Chapter XIX - Collection and Recovery of Tax
Section 417
Section 417: recovery through State Government
Section 417 deals with a specific administrative arrangement: where the Central Government has entrusted recovery of tax in a given area to a State Government under Article 258(1) of the Constitution, that State Government can direct recovery of the tax alongside municipal tax or local rates in that area.
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Need advice on Section 417?
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
If the recovery of tax in any area has been entrusted to a State Government under article 258(1) of the Constitution, the State Government may direct, with respect to that area or any part thereof that tax shall be recovered therein with, and as an addition to, any municipal tax or local rate, by the same person and in the same manner as the municipal tax or local rate is recovered.
Introduction
Section 417 becomes relevant only where recovery of tax in an area has been entrusted to a State Government under article 258(1) of the Constitution. The State Government may then direct recovery with and as an addition to a municipal tax or local rate, by the same person and in the same manner.
Key takeaways
Prerequisite
The recovery function must first have been entrusted to the State Government for the area.
Method
The State Government may direct collection together with municipal tax or local rate.
What Section 417 says
"If the recovery of tax in any area has been entrusted to a State Government under article 258(1) of the Constitution, the State Government may direct, with respect to that area or any part thereof that tax shall be recovered therein with, and as an addition to, any municipal tax or local rate, by the same person and in the same manner as the municipal tax or local rate is recovered."
When this provision applies
Obtain the entrustment of the recovery function under Article 258(1) and identify the territory it covers. The presence of a municipal collection system alone does not establish this prerequisite.
Then check the State Government’s direction for that area or the specified part of it. Identify the municipal tax or local rate, the person who recovers it and the recovery manner adopted by the direction.
Limits and procedural safeguards
Section 417 concerns a collection route for tax, not a State power under this section to create a new income-tax charge or change the assessed amount.
A direction for one area should not be treated as applying throughout a State without reading its territorial scope. Keep the municipal or local-rate component distinct from the income-tax component in the demand and payment record.
Step-by-step review
1. Locate and verify the Article 258(1) entrustment for the area.
2. Read the State direction and its territorial coverage.
3. Match the collector and method to the identified municipal tax or local rate mechanism.
4. Reconcile the underlying tax due, demand components and receipts.
Hypothetical example
Hypothetical illustration: a municipal demand includes an income-tax component. Before relying on Section 417 as its authority, identify the required entrustment and State direction for that area. The fact that the same collector ordinarily collects municipal dues does not establish those conditions by itself.
Records to prepare
The entrustment instrument and State direction.
Territorial coverage and collector or recovery-method details.
The underlying tax demand, component-wise bill and receipts.
Official amended Act source
Step-by-step flow for recovery through a State Government under Section 417
- 1
Has recovery of tax in the area been entrusted to the State Government under article 258(1) of the Constitution?
- No: Section 417 cannot be used for that area.
- Yes: Go to the next step.
- 2
Has the State Government issued a direction?
The direction may cover the whole of that area or any part of it.
- 3
How is the tax added?
The tax is recovered with, and as an addition to, a municipal tax or local rate in that area.
- 4
Who collects it and how?
The same person who recovers the municipal tax or local rate, in the same manner. The income-tax itself is still the amount due under the Act; Section 417 changes only the collection route.
Practical checklist
Do
- Check that tax recovery for the area was entrusted to the State Government under article 258(1).
- Identify the State Government direction and the municipal tax or local rate recovery mechanism it adopts.
- The entrustment instrument and State direction.
- Territorial coverage and collector or recovery-method details.
- The underlying tax demand, component-wise bill and receipts.
Avoid
- Do not assume every State or municipality can use this recovery route without the required entrustment and direction.
Illustrative example
Worked example: income-tax collected with a local rate
Hypothetical facts (illustration only, not a real taxpayer): It is assumed that recovery of tax in a district has been entrusted to the State Government under article 258(1), and that the State has directed that, in one town in that district, tax be recovered with the municipal property tax. A resident of the town owes assumed income-tax of ₹45,000 and an assumed municipal property tax of ₹12,000.
Entrustment
The assumed entrustment under article 258(1) is the precondition for Section 417.
Direction
The State's direction covers only the town, which is a part of the entrusted area.
Collection
The municipal collector recovers the ₹45,000 together with, and in addition to, the ₹12,000 property tax, in the same manner as the property tax: ₹45,000 + ₹12,000 = ₹57,000 in all.
Nature of the amounts
The ₹45,000 remains income-tax under the Act and the ₹12,000 remains municipal tax. Section 417 does not create a new municipal income-tax.
Outcome
- The resident pays ₹57,000 to the municipal collector, of which ₹45,000 is income-tax.
- Without the entrustment and the State direction, this route would not be available.
Glossary
- Entrustment
- The allocation of the recovery function to the State Government under Article 258(1), as required by Section 417.
- Territorial direction
- The State direction identifying the area or part of it where the collection method applies.
Frequently asked questions
Can a State Government use Section 417 without an entrustment?
No. The opening condition requires entrustment of tax recovery in the relevant area under article 258(1).
How is tax recovered under this arrangement?
As an addition to municipal tax or local rate in that area, collected by the same person and in the same manner as the municipal tax or local rate itself.
Does the direction necessarily cover the whole State?
No. Check the area or part of the area specified in the entrustment and direction.
Does this section create a new municipal income tax?
No. It concerns recovery of tax through the specified municipal-tax or local-rate mechanism.
Need help applying this provision to your situation?
Talk to our tax team about a tax recovery matterLast updated 10 October 2026