Law in force from 1 April 2026: The Income-tax Act, 2025 replaced the Income-tax Act, 1961 for tax years commencing on or after 1 April 2026. Section 204 of the 1961 Act remains relevant for earlier tax years and proceedings saved under the new law. The corresponding interpretation provision is section 402 of the 2025 Act. Read the Income Tax Department's transition guidance.

Income-tax Act, 1961 | Chapter XVII | Tax deduction at source

Section 204 of the Income-tax Act, 1961: Meaning of Person Responsible for Paying

Section 204 identifies the person treated as responsible for making specified payments, credits and related disclosures under the tax deduction at source (TDS) provisions. Depending on the transaction, the responsible person may be an employer, a company and its principal officer, a payer, an authorised remittance person or a government drawing and disbursing officer.

Scope and application of Section 204

For the purposes of the preceding provisions of Chapter XVII of the 1961 Act and section 285, the expression "person responsible for paying" is assigned specific meanings. The provision identifies the responsible party; it does not independently determine whether a particular payment is taxable, whether TDS must be deducted, or the applicable deduction rate.

Persons responsible for paying under Section 204

Clause (i): Salary payments

For salary payments other than those made by the Central or a State Government, the employer is responsible. Where the employer is a company, this includes the company itself and its principal officer. The salary TDS obligation was governed by section 192 of the 1961 Act.

Clause (ii): Interest on securities

For interest on securities paid otherwise than by or on behalf of the Central or a State Government, the relevant local authority, corporation or company, including its principal officer, is the person responsible.

Clause (iia): Consideration for transfer of a foreign exchange asset by an NRI

Where a sum is payable to a non-resident Indian as consideration for transferring a foreign exchange asset that is not a short-term capital asset, the authorised person responsible for remitting the sum or crediting it to the NRI's Non-resident (External) Account is covered. The account and remittance context is governed by the Foreign Exchange Management Act, 1999 and the applicable rules.

Clause (iib): Information about payments to non-residents or foreign companies

For furnishing information relating to a payment to a non-resident other than a company, or to a foreign company, the payer is responsible, even where the sum is not chargeable to tax under the 1961 Act. If the payer is a company, the company and its principal officer are included. Reporting requirements must be considered separately from the obligation to deduct tax.

Clause (iii): Other sums chargeable to tax

For the credit or payment of any other sum chargeable under the Act, the payer is responsible; for a corporate payer, this includes the company and its principal officer.

Clause (iv): Payments by Central or State Government

Where a sum chargeable under the Act is credited or paid by or on behalf of the Central Government or a State Government, the drawing and disbursing officer (DDO), or any other person responsible for the credit or payment, is treated as the responsible person.

Clause (v): Persons not resident in India

The later-added clause also covers, in the case of a person not resident in India, that person, a person authorised by them, or their agent in India, including a person treated as an agent under section 163. This clause should be checked against the law applicable to the relevant year.

Explanation and key definitions

Non-resident Indian and foreign exchange asset: These expressions carry the meanings assigned under Chapter XII-A of the 1961 Act, rather than their ordinary conversational meanings.

Authorised person: The term has the meaning assigned by section 2(c) of the Foreign Exchange Management Act, 1999. It includes categories of persons authorised under that legislation to deal in foreign exchange or foreign securities.

Principal officer: Section 2(35) of the 1961 Act defines this expression, including specified persons connected with management or administration and persons notified as principal officer in accordance with that provision.

Practical significance for TDS compliance

Correct identification of the responsible person helps determine who must assess a deduction obligation, deduct and deposit tax where required, furnish prescribed statements and certificates, and comply with applicable information-reporting requirements. Failure to comply may have consequences under provisions such as section 201, subject to the facts and applicable law.

Example: When a private company pays taxable salaries, the company is the employer responsible for applicable salary TDS compliance. Where a government department makes a covered payment, its DDO or other designated disbursing person may be responsible.

Selected legislative history

The text developed through successive amendments, including the Finance (No. 2) Act, 1967 (credit as well as payment), Finance Act, 1986 (NRI foreign exchange asset remittances and the explanation), Finance Act, 2004 (scope of the opening words), Finance Act, 2012 (government DDOs), Finance Act, 2013 (FEMA terminology), and Finance Act, 2017 (information relating to payments to non-residents). Later amendments, including the additional non-resident clause, should be read from the consolidated official Act applicable to the tax year.

Section 203AA, formerly listed among nearby provisions, was omitted with effect from 1 June 2020 and is not presented as a currently operative sidebar provision.

Official legislation and guidance

Editorial note: This article explains the historical section and the transition to the new Act. For an actual deduction or filing, verify the applicable tax year, current provision, rules and forms.