Chapter XIX - Collection and Recovery of Tax
Section 391
Section 391: direct payment of tax
Section 391 is the fallback rule for income that escapes TDS - either because no deduction provision applies to it, or because deduction should have happened but did not. In such cases the assessee must pay the tax directly, and a person who fails to deduct or pay over TDS can be treated as an assessee in default.
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Need advice on Section 391?
This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) The income-tax on any income shall be payable directly by the assessee if— (a) there is no provision under this Chapter to deduct income-tax on such income at the time of payment; or (b) income-tax has not been deducted as per the provisions of this Chapter.
(2) If an assessee has any income of the nature as specified in section 17(1)(d) and such specified security or sweat equity shares are allotted or transferred directly or indirectly by the current employer which is an eligible start-up referred to in section 140, then direct payment of tax for the purposes of sub-section (1) shall be made in accordance with in section 289(3).
(3) Where any person, including the principal officer of the company,— (a) who is required to deduct any sum as per the provisions of this Act; or (b) referred to in section 392(2)(a), being an employer, does not deduct, or after so deducting fails to pay, or does not pay, the whole or any part of the tax, as required under this Act, and where the assessee has also failed to pay such tax directly, then, such person shall, apart from any other consequences that he may incur, be deemed to be an assessee in default within the meaning of section 398(1), in respect of such tax.
Introduction
Section 391 requires direct payment by the assessee if the Chapter has no deduction provision for the income or if tax required to be deducted was not deducted. The section also deals with eligible start-up share benefits and a payer’s default where neither deduction/payment nor direct payment occurs.
Key takeaways
Direct-payment fallback
The assessee pays directly when no source-deduction rule applies or required tax was not deducted.
Start-up shares
Tax on the specified eligible start-up security or sweat-equity income follows the timing in section 289(3).
Payer default
Subsection (3) can deem the responsible person in default where the tax remains unpaid by both payer and assessee.
When tax is payable directly by the assessee
Income-tax on any income is payable directly by the assessee if there is no provision under this Chapter to deduct income-tax on that income at the time of payment, or if income-tax has not been deducted as required under this Chapter.
Eligible start-up ESOPs and sweat equity shares
If an assessee has income of the nature specified in Section 17(1)(d) (specified security or sweat equity shares), and such shares are allotted or transferred directly or indirectly by an employer that is an eligible start-up referred to in Section 140, direct payment of tax is made in accordance with Section 289(3).
Consequence of failure by both deductor and assessee
Where a person - including the principal officer of a company - who is required to deduct any sum under this Act, or an employer referred to in Section 392(2)(a), does not deduct the tax, or after deducting fails to pay it, or does not pay the whole or any part of it as required, and the assessee has also failed to pay such tax directly, then that person is deemed to be an assessee in default within the meaning of Section 398(1), in respect of such tax, apart from any other consequences that person may incur.
Step-by-step flow for applying Section 391
- 1
Does Chapter XIX contain a provision to deduct tax on this income at the time of payment?
- No: Under Section 391(1)(a) the assessee must pay the tax on that income directly. Go to step 3.
- Yes: Go to the next step.
- 2
Was the tax deducted as the Chapter requires?
If it was not deducted, Section 391(1)(b) makes the assessee pay it directly. If it was deducted, Section 391(1) does not require direct payment of that tax.
- 3
Is the income of the kind in Section 17(1)(d) from shares allotted or transferred by an eligible start-up employer referred to in Section 140?
If yes, Section 391(2) requires the direct payment to be made in accordance with Section 289(3). Read Section 289(3) for the timing.
- 4
Did the payer fail to deduct, or fail to pay the deducted tax, and did the assessee also fail to pay it directly?
If both failed, Section 391(3) deems the payer (including a company's principal officer, or an employer under Section 392(2)(a)) to be an assessee in default under Section 398(1) for that tax, apart from any other consequence.
Practical checklist
Do
- Reconcile income, tax deducted and direct tax payments before finalising liability.
- For eligible start-up share income, check the section 289(3) payment timing.
Avoid
- Do not assume a payer’s non-deduction removes the assessee’s direct-payment duty.
Illustrative example
Worked example: a client who did not deduct tax
Hypothetical facts (illustration only, not a real taxpayer): Ms. Das, a resident professional, bills a client ₹2,00,000 (assumed). A deduction provision in Chapter XIX applies to the payment, and the deductible tax is ₹20,000 (assumed; the rate comes from the deduction provision, not from Section 391). The client pays the full ₹2,00,000 without deducting.
Deduction provision exists
A provision to deduct applies, so Section 391(1)(a) is not the route.
Tax not deducted
Tax of ₹20,000 was not deducted as required. Under Section 391(1)(b), Ms. Das must pay that tax directly.
If Ms. Das pays
If she pays the ₹20,000 directly, the condition in Section 391(3) that the assessee "has also failed to pay such tax directly" is not met for that tax.
If neither pays
If the client does not deduct and Ms. Das also does not pay, the client is deemed an assessee in default under Section 398(1) for the ₹20,000, apart from any other consequence.
Outcome
- Ms. Das should pay the ₹20,000 directly; the client's failure does not remove her duty under Section 391(1)(b).
- Section 391(3) shifts assessee-in-default status to the payer only when both the payer and the assessee fail.
Frequently asked questions
When must an assessee pay tax directly instead of relying on TDS?
Where the Chapter has no TDS provision covering that income, or where TDS was required but was not actually deducted.
Can a defaulting deductor be treated as an assessee in default under Section 391?
Yes - if the deductor (or an employer under Section 392(2)(a)) fails to deduct or pay tax, and the assessee has also failed to pay it directly, the deductor is deemed an assessee in default under Section 398(1).
Need help applying this provision to your situation?
Talk to our team about TDS default and direct tax paymentLast updated 9 October 2026