CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 198 — Tax Deducted is Income Received (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. A foundational computation rule.
Finance Act, 2026: No amendment.
Mechanism: TDS is deemed to be income received for computing the recipient's income (so the income is taxed gross), with credit allowed under section 199; subject to the stated exceptions.
Litigation profile: Negligible as an independent provision — the candour rule applies.
A. SECTION COMMENTARY
Section 198 provides that all sums deducted in accordance with the foregoing provisions of the Chapter shall, for the purpose of computing the income of an assessee, be deemed to be income received. The effect is to require the recipient to be assessed on the gross amount of his income — the sum actually received plus the tax deducted at source from it — and not merely on the net amount that reached his hands. The deducted tax is then given to him as a credit against his assessed liability under section 199.
Gross-up for assessment, credit on the other side
Section 198 and section 199 are two halves of the same idea: the income is taxed gross (section 198 deems the TDS to be income received) and the TDS is credited as tax paid (section 199). Without section 198 the recipient could contend that only the net receipt was his income; the deeming ensures the charge falls on the whole income while the credit ensures there is no double taxation. The section carries exceptions (for instance, certain tax paid under section 192(1A) on non-monetary perquisites borne by the employer is not deemed income received in the employee's hands).
A foundational machinery rule — candour
Section 198 is a foundational computation rule and is rarely the subject of independent litigation; the contests are about the underlying income or the credit, not the gross-up. In candour, there is no separate body of section 198 merits authority; the rule is applied with section 199 and the general scheme.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
198. All sums deducted in accordance with the foregoing provisions of this Chapter and income-tax paid outside India, by way of deduction, in respect of which an assessee is allowed a credit against the tax payable under this Act, shall, for the purpose of computing the income of an assessee, be deemed to be income received :
Provided that the sum being the tax paid, under sub-section (1A) of section 192 for the purpose of computing the income of an assessee, shall not be deemed to be income received:
Provided further that the sum deducted in accordance with the provisions of section 194N for the purpose of computing the income of an assessee, shall not be deemed to be income received.
C. AUTHORITIES
Candour rule observed: section 198 is a foundational gross-up rule, litigated (if at all) together with section 199. The statutory scheme is offered.
Principle: TDS is deemed income received (section 198) so that the recipient is assessed on the gross income, and the same TDS is allowed as a credit against the assessed tax (section 199); together they tax the income gross without double taxation, subject to the section 198 exceptions (e.g. employer-borne perquisite tax under section 192(1A)).
Use: Explains why the assessee returns the gross income and claims the TDS as a credit.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 198 — Tax Deducted is Income Received (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. A foundational computation rule.
Finance Act, 2026: No amendment.
Mechanism: TDS is deemed to be income received for computing the recipient's income (so the income is taxed gross), with credit allowed under section 199; subject to the stated exceptions.
Litigation profile: Negligible as an independent provision — the candour rule applies.
A. SECTION COMMENTARY
Section 198 provides that all sums deducted in accordance with the foregoing provisions of the Chapter shall, for the purpose of computing the income of an assessee, be deemed to be income received. The effect is to require the recipient to be assessed on the gross amount of his income — the sum actually received plus the tax deducted at source from it — and not merely on the net amount that reached his hands. The deducted tax is then given to him as a credit against his assessed liability under section 199.
Gross-up for assessment, credit on the other side
Section 198 and section 199 are two halves of the same idea: the income is taxed gross (section 198 deems the TDS to be income received) and the TDS is credited as tax paid (section 199). Without section 198 the recipient could contend that only the net receipt was his income; the deeming ensures the charge falls on the whole income while the credit ensures there is no double taxation. The section carries exceptions (for instance, certain tax paid under section 192(1A) on non-monetary perquisites borne by the employer is not deemed income received in the employee's hands).
A foundational machinery rule — candour
Section 198 is a foundational computation rule and is rarely the subject of independent litigation; the contests are about the underlying income or the credit, not the gross-up. In candour, there is no separate body of section 198 merits authority; the rule is applied with section 199 and the general scheme.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
198. All sums deducted in accordance with the foregoing provisions of this Chapter and income-tax paid outside India, by way of deduction, in respect of which an assessee is allowed a credit against the tax payable under this Act, shall, for the purpose of computing the income of an assessee, be deemed to be income received :
Provided that the sum being the tax paid, under sub-section (1A) of section 192 for the purpose of computing the income of an assessee, shall not be deemed to be income received:
Provided further that the sum deducted in accordance with the provisions of section 194N for the purpose of computing the income of an assessee, shall not be deemed to be income received.
C. AUTHORITIES
Candour rule observed: section 198 is a foundational gross-up rule, litigated (if at all) together with section 199. The statutory scheme is offered.
Statutory backdrop — gross-up and credit
The section 198/199 pair
Principle: TDS is deemed income received (section 198) so that the recipient is assessed on the gross income, and the same TDS is allowed as a credit against the assessed tax (section 199); together they tax the income gross without double taxation, subject to the section 198 exceptions (e.g. employer-borne perquisite tax under section 192(1A)).
Use: Explains why the assessee returns the gross income and claims the TDS as a credit.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.