Section 398 (Act of 2025)

Section 398 (Act of 2025) — the law in short

What the courts have decided on section 398 (Act of 2025), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Director, Prasar Bharati v CIT Supreme CourtHelps department
  My advertising agency bills the advertiser, remits the money to me, and I pay it fifteen per cent back as its margin. The agreement calls it commission. Is that section 194H?
  Yes, on these facts. The Supreme Court held that the fifteen per cent paid to accredited advertising agencies under Doordarshan's agreements was commission within section 194H, so tax had to be deducted on it. What decided the case was the arrangement, not the label on the ledger: the agreement called the sum commission throughout, it was paid over after the appellant had collected the money from the agencies, and the relationship was one of principal and agent rather than principal to principal. Read it against Ahmedabad Stamp Vendors and Bharti Cellular, where the same section did not apply because the distributor bought on its own account.
• ITC Ltd v CIT (TDS) Supreme CourtHelps taxpayer
  Our restaurant and banquet bills carry a tip that the customer adds on the card. The money lands in our bank account and we hand it to the staff with their wages. The department says that is salary we should have deducted on. Is it?
  No. The Supreme Court held that a tip is not salary at all, and that the route it travels — cash into the waiter's hand or a card entry through the employer's bank account — makes no difference. Section 15(b) taxes what is paid or allowed by or on behalf of an employer, and the word employer presupposes a contract of employment; the employee has no vested right to claim a tip from his employer, and the amount has no reference to his contract of employment. The employer receives the money in a fiduciary capacity as trustee and is only a conduit between customer and staff. The tip is the employee's income from other sources under section 56(1). Section 192 is therefore not attracted, the employer is not an assessee in default, and no interest under section 201(1A) arises.
• Statutory position — s.201: who is deemed an assessee in default, the Form 26A escape that covers non-deduction only, one per cent and one and one-half per cent for two different periods, and the six-year limit from 1 April 2025 CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  The TDS officer has passed an order under section 201 treating me as an assessee in default and has added interest under section 201(1A). Who exactly is in default, what gets me out of it, which interest rate runs for which period, and how far back can he go?
  Section 201(1) deems a person who does not deduct, does not pay, or after deducting fails to pay the whole or any part of the tax to be an assessee in default in respect of that tax. Its first proviso takes him out of that deeming, but only for a failure to deduct, and only if the payee has furnished his return under section 139, has taken the sum into account in computing income in that return and has paid the tax due on the income declared — and the deductor furnishes a certificate to that effect from an accountant, which rule 31ACB requires in Form 26A. Interest under section 201(1A) runs at two rates for two different periods: one per cent for every month or part of a month from the date the tax was deductible to the date it was deducted, and one and one-half per cent for every month or part of a month from the date it was deducted to the date it was actually paid. Where the first proviso to section 201(1) rescues the deductor from the tax, the proviso to section 201(1A) still charges the one per cent, from the date the tax was deductible to the date the payee furnished his return. Since 1 April 2025 an order under section 201(1) for a failure to deduct cannot be made after six years from the end of the financial year in which payment is made or credit is given, or two years from the end of the financial year in which a correction statement is delivered under the first proviso to section 200(3), whichever is later; until 31 March 2025 the figure was seven years and the limit protected only a failure to deduct from a person resident in India. Section 201 governs a default on a sum paid or credited up to 31 March 2026; where the earlier of credit or payment falls on or after 1 April 2026, the consequences provision is section 398 of the Income-tax Act, 2025.
• Statutory position — s.195: tax is deducted only on a sum “chargeable under the provisions of this Act”, and Explanation 2 fixes who owes the duty, not what is taxable CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  In March 2026 I remitted a fee to a company outside India without deducting anything, because I did not think any part of it was taxable here. The Assessing Officer now says section 195 obliged me to deduct on the whole remittance, or at least to apply to him before paying. Does section 195 say that — and since the new Act has come in, which Act governs my payment at all?
  Which Act governs is settled by one date: on the CBDT's transition FAQ, where the earlier of credit or payment falls on or before 31 March 2026 the Income-tax Act, 1961 applies, and where it falls on or after 1 April 2026 the Income-tax Act, 2025 applies instead — there, the deduction duty sits in section 393(2), Table, Serial No. 17. So a March 2026 remittance is a section 195 question. Section 195(1) does not tax a remittance; it attaches a deduction duty to “any interest … or any other sum chargeable under the provisions of this Act” paid to a non-resident or a foreign company, at the time of credit or of payment, whichever is earlier. Those five words are the gateway, and in GE India Technology Centre the Supreme Court held on 9 September 2010 that they cannot be read out of the sub-section: a payer who is fairly certain that no part of the sum is chargeable in India may make that determination himself and is not obliged to apply under section 195(2) first. Section 195(2) is the payer's application where a composite payment is partly chargeable; section 197 is a different route, taken by the recipient. Sub-section (6) requires information about every sum, whether or not chargeable, in the form prescribed by rule 37BB — which is why the bank asks for a 15CA even where nothing is deductible.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.