Consequences of failure to deduct or pay
Section 201 of the Income-tax Act, 1961 deals with consequences of failure to deduct or pay. Where any person, including the principal officer of a company,— (a) who is required to deduct any sum in accordance with the provisions of this Act; The Act came into force on 01 Apr 1962. Repealed by the Income-tax Act, 2025 with effect from 1 April 2026, but conduct before that date is still charged, tried and appealed under it.
(1) Where any person, including the principal officer of a company,—
(a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax:
Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on the sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax if such payee—
(i) has furnished his return of income under section 139;
(ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed:
Provided further that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax. (1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,—
(i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200:
Provided that in case any person, including the principal officer of a company fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on the sum credited to the account of a payee but is not deemed to be an assessee in default under the first proviso to sub-section (1), the interest under clause (i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such payee:
Provided further that where an order is made by the Assessing Officer for the default under sub-section (1), the interest shall be paid by the person in accordance with such order.
(2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1).
(3) No order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from [any person, at any time after the expiry of six years] from the end of the financial year in which payment is made or credit is given or two years from the end of the financial year in which the correction statement is delivered under the [first] proviso to sub-section (3) of section 200, whichever is later.
(4) The provisions of sub-clause (ii) of sub-section (3) of section 153 and of Explanation 1 to section 153 shall, so far as may, apply to the time limit prescribed in sub-section (3).
Explanation.—For the purposes of this section, the expression "accountant" shall have the meaning assigned to it in the Explanation to sub-section (2) of section 288.
Section 201, The Income-tax Act, 1961 (Act 43 of 1961).
Now in the Income-tax Act
INCOME-TAX-ACT-2025 398 Consequences of failure to deduct or pay or, collect or pay Official correspondence
Measured by comparing the text of the two provisions, not taken from an official correspondence table — there is no machine-readable one. See both texts side by side before relying on it.
Both regimes are live. The repealed enactment still governs what happened while it was in force. We never redirect one to the other.
Cross-references
Extracted from the operative text of the enactments themselves. Every destination below exists in our corpus.
This section refers to
Referred to by 26
- Finance Act s. 26 Amendment of section 201
- Finance Act s. 79 Amendment of section 201
- Finance Act s. 74 Amendment of section 201
- Finance Act s. 89 Amendment of section 201
- Finance Act s. 42 Amendment of section 201
- Finance Act s. 59 Amendment of section 201
- Finance Act s. 46 Amendment of section 201
- Finance Act s. 66 Amendment of section 201
- Finance Act s. 42 Amendment of section 201
- Finance Act s. 79 Amendment of section 201
- Finance Act s. 62 Amendment of section 201
- Finance Act, 2019 (No. 2) s. 50 Amendment of section 201
and 14 more
Related judgements & precedents
These are some judgments that construed this section, and hold precedence value. They hold authority on how to read, interpret and use this section.
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Pilcom vs C. I. T West Bengal-vii
Court's Decision & Legal Precedent
Where non-resident sports associations participate in games or sports played in India and receive guarantee money or other payments in relation to such participation, such income is deemed to accrue or arise in India under Section 9(1) of the Income Tax Act, 1961, and the payer is obliged to deduct tax at source at the rate specified in Section 115BBA and Section 194E, regardless of where the payment is made or whether a Double Taxation Avoidance Agreement exists, as TDS provisions are machinery provisions forming an integrated code with charging provisions and DTAA benefits are available to the recipient, not the payer.
On this section: Liability of payer to pay tax not deducted at source
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Commr. of Income Tax, Delhi vs Alcatel South Asia Pacific
Court's Decision & Legal Precedent
Tax Deduction at Source (TDS) provisions in Chapter XVII-B of the Income Tax Act, 1961, which are machinery provisions enabling collection and recovery of tax, are NOT independent of the charging provisions that determine assessability of income in the hands of the employee. Instead, TDS provisions form an integrated code with the charging and computation provisions. Consequently, when any income falls under the head "Salaries" and is deemed to accrue or arise in India under Section 9(1)(ii) (i.e., earned in India through services rendered in India), the TDS obligation under Section 192(1) applies to any person responsible for paying such income, regardless of whether the payment is made inside or outside India. The obligation is to deduct tax on the basis of the estimated income of the employee under the head "Salaries" for that financial year. When multiple employers pay salary to the same employee for services rendered in India, all such payments are part of the income chargeable under head "Salaries" in India, and TDS applies. Section 192(1) must be read conjunctively with Section 9(1)(ii) and the Explanation thereto.
On this section: Renders person/principal officer/company as assessee-in-default if they fail to deduct or pay TDS as required; Proviso mandates that no penalty under Section 221 unless AO satisfied there is no good and sufficient reason for non-deduction/non-payment
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Commissioner of Income Tax, International Taxation-3 vs Formula One World Championship Ltd.
Court's Decision & Legal Precedent
A non-resident foreign enterprise has a permanent establishment in India under Article 5 of the Double Taxation Avoidance Agreement when it has exclusive access and control over a fixed place of business through which it carries on business activities, even if such access is temporary and recurring annually, provided the arrangement is substantial and the enterprise exercises dominant control over the location and activities conducted therein. The substance of the transaction and the actual control exercised by the enterprise over the location and business activities are determinative factors, not merely the formal designation of parties or the temporary nature of the presence.
On this section: Interest payable for failure to deduct tax at source
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Commr. of Income Tax-iii, Gujarat vs Patel Gruh Nirman Flat Yojana 5
Court's Decision & Legal Precedent
A promotional scheme offering prizes by lucky draw to incentivize timely payment of installments in a real estate transaction does not constitute a lottery business requiring tax deduction at source under Section 194B of the Income Tax Act, 1961, because: (1) there is no independent consideration paid for participation in the lucky draw; (2) participation is automatic upon becoming a plot purchaser; (3) the scheme lacks the essential elements of a lottery (separate ticket purchase, risk of loss, independent consideration); and (4) the scheme is a business promotion activity, not a lottery business. Therefore, tax deduction at source is not applicable to prizes awarded under such promotional schemes.
On this section: Provides for orders against persons who fail to deduct tax at source. The assessing officer issued an order under this section.
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Commr. of Income Tax-iii, Gujarat vs Patel Gruh Nirman Flat Yojana 5
Court's Decision & Legal Precedent
A promotional scheme offering prizes through lucky draw to customers who make timely payments on a primary transaction (plot purchase) does not constitute a lottery requiring Tax Deduction at Source under Section 194B of Income Tax Act 1961, when: (a) there is no separate or independent consideration paid specifically to participate in the draw beyond the primary transaction consideration; (b) participants do not pay to try their luck as the primary purpose but become eligible incidentally through the primary purchase; (c) the scheme is genuinely designed to promote the primary business activity and not as an independent lottery business; and (d) participants do not stand to lose consideration specifically paid for the draw opportunity.
On this section: Provides for passing an order for non-deduction of tax at source. The Assessing Officer used this section to raise demand against the assessee for failure to deduct TDS on prizes.
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Commissioner of Income Tax Xvi vs Marubeni India P.ltd.
Court's Decision & Legal Precedent
The statutory obligation of an employer to deduct TDS under Section 192(1) on payments received by an employee from other sources or employers is triggered only after the employee furnishes details thereof under Section 192(2). Performance incentives that are variable and contingent on performance cannot be subject to advance estimation for TDS under Section 192(1), and a bona fide short deduction on such elements does not attract interest under Section 201(1A).
On this section: Levy of interest on failure to deduct or pay tax; held not applicable in cases of bona fide short deduction due to lack of predictable details.
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Commissioner of Income Tax (TDS)-2 v. Santur Builders Pvt. Ltd.
Court's Decision & Legal Precedent
DATE-VERIFIED Final Order/Judgment 19.03.2025 (order-1.pdf): Delhi HC dismissed Revenue appeal — External Development Charges paid to HUDA/DTCP are not “rent” under s.194I (DLF Homes Panchkula); AO’s 201(1)/201(1A) demand treating EDC as rent unsustainable; Revenue cannot shift to 194C mid-appeal when its case was 194I.
On this section: Teaches s.201: no assessee-in-default where wrongly assumed TDS section (194I on EDC) does not apply.
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The Commissioner of Income Tax vs Sunray Computers PVT LTD
Court's Decision & Legal Precedent
Payments made for the supply of software integrated into products in India constitute royalty income taxable under Section 9(1)(vi) of the Income Tax Act if sourced as an independent transaction.
On this section: Consequences of failure to deduct tax.
The holding above is the ratio decidendi as extracted from the judgment by eCourts India, reproduced unaltered — it is a rendering of the court's reasoning, not a substitute for its words. Read the order itself before relying on it.
Questions about Section 201
What have the courts held on Section 201 of the Income-tax Act?
Pilcom vs C. I. T West Bengal-vii (29 Apr 2020) is the leading judgment on this section among those set out below: Liability of payer to pay tax not deducted at source. Another 7 judgments on this section are set out below, 5 of them from the Supreme Court. They run from 2007 to 2025.
How do I find court cases under Section 201 of the Income-tax Act?
In judgments and charge sheets this section is written several ways, and each form finds a different set of orders. These search the full text of every order eCourtsIndia holds, best matches first: Income Tax Act 201, section 201 Income Tax Act, section 201 of the Income-tax Act. Each opens the full list of orders on eCourtsIndia, where it can be narrowed by court, year and outcome. 8 reported judgments on this section are set out on this page, beginning with Pilcom vs C. I. T West Bengal-vii (29 Apr 2020).
What should I read with Section 201 of the Income-tax Act, and has it changed?
Its own text turns on section 139 (Return of income), section 153 (Time limit for completion of assessment, reassessment and recomputation), section 192 (Salary), section 200 (Duty of person deducting tax), and on 2 further provisions, so none of them can safely be read on its own. 26 other provisions in this corpus refer back to it. For anything done on or after 1 April 2026 the provision to read is Income-tax Act, 2025, section 398 (Consequences of failure to deduct or pay or, collect or pay), which replaced it; conduct before that date is still charged, tried and appealed under this section.
When did Section 201 of the Income-tax Act come into force?
Section 201 of the Income-tax Act, cited as Income Tax Act 201, came into force on 01 Apr 1962, having been enacted on 13 Sep 1961. It is no longer in force.
Other sections of this Act
- 10. Incomes not included in total income30885 words
- 2. Definitions11419 words
- 80HHF. Deduction in respect of profits and gains from export or transfer of film software, etc7148 words
- 80-IB. Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings5474 words
- 155. Other amendments5451 words
- 139. Return of income5400 words
Source and method. Compiled from the enactments of Parliament and of the State legislatures as published on India Code, and republished together with commentary and other original matter under section 52(1)(q)(ii) of the Copyright Act, 1957. Structured, cross-referenced and maintained by eCourtsIndia. Recovered from the consolidated text published by the Income Tax Department, as amended by the Finance Act, 2026. India Code holds no record of this Act in any form. This page is not a substitute for legal advice.