CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 205 — Bar Against Direct Demand on the Assessee (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. The deductee's principal statutory shield.
Finance Act, 2026: No amendment.
Mechanism: Where tax has been deducted at source, the assessee cannot be called upon to pay that tax again — even if the deductor failed to deposit it; the Revenue must recover from the deductor.
Litigation profile: Settled on principle. The deductee is protected against the deductor's non-deposit (Yashpal Sahni; read with section 199).
A. SECTION COMMENTARY
Section 205 is the deductee's shield. It provides that where tax is deductible at source under the Chapter, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income. Once tax has been deducted, the liability to pay it over to the Government is the deductor's; the deductee, having suffered the deduction, cannot be asked to pay the same tax again — even if the deductor defaults in depositing it.
The bar operates even on the deductor's default
The provision's force is at its greatest precisely where the deductor has deducted but not deposited the tax. In that situation the deductee has done nothing wrong — tax was taken out of his income — and section 205 bars any direct demand on him for that tax. The Revenue's remedy lies against the defaulting deductor (under section 201 and, in an aggravated case, section 276B), not against the deductee. The courts have consistently restrained coercive recovery from, and the denial of credit to, deductees on account of a Form 26AS mismatch caused by the deductor's non-deposit, treating section 205 as a substantive protection that the credit rules (section 199) must honour.
Scope — deduction must have occurred
The bar applies 'to the extent to which tax has been deducted'. It protects the deductee where deduction has in fact taken place; where no deduction was made at all, section 202 preserves the Revenue's right to recover the tax from the recipient by direct assessment (the tax being collected once). Section 205 thus complements, and is reconciled with, sections 199, 201 and 202.
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.
205. Where tax is deductible at the source under the foregoing provisions of this Chapter, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income.
C. AUTHORITIES
The authorities establish that the deductee cannot be made to pay tax already deducted, even on the deductor's default. The leading decision is set out. Citations are web-verified.
Cluster 1 — Deductee not liable for the deductor's default
Yashpal Sahni v. ACIT (2007) 293 ITR 539 (Bom)
Issue: Whether an assessee whose employer deducted tax from his salary but failed to deposit it can be required to pay that tax to the Revenue.
Held: No. Section 205 bars a direct demand on the assessee to the extent tax was deducted at source; the assessee cannot be made to pay again because of the employer's failure to deposit, and the Revenue must recover from the deductor.
Significance: The leading authority on the section 205 bar — the deductee is protected against the deductor's default.
Form 26AS mismatch — no coercive recovery; credit to be allowed
Principle: Where credit is withheld only because the deductor did not deposit/report the tax (a Form 26AS mismatch), recovery cannot be enforced coercively against the deductee and credit is to be allowed, consistent with section 205 and the CBDT's own instructions.
Use: The modern, 26AS-era application of the section 205 protection (read with section 199).
Cluster 2 — Limits and reconciliation (cognate)
Deduction must have occurred; section 202 preserves recovery where it did not
Principle: Section 205 protects the deductee only to the extent tax was actually deducted; where no deduction was made, section 202 preserves the Revenue's right to recover the tax from the recipient by direct assessment (collected once).
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 205 — Bar Against Direct Demand on the Assessee (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. The deductee's principal statutory shield.
Finance Act, 2026: No amendment.
Mechanism: Where tax has been deducted at source, the assessee cannot be called upon to pay that tax again — even if the deductor failed to deposit it; the Revenue must recover from the deductor.
Litigation profile: Settled on principle. The deductee is protected against the deductor's non-deposit (Yashpal Sahni; read with section 199).
A. SECTION COMMENTARY
Section 205 is the deductee's shield. It provides that where tax is deductible at source under the Chapter, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income. Once tax has been deducted, the liability to pay it over to the Government is the deductor's; the deductee, having suffered the deduction, cannot be asked to pay the same tax again — even if the deductor defaults in depositing it.
The bar operates even on the deductor's default
The provision's force is at its greatest precisely where the deductor has deducted but not deposited the tax. In that situation the deductee has done nothing wrong — tax was taken out of his income — and section 205 bars any direct demand on him for that tax. The Revenue's remedy lies against the defaulting deductor (under section 201 and, in an aggravated case, section 276B), not against the deductee. The courts have consistently restrained coercive recovery from, and the denial of credit to, deductees on account of a Form 26AS mismatch caused by the deductor's non-deposit, treating section 205 as a substantive protection that the credit rules (section 199) must honour.
Scope — deduction must have occurred
The bar applies 'to the extent to which tax has been deducted'. It protects the deductee where deduction has in fact taken place; where no deduction was made at all, section 202 preserves the Revenue's right to recover the tax from the recipient by direct assessment (the tax being collected once). Section 205 thus complements, and is reconciled with, sections 199, 201 and 202.
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.
205. Where tax is deductible at the source under the foregoing provisions of this Chapter, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income.
C. AUTHORITIES
The authorities establish that the deductee cannot be made to pay tax already deducted, even on the deductor's default. The leading decision is set out. Citations are web-verified.
Cluster 1 — Deductee not liable for the deductor's default
Yashpal Sahni v. ACIT (2007) 293 ITR 539 (Bom)
Issue: Whether an assessee whose employer deducted tax from his salary but failed to deposit it can be required to pay that tax to the Revenue.
Held: No. Section 205 bars a direct demand on the assessee to the extent tax was deducted at source; the assessee cannot be made to pay again because of the employer's failure to deposit, and the Revenue must recover from the deductor.
Significance: The leading authority on the section 205 bar — the deductee is protected against the deductor's default.
Form 26AS mismatch — no coercive recovery; credit to be allowed
Principle: Where credit is withheld only because the deductor did not deposit/report the tax (a Form 26AS mismatch), recovery cannot be enforced coercively against the deductee and credit is to be allowed, consistent with section 205 and the CBDT's own instructions.
Use: The modern, 26AS-era application of the section 205 protection (read with section 199).
Cluster 2 — Limits and reconciliation (cognate)
Deduction must have occurred; section 202 preserves recovery where it did not
Principle: Section 205 protects the deductee only to the extent tax was actually deducted; where no deduction was made, section 202 preserves the Revenue's right to recover the tax from the recipient by direct assessment (collected once).
Use: Reconciles section 205 with sections 201, 202 and 199.
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.