clarification regarding CBDT's Circular No. 5/2025 dated 28.03.2025 for waiver on levy of interest under section 201(1A) 1 July 2025
Circular No. 4/2024 — Ex post facto extension of due date for filing form no. 26QE which was required to be filed during the period 01.07.2022 7 March 2024
Circular No. 42/2016 — Circular No. 42 of 2016 23 December 2016
Notification No. 37/2012 — Income-tax (Eleventh Amendment) Rules, 2012 - Insertion of rules 31ACB, 37J, Form Nos. 26A & 27BA 12 September 2012
Circular No. 8/2009 — Section 194J of the Income-tax Act, 1961 - Deduction of tax at source - Fees for professional or technical services - Ap 24 November 2009
Circular No. 6/2009 — Clarification Regarding Deduction of TAX at Source from Payments of Second Installment of Arrears to Government Employee 31 August 2009

← Circular No. 687 · Circular No. 685 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.

What this is