Collection and recovery of tax, TDS, refunds, appeals and revision, penalties and offences

1. Deduction of tax at source

TDS makes the payer collect the tax for the Government at the time of payment. It gives the State steady revenue, reduces evasion, and spreads the burden over the year.

• Salary (section 392 [section 192]): the employer deducts tax at the time of payment at the average rate computed on the estimated salary income of the year, taking into account the regime chosen and declarations of other income. The employer may bear the tax on non-monetary perquisites (section 392(2)).
• Other payments to residents (section 393(1) and its Table [sections 193 to 194T]): interest, dividends, payments to contractors, commission and brokerage, rent, professional and technical fees, purchase of immovable property, lottery and online game winnings and others, each with a threshold and rate. Tax is deducted at the time of credit or payment, whichever is earlier.
• Payments to non-residents (section 393(2) [section 195]) on any sum chargeable in India, at the rates in force or the treaty rate.
• Tax collected at source (section 394 [section 206C]) by sellers of specified goods and others.
• No PAN: deduction at a higher rate (section 395 [section 206AA]).
• Lower or nil deduction on a certificate from the Assessing Officer, and self-declarations by persons with no taxable income, within the scheme of section 395.
• Procedure (section 397 [sections 200, 203 and 203A]): the deductor must obtain a TAN, deposit the tax within the prescribed time, file quarterly statements, and issue TDS certificates.

Consequences of default. A person who fails to deduct, or deducts and fails to pay, is deemed an assessee in default (section 398 [section 201]) and pays interest; the expenditure may be disallowed in his own assessment (section 35 [section 40(a)]); penalty equal to the tax not deducted may be imposed (section 448 [section 271C]); and failure to pay tax deducted is an offence (section 476 [section 276B]). The payee gets credit for tax deducted, and once tax is deductible at source the assessee cannot be asked to pay it again to the extent deducted (section 401 [section 205]).

2. Advance tax: sections 403 to 410 [sections 207 to 219]

• Payable during the financial year on current income where the tax payable is ₹10,000 or more (section 404).
• A resident individual aged sixty or more with no business or professional income is exempt (section 403(3)).
• Instalments (section 408): 15% by 15 June, 45% by 15 September, 75% by 15 December, 100% by 15 March; presumptive taxpayers pay the whole by 15 March.
• Failure attracts interest for default in payment (section 424 [section 234B]) and for deferment of instalments (section 425 [section 234C]). Interest for late filing of the return is under section 423 [section 234A].

3. Collection and recovery: Chapter XIX-D [Chapter XVII-D]

• Notice of demand (section 289 [section 156]) issued when tax, interest or penalty is payable under an order.
• The amount must be paid within thirty days of service, or a shorter period with the Joint Commissioner’s approval if allowing thirty days would be detrimental to revenue (section 411 [section 220]). If not paid, the assessee is in default and pays simple interest; a penalty up to the amount of arrears may be levied after hearing (section 412 [section 221]). The Assessing Officer may stay the demand during an appeal.
• Tax Recovery Officer (section 413 [section 222]): the TRO draws up a certificate of arrears and recovers by attachment and sale of movable and immovable property, arrest and detention of the defaulter in prison, and appointment of a receiver. Jurisdiction of the TRO is in section 414 [section 223]; time for payment and stay in section 415 [section 225].
• Other modes (section 416 [section 226]), available with or without a certificate: deduction from salary; garnishee notice to any person who owes or holds money for the assessee (a bank, a debtor), requiring payment to the Government; and distraint and sale of movables.
• Recovery through State Governments (section 417 [section 227]) and through foreign governments under agreements (section 418 [section 228A]).
• Persons not domiciled in India who earn income here may be required to give an undertaking or clearance before leaving India (section 420 [section 230]).

4. Refunds: Chapter XX, sections 431 to 438 [sections 237 to 245]

• Any person who has paid tax in excess of what he is properly chargeable with is entitled to a refund of the excess (section 431 [section 237]).
• Where income of one person is included in another’s, the other person claims the refund (section 432 [section 238]).
• The claim is made by furnishing the return (section 433 [section 239]).
• Refund resulting from an order in appeal or other proceeding is granted without a claim (section 435 [section 240]).
• The correctness of the assessment cannot be questioned in a refund claim (section 436 [section 242]).
• Interest on refunds at 0.5% per month or part of a month (section 437 [section 244A]).
• Refunds may be set off against any outstanding demand after notice (section 438 [section 245]).

5. Appeals and revision: Chapter XVIII

• First appeal to the Joint Commissioner (Appeals) or the Commissioner (Appeals) against assessment, penalty, rectification and other orders (sections 356 and 357 [sections 246 and 246A]), in the prescribed form with fee (section 358 [section 249]). The appellate authority hears the parties (section 359 [section 250]) and may confirm, reduce, enhance or annul the assessment or penalty (section 360 [section 251]).
• Income Tax Appellate Tribunal (section 361 [section 252]): judicial and accountant members. Appeal lies against orders of the Commissioner (Appeals) and certain orders of the Commissioner, including revision orders (section 362 [section 253]). The Tribunal is the final fact-finding authority (section 363 [section 254]).
• High Court (section 365 [section 260A]): appeal from the Tribunal only if the case involves a substantial question of law, within 120 days; heard by at least two judges (section 366 [section 260B]).
• Supreme Court (section 367 [section 261]) on a High Court judgment certified as fit for appeal, or by special leave under Article 136.
• Revision against the assessee (section 377 [section 263]): the Commissioner may revise an order of the Assessing Officer that is erroneous in so far as it is prejudicial to the interests of the revenue, after hearing the assessee. Both conditions must exist.
• Revision in favour of the assessee (section 378 [section 264]): on application or on his own motion (within one year), the Commissioner may pass any order not prejudicial to the assessee.
• Alternative dispute resolution: Dispute Resolution Committees (section 379 [section 245MA]) and the Board for Advance Rulings (sections 380 to 389 [sections 245N to 245W]).

6. Penalties: Chapter XXI [Chapter XXI]

• Under-reporting and misreporting (section 439 [section 270A]): penalty of 50% of the tax on under-reported income (section 439(9)), and 200% where it results from misreporting, such as misrepresentation or suppression of facts, failure to record investments, false entries, or unrecorded receipts (section 439(10) and (11)). Bona fide explanations with full disclosure are excluded (section 439(8)).
• Immunity from penalty and prosecution on paying the tax and not appealing, in cases other than misreporting (section 440 [section 270AA]).
• Specific penalties: failure to get accounts audited (section 446 [section 271B]), failure to deduct or collect tax (sections 448 and 449 [sections 271C and 271CA]), cash loans and receipts in breach of sections 185 to 188 (sections 450 to 453 [sections 271D, 271DA, 271DB, 271E]), and others.
• A penalty cannot be imposed without a reasonable opportunity of being heard (section 471 [section 274]), and is subject to the time limits in section 472 [section 275].

7. Offences and prosecution: Chapter XXII

• Wilful attempt to evade tax (section 478 [section 276C]): rigorous imprisonment from six months to seven years with fine where the amount exceeds twenty-five lakh rupees; three months to two years in other cases.
• Wilful failure to file returns (section 479 [section 276CC]) with similar graded punishment.
• Failure to pay TDS or TCS to the Government (sections 476 and 477 [sections 276B and 276BB]); false statement in verification (section 482 [section 277]); abetment (section 484 [section 278]); enhanced punishment for second offences (section 485 [section 278A]).
• Offences by companies and HUFs (sections 487 and 488 [sections 278B and 278C]); presumption of culpable mental state (section 490 [section 278E]); prosecution only with sanction of the Commissioner (section 491 [section 279]); Special Courts (section 495 [section 280A]).

How this is examined

January 2026 (100-mark paper) Q. 2: explain the provisions relating to deduction of tax at source. January 2026 (80-mark paper) Q. 2(b) and February 2025 Q. 2(b): note on recovery of income tax. February 2025 Q. 4(b): note on refund of tax. Appeals, revision, offences and penalties are named in the syllabus and appear as short notes.

For TDS, follow section 1 and end with the consequences of default. For recovery, give the notice of demand, the thirty-day rule, default and interest, the TRO certificate and its modes, and the garnishee notice under section 416. Give the 1961 section in brackets throughout.