Published 19 October 2026
Deducting the tax is only half the obligation. The money then belongs to the Government and has to reach it by a fixed date, on the right challan, under the right section code. Each step has its own consequence if it is missed: interest by the month, a disallowance of the expense, a penalty equal to the tax, and in the worst case prosecution. This guide covers the deposit and those consequences. It assumes the deductor has a TAN where one is needed (see TAN, and Who Must Deduct).
Which Act governs the payment
For tax deducted on amounts paid or credited up to 31 March 2026, the duty to pay is in section 200(1) of the 1961 Act and the due dates are in rule 30 of the 1962 Rules. From 1 April 2026 the duty is in section 397(3)(a) of the 2025 Act:
“Every person responsible for deduction or collection of tax … shall pay the amount so deducted or collected … the credit of the Central Government, in such time as may be prescribed;”
The time is prescribed by rule 218 of the Income-tax Rules, 2026. Tax deducted in March 2026 belongs to the 1961 Act even though it is paid in April 2026, and the e-filing portal’s challan manual places “payment related to March’2026” under the 1961 Act option.
What to have ready before paying
- The TAN, or for Form No. 141 transactions the deductor’s PAN.
- The section code for each deduction, from the books. Under the 2025 Act this is a section 392 or section 393 table entry, not a 1961 section number.
- Deductee type and residential status. The portal manual says a separate challan is needed for each combination of deductee type (company or non-company) and residential status.
- Tax, surcharge and cess for each code, and separately any interest, fee or penalty being paid with the challan.
- A payment mode. Internet banking, debit or credit card, UPI or NEFT/RTGS, as the portal offers.
Due dates for depositing tax
| Deductor and payment | 1961 Act (rule 30, 1962 Rules) | 2025 Act (rule 218, 2026 Rules) |
|---|---|---|
| Office of the Government, paid without a challan | Same day | Same day |
| Office of the Government, paid with a challan | 7 days from end of the month of deduction | 7 days from end of the month of deduction |
| Others: amount credited or paid in March | 30 April | 30 April |
| Others: any other month | 7 days from end of the month of deduction | 7 days from end of the month of deduction |
| Property purchase, rent by individuals and HUFs, contract and professional payments by individuals and HUFs, virtual digital assets | 30 days from end of the month, with Form 26QB, 26QC, 26QD or 26QE (rule 30(2A) to (2D)) | 30 days from end of the month, with Form No. 141 (rule 218(3)) |
Quarterly payment. In special cases the Assessing Officer, with the Joint Commissioner’s prior approval, may allow quarterly payment, due on 7 July, 7 October, 7 January and 30 April (rule 218(4)). Under the 2025 Act this covers salary under section 392(1) and section 393(1) [Table: Sl. Nos. 1(i), 1(ii), 5(ii) and 5(iii)], which are insurance commission, other commission or brokerage, and interest other than on securities. Rule 30(3) of the 1962 Rules covered sections 192, 194A, 194D and 194H.
The challan: ITNS 281 and ITNS 281N
Payment is made through the e-Pay Tax service on the e-filing portal. The portal’s user manual on challan creation through a TAN login describes:
- ITNS 281, under the Income-tax Act, 1961, for TDS and TCS for AY 2026-27 and earlier. One section code per challan.
- ITNS 281N, under the Income-tax Act, 2025, for tax year 2026-27 onwards. The challan is framed by tax year, not assessment year. Several section codes may be entered on one challan “subject to a maximum of 20 codes”. Interest, the fee under section 427 and penalty go in a separate “Details of Other Payments” block.
Both use major head 0020 (company) or 0021 (others) and minor head 200 (“TDS/TCS Payable by Taxpayer”). An outstanding TDS demand is paid under minor head 400.
Portal steps. As set out in that manual:
- Log in with the TAN, choose e-File, then e-Pay Tax, and select the Act.
- Choose New Payment and the Pay TDS/TCS tile.
- Select the deductee type and residential status.
- Enter the section-wise tax, surcharge and cess, and any interest, fee or penalty.
- Verify the break-up, choose the payment mode, preview, and pay.
After payment the portal shows a challan receipt and records it under Payment History.
Mandatory electronic payment. Rule 218(10) read with rule 333 of the 2026 Rules requires electronic payment by a company and by any person to whom section 63 (tax audit) applies. The challan identification number, made up of the bank branch’s BSR code, the date of deposit and the challan serial number (rule 215(6)), is what links the payment to the quarterly statement. An error in it is a common cause of a short-payment default.
For Form No. 141 transactions, the FAQ on that form says payment “is made electronically along with submission of the Form No. 141”, and a challan identification number is generated against the statement’s acknowledgement number.
Interest for late deduction and late payment
Section 398(3)(a) of the 2025 Act carries over section 201(1A) of the 1961 Act word for word in substance:
| Default | Rate | Period |
|---|---|---|
| Not deducted, or deducted late | 1 per cent a month or part of a month | From the date tax was deductible to the date it is deducted |
| Deducted but paid late | 1.5 per cent a month or part of a month | From the date of deduction to the date of payment |
“Part of a month” counts as a full month, so a payment one day late carries a full month’s interest. The interest “shall be paid before furnishing the statement” (section 398(3)(b)). Unpaid tax and interest are a charge on all the deductor’s assets (section 398(4)).
Failure to deduct: the deductor as “assessee in default”
Under section 398(1), formerly section 201(1), a person who does not deduct, or deducts and does not pay, is “deemed to be an assessee in default” for that tax. Section 398(2) gives the escape route: the deductor is not in default if the payee has filed a return, included the amount in it and paid the tax on it, and the deductor furnishes an accountant’s certificate. That certificate is now Form No. 149 under rule 221, the counterpart of Form 26A. Even then, interest at 1 per cent runs from the date the tax was deductible to the date of the payee’s return (section 398(3)©).
This statutory route grew out of the Supreme Court’s decision in Hindustan Coca Cola Beverage (P) Ltd v CIT (2007) 293 ITR 226 (SC). The company had deducted tax on warehousing charges at the 2 per cent contract rate. The Assessing Officer treated the charges as rent, which carried a 20 per cent rate, and held the company in default for the shortfall. The recipient had already paid tax on the income and had even received a refund. Relying on CBDT Circular No. 275/201/95-IT(B) dated 29 January 1997, the Court held that the tax could not be recovered again from the deductor. The Court also recorded that the circular “will not alter the liability to charge interest under Section 201 (1A) … till the date of payment of taxes by the deductee-assessee”. The interest stays; only the tax goes.
Time limit. No order deeming a person in default for failure to deduct may be made after six years from the end of the tax year in which the tax was deductible, or two years from the end of the tax year in which a correction statement is delivered, whichever is later (section 398(5)). Section 201(3) of the 1961 Act, as amended from 1 April 2025, had the same six-year and two-year structure.
The disallowance
A deduction failure also raises the deductor’s own income. Section 35 of the 2025 Act, the counterpart of section 40(a) of the 1961 Act, disallows:
- 30 per cent of any sum payable to a resident where tax was not deducted, or was deducted but not paid by the return due date under section 263(1) (section 35(b)(i), formerly section 40(a)(ia));
- the whole of interest, royalty, fees for technical services or other sum payable outside India or to a non-resident, on the same conditions (section 35(b)(ii), formerly section 40(a)(i));
- salary payable outside India or to a non-resident without deduction or payment (section 35©, formerly section 40(a)(iii)).
The disallowed amount is allowed in the year the tax is finally paid. Where section 398(2) applies, the tax is deemed deducted and paid on the date the payee files his return.
Penalty and prosecution
- Penalty for failure to deduct. Section 448 allows a penalty equal to the tax not deducted (formerly section 271C). Section 398(7) bars a penalty under section 412 unless the failure was “without good and sufficient reasons”, and section 470 gives a reasonable-cause defence to section 448.
- Prosecution for non-payment of tax already deducted. Section 476, substituted by the Finance Act, 2026 from 1 April 2026, provides simple imprisonment of up to two years where the tax exceeds Rs 50 lakh, up to six months where it exceeds Rs 10 lakh, and a fine in any other case. Section 276B of the 1961 Act provided rigorous imprisonment of three months to seven years. Under both Acts the section does not apply if the tax was paid by the due date for the quarterly statement (section 476(2); proviso to section 276B).
What can be changed after payment
A challan cannot be cancelled once paid. A wrong section code, assessment or tax year, minor head or amount allocation is corrected through the challan correction facility. TRACES announced in October 2026 that “Challan correction for TY 2026-27 is now available on the TRACES portal”, with corrections for financial years up to 2025-26 handled under its “Compliance under the Income-tax Act, 1961” area. Mismatches between a challan and a statement are dealt with in Correction Statements and TRACES Defaults.
Summary
- Deduct at the earlier of credit and payment, at the rate in the relevant table entry.
- Deposit by the 7th of the following month, or by 30 April for March, or within 30 days through Form No. 141 for the PAN-based transactions.
- Use ITNS 281 for amounts up to March 2026 and ITNS 281N from tax year 2026-27, with one challan for each deductee type and residential status.
- Where deduction or payment is late, compute interest under section 398(3) and pay it before filing the quarterly statement.
- Where tax was not deducted but the payee has paid it, obtain an accountant’s certificate in Form No. 149, and pay interest up to the date of the payee’s return.
- Track any section 35 disallowance and claim it back in the year the tax is paid.
The next guide, Quarterly TDS and TCS Statements, covers the statements that report these deposits.