Section 401: bar against direct demand on the assessee

Introduction

Section 401 prevents a direct demand on an assessee for tax that has actually been deducted from that assessee’s income at source under this Chapter.

Its protection is measured by the amount deducted. The wording does not treat tax that should have been deducted, but was not, as already paid by the recipient. A deduction dispute therefore turns on whether and how much tax was in fact withheld from the relevant income.

Key takeaways

What Section 401 says

"Where tax is deductible at the source under this Chapter, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income."

When this provision applies

Identify the income, the applicable source-deduction obligation and the amount actually withheld. The protection follows the actual deduction from that income; an expected deduction or a contractual promise to deduct is not the same fact.

Compare the direct demand with the deduction evidence. The protected portion should be matched to the same income and tax year, with any other outstanding tax separately identified.

Limits and procedural safeguards

The provision bars a direct demand to the extent of actual deduction. It does not automatically erase other tax payable by the assessee or resolve every difference in a tax-credit statement.

A missing credit entry and a failure to deduct are different issues. Preserve proof of actual withholding and pursue the applicable correction or demand-response process rather than assume a portal mismatch settles the statutory question.

Step-by-step review

1. Identify the income and payment from which tax was deductible.

2. Reconcile the gross payment, actual deduction and net receipt.

3. Match the deducted portion with the demand and isolate any amount not covered by Section 401.

4. Submit the deduction evidence through the applicable response process and retain the resulting correction or decision.

Hypothetical example

Hypothetical illustration: a payer actually withholds ₹20,000 from an assessee’s income but the deduction is not reflected in the credit statement. Section 401’s protection turns on the proved deduction, not merely the missing display entry. The assessee should reconcile and document that ₹20,000; any separate tax liability remains a separate question.

Records to prepare

Payment advice, deduction certificate and bank records showing gross, deducted and net amounts.

The relevant demand, return and tax-credit reconciliation.

Correspondence with the deductor and acknowledgement of the demand response or correction request.

Official amended Act source

• Income-tax Act, 2025 as amended by Finance Act, 2026: Section 401 and related provisions

Step-by-step flow for applying Section 401

1. 1

   Is tax deductible at source on this income under Chapter XIX?

   • No: Section 401 does not apply to that income.
   • Yes: Go to the next step.
2. 2

   How much tax was actually deducted from that income?

   The bar works "to the extent to which tax has been deducted". Use the gross payment, the amount withheld and the net receipt as evidence.

3. 3

   Does the demand on the assessee relate to the same income?

   Match the demand to the income from which tax was deducted and to the same tax year.

4. 4

   Apply the bar to the deducted portion

   The assessee cannot be called upon to pay that portion himself. Any balance of tax on the income is a separate question outside Section 401.

Practical checklist

Glossary

Actual withholding

Tax in fact deducted from the income, rather than an amount that merely ought to have been deducted.

Protected portion

The amount of the direct demand corresponding to tax actually deducted from that income.

Frequently asked questions