Compliance and reporting
[Section-397 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 397(1) of Income Tax Act 2025
397(1)(a) Every person deducting or collecting tax shall apply to the Assessing Officer for allotment of a tax deduction and collection account number within such time as prescribed, if that person has not already been allotted such number;
397(1)(b) where a tax deduction and collection account number has been allotted to a person, such person shall quote such number in all challans, statements, certificates, and in all documents pertaining to such transactions as prescribed in the interests of revenue;
397(1)(c) the provisions of clause (a) shall not apply––
- (i) to a person required to deduct tax under provisions of section 393(1) [Table: Sl. No. 2(i), 3(i) and 5(ii)];
- (ii) to a person referred to in section 393(4) [Table: Sl. No. 12.C(a)]; and
- (iii) a person notified in this regard by the Central Government.
Section 397(2) of Income Tax Act 2025
397(2)(a) Irrespective of anything contained in any other provision of this Act, every person, entitled to receive any amount on which tax is deductible or, paying any amount on which tax is collectible, shall furnish his valid Permanent Account Number to the person responsible for deducting or collecting tax;
397(2)(b) in case of failure to comply with provisions of clause (a)—
- (i) tax be deducted at the higher of the following rates—
- (A) at the rate specified in the relevant provision of this Act; or
- (B) at the rate or rates in force; or
- (C) at the rate of 5% where tax is required to be deducted under section 393(1) [Table: Sl. No. 8(ii) or 8(v)]; or 20% in any other case;
- (ii) tax shall be collected at the higher of the following rates, not exceeding 20%––
- (A) at twice the rate specified in the relevant provision of this Act; or
- (B) at the rate of 5%;
397(2)(c) the provisions of clause (b)(i) shall not apply to a non-resident, not being a company or a foreign company in respect of—
- (i) payment of interest on long-term bonds as specified in section 393(2) (Table: Sl. No. 2, 3 and 4); and
- (ii) any other payment subject to such conditions, as prescribed;
397(2)(d) the provisions of clause (b)(ii) shall not apply to a non-resident who does not have permanent establishment in India (which includes a fixed place of business through which the business of the enterprise is wholly or partly carried on);
397(2)(e) in respect of rent specified in section 393(1) [Table: Sl. No. 2(i)], if the tax is required to be deducted as per clause (b)(i), then such deduction shall not exceed the amount of rent payable for the last month of the tax year or the last month of the tenancy, as the case may be;
397(2)(f) if a person does not furnish his Permanent Account Number in—
- (i) any declaration under section 393(6) or 394(2), then such declaration becomes invalid;
- (ii) any application made under provisions as per section 395(1) or (3), then no certificate under such provisions shall be granted;
397(2)(g) if any declaration becomes invalid under clause (f)(i), then the deductor or collector shall deduct or collect tax as per the provisions of clause (b)(i) or (ii) as the case may be;
397(2)(h) the deductee or collectee shall furnish his Permanent Account Number to the deductor or collector, as the case may be, and the same shall be indicated in all bills, vouchers, correspondence and other documents which are sent to each other.
Section 397(3) of Income Tax Act 2025
397(3)(a) Every person responsible for deduction or collection of tax or employer referred to in section 392(2)(a) shall pay the amount so deducted or collected or determined as per section 392(2)(b) to the credit of the Central Government, in such time as prescribed;
397(3)(b) every person responsible for deduction or collection of tax or employer referred to in section 392(2)(a), after paying the tax to the credit of the Central Government as per clause (a), shall deliver or cause to be delivered to the prescribed authority or the person authorised by such authority, a statement in such form, verified in such manner, giving such particulars and within such time, as prescribed;
397(3)(c) every prescribed authority as per clause (b), shall deliver a statement in such form and manner as prescribed, to the buyer or licensor or lessee referred to in section 394(1) (Table: Sl. Nos. 1 to 4 or 9);
397(3)(d) every person responsible for paying to a non-resident, not being a company or a foreign company, any sum, whether or not chargeable under this Act, shall furnish the information relating to payment of such sum, in such form and manner as prescribed;
397(3)(e) in case of an office of the Government,—
- (i) where the sum deducted under this Chapter or tax referred to in section 392(2)(a); or
- (ii) where the amount collected under section 394(1) (Table: Sl. Nos. 1to 5 or 9),
has been paid to the credit of the Central Government without the production of a challan, the Pay and Accounts Officer or the Treasury Officer or the Cheque Drawing and Disbursing Officer or any other person, who is responsible for crediting such sum or tax to the credit of the Central Government, shall deliver or cause to be delivered to the prescribed authority or the person authorised by such authority, a statement in such form, verified in such manner, giving such particulars and within such time, as prescribed;
397(3)(f) every person referred to in clause (b) or (e) may correct any discrepancy or update the information furnished, in the statement delivered under such clauses, by filing a correction statement in such form and verified in such manner as prescribed, within of six years from the end of the tax year in which such statement is required to be delivered;
397(3)(g) (i) any banking company or co-operative society or public company referred to in note 1 to section 393(1) (Table: Sl. No. 5) responsible for paying to a resident any income by way of interest, less than the amount mentioned in section 393(1) [Table: Sl. No. 5(ii) and (iii)], shall deliver or cause to be delivered to the prescribed authority or the person authorised by such authority, a statement in such form, verified in such manner, giving such particulars and within such time, as prescribed;
- (ii) the Board may require any person, other than the person mentioned in sub-clause (i), responsible for paying to a resident any income which is liable for deduction of tax at source under this Chapter to deliver or cause to be delivered to the prescribed authority or the person authorised by such authority, a statement in such form, verified in such manner, giving such particulars and within such time, as prescribed;
- (iii) the person referred to in sub-clause (i) or sub-clause (ii) may deliver a correction statement to correct any discrepancy or update the information furnished, in the statement delivered under sub-clause (i) or sub-clause (ii) in such form and manner of verification, as prescribed;
397(3)(h) Any person responsible for collecting the tax who fails to collect the tax as per the provisions of section 394, shall, irrespective of such failure, be liable to pay the tax to the credit of the Central Government as per the provisions of clause (a).
FAQs on Section 397 of Income Tax Act 2025
Who is required to apply for a Tax Deduction and Collection Account Number (TDCAN)?
Every person deducting or collecting tax must apply to the Assessing Officer for allotment of a TDCAN within the prescribed time unless already allotted.
When is a person not required to apply for a TDCAN?
Application for TDCAN is not required for:
- Persons deducting tax under section 393(1) Table Sl. No. 2(i), 3(i), and 5(ii);
- Persons referred to in section 393(4) Table Sl. No. 12.C(a);
- Persons notified by the Central Government.
Where should the TDCAN be quoted once allotted?
Once allotted, the TDCAN must be quoted in all challans, statements, certificates, and documents pertaining to prescribed transactions.
Is furnishing a Permanent Account Number (PAN) mandatory for recipients or payers?
Yes, every person entitled to receive or pay any amount on which tax is deductible or collectible must furnish their valid PAN to the deductor or collector.
What are the consequences of not furnishing PAN?
Failure to furnish PAN results in:
- Deduction of tax at the higher of the specified rate, rate in force, 5% (in specified cases), or 20% in all other cases;
- Collection of tax at higher rates not exceeding 20%, including twice the specified rate or at 5%.
Are there exceptions to higher tax deduction for non-residents without PAN?
Yes, higher deduction does not apply to non-residents (not being companies or foreign companies) for:
- Interest on long-term bonds (section 393(2), Table Sl. No. 2, 3, and 4);
- Any other payments as may be prescribed.
Do higher tax collection provisions apply to all non-residents without PAN?
No, higher tax collection does not apply to non-residents who do not have a permanent establishment in India.
Is there a cap on TDS on rent where PAN is not provided?
Yes, the TDS on rent in such cases cannot exceed the rent payable for the last month of the tax year or of the tenancy, whichever is applicable.
What happens if a declaration is submitted without PAN?
Any declaration under section 393(6) or 394(2) without PAN is invalid. Similarly, any application under section 395(1) or (3) without PAN will not be granted a certificate.
What is the obligation of the deductor or collector when the declaration is invalid?
They must deduct or collect tax according to the applicable higher rates mentioned in clause (b)(i) or (ii).
What documentation must mention PAN between the deductor and deductee?
PAN must be mentioned in all bills, vouchers, correspondence, and documents exchanged between the deductor and deductee.
What is the responsibility of a person who has deducted or collected tax?
They must pay the deducted or collected amount (or amount determined by the employer under section 392(2)(b)) to the Central Government within the prescribed time.
Is there a requirement to file a statement after paying the tax?
Yes, a statement in the prescribed form and manner must be delivered to the prescribed authority after tax payment.
What must the prescribed authority do with the statement?
They must deliver a statement to the buyer, licensor, or lessee referred to in section 394(1) (Table Sl. Nos. 1 to 4 or 9).
What is the reporting obligation for payments to non-residents?
Any person paying any sum to a non-resident (including sums not chargeable under this Act) must furnish information in the prescribed form and manner.
How are Government offices treated in relation to TDS/TCS without challan?
If Government officers pay taxes without a challan, they must still furnish a statement to the prescribed authority in the prescribed manner and time.
Can the filed statements be corrected later?
Yes, any discrepancy or update in statements under clauses (b) or (e) can be corrected by filing a correction statement within six years from the end of the tax year.
What are the reporting obligations of certain banks and co-operative societies?
Such entities paying interest below the threshold under section 393(1) Table Sl. No. 5(ii) or (iii) to residents must file statements in the prescribed manner and time.
Can the Board require other persons to file statements?
Yes, the Board can mandate any other person responsible for TDS to file similar statements.
Can corrections be made to these statements?
Yes, corrections can be made through correction statements as prescribed in form and verification.
Who bears the tax liability if the collector fails to collect TCS?
The person responsible for collecting the tax must still pay the amount to the Central Government, even if collection failed.
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