Chapter XIX - Collection and Recovery of Tax
Section 400
Section 400: power to relax TDS/TCS provisions
Section 400 gives the Central Government and the Board flexibility to fine-tune the otherwise rigid TDS/TCS machinery - by notification, by binding guidelines, and by rule-making for specific certificate and non-resident-payment scenarios.
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Need advice on Section 400?
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 Central Government may, by notification provide that deduction or collection of tax shall not be made or is to be made at such lower rate, from such payment or receipt and in respect of such person or class of persons.
(2) The Board may, with the previous approval of the Central Government, issue guidelines to remove any difficulty arising in giving effect to the provisions of this Chapter and such guidelines shall be— (a) binding on the income-tax authorities and on the person liable to deduct or, as the case may be, collect income-tax; and (b) laid before each House of Parliament.
(3) The Board may notify, a class of person, or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, to make an application in such form and manner as may be prescribed, to the Assessing Officer, to determine the appropriate proportion of sum chargeable in the manner as may be prescribed, and accordingly tax shall be deducted under section 393(2) (Table: Sl. No. 17) on that proportion of the sum which is so chargeable.
(4) The Board may by notification, make rules specifying the cases in which, and the circumstances under which, an application may be made for grant of a certificate under section 395(1) and (3), and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.
Introduction
Section 400 lets the Central Government notify no or lower deduction or collection for named payments, receipts and persons. It separately lets the Board issue approved binding difficulty-removal guidelines and frame rules on certificate applications.
Key takeaways
Notification route
A Central Government notification can specify no or lower source tax for covered payments or persons.
Board guidelines
With prior Central Government approval, the Board may issue guidelines binding on tax authorities and persons liable to deduct or collect.
Non-resident payment proportion
Subsection (3) permits a notified class or case to seek an Assessing Officer determination of the chargeable proportion.
Certificate rules
Subsection (4) supports rules for applications under section 395(1) and (3).
Notified lower rate or no deduction/collection
The Central Government may, by notification, provide that deduction or collection of tax will not be made, or will be made at a lower rate, for specified payments or receipts and specified persons or classes of persons.
Board's binding guidelines
The Board, with the Central Government's prior approval, may issue guidelines to remove any difficulty in giving effect to the provisions of this Chapter. Such guidelines are binding on income-tax authorities and on the person liable to deduct or collect tax, and must be laid before each House of Parliament.
Determining the taxable proportion for non-resident payments
The Board may notify a class of persons or cases where a person paying a non-resident (not being a company) or a foreign company any sum, whether or not chargeable under the Act, must apply to the Assessing Officer to determine the appropriate chargeable proportion of that sum; tax is then deducted under Section 393(2) [Table Sl. No. 17] only on the chargeable proportion.
Rules for lower/nil deduction certificates
The Board may, by notification, make rules specifying the cases and circumstances in which an application for a certificate under Section 395(1) and (3) may be made, the conditions for granting such a certificate, and other connected matters.
Step-by-step flow for applying Section 400
- 1
Is there a Central Government notification under Section 400(1) covering this payment or receipt and this person or class?
If so, deduction or collection is not made, or is made at the lower rate, as the notification provides. Section 400 itself does not name any payment, person or rate.
- 2
Has the Board issued a guideline under Section 400(2) on the difficulty?
A guideline issued with the previous approval of the Central Government binds income-tax authorities and the person liable to deduct or collect. It is laid before each House of Parliament.
- 3
Is the payment to a non-resident (not a company) or a foreign company, in a class or case notified under Section 400(3)?
If so, the payer applies to the Assessing Officer in the prescribed form and manner. The Assessing Officer determines the chargeable proportion of the sum in the prescribed manner, and tax is deducted under Section 393(2) (Table: Sl. No. 17) only on that proportion.
- 4
Is a certificate under Section 395(1) or (3) being sought?
Section 400(4) lets the Board make rules on when an application may be made, the conditions for granting the certificate and connected matters. Follow those rules.
Practical checklist
Do
- Find the exact notification or guideline covering the transaction and confirm its effective dates.
- For a non-resident payment, check whether a subsection (3) notified class or case applies.
Avoid
- Do not infer a general source-tax exemption from the existence of this enabling power alone.
Illustrative example
Worked example: a payment to a foreign company where only part is chargeable
Hypothetical facts (illustration only, not a real taxpayer): An Indian company owes a foreign company ₹50 lakh (assumed) under a contract that covers both work done abroad and services connected with India. Assume the payment falls within a class of cases notified by the Board under Section 400(3).
Check the notification
Because the case is within a class notified under Section 400(3) (assumed), the payer applies to the Assessing Officer in the prescribed form and manner.
Determination
The Assessing Officer determines the chargeable proportion in the prescribed manner. Assume the determination is 40%.
Base for deduction
Chargeable proportion = 40% × ₹50 lakh = ₹20 lakh. Tax is deducted under Section 393(2) (Table: Sl. No. 17) on ₹20 lakh, at the rate given in that provision.
Other relaxations
The payer also checks whether any Section 400(1) notification or Section 400(2) guideline applies. None is assumed here.
Outcome
- Tax is deducted on ₹20 lakh, not on the full ₹50 lakh.
- The 40% figure is illustrative; the actual proportion comes only from the Assessing Officer's determination.
Frequently asked questions
Are the Board's guidelines under Section 400(2) binding?
Yes - once issued with the Central Government's prior approval, the guidelines are binding both on income-tax authorities and on the person liable to deduct or collect tax, and are laid before each House of Parliament.
Need help applying this provision to your situation?
Talk to our team about notified TDS/TCS relaxationsLast updated 9 October 2026