Section 205 of the Income-tax Act, 1961: Bar Against Direct Demand on Assessee
Section 205 protects a taxpayer from being required to pay again the amount of tax already deducted at source from the taxpayer's income. The corresponding rule under the Income-tax Act, 2025 is Section 401.
1. Text of Section 205 - Income-tax Act, 1961
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.
Official statutory reference: Income Tax Department - Section 205.
2. Meaning and scope of the provision
Assessee means the taxpayer whose income is subject to income tax. Tax deducted at source (TDS) is tax withheld by the person making a specified payment. Direct demand in this context means a demand addressed to the recipient to pay the same tax amount that has already been deducted from the relevant income.
Section 205 prevents double recovery from the income recipient to the extent tax has actually been deducted. It does not automatically protect tax that should have been deducted but was never withheld, or eliminate any remaining lawful tax liability.
3. What happens if TDS is deducted but not deposited?
Where a payer has withheld tax but has failed to deposit it with the Government, the recipient may invoke Section 205 against a demand for the deducted amount. The deductor's failure to remit TDS is a separate compliance issue. Relevant recovery and default provisions include Section 201 of the 1961 Act.
The taxpayer should retain payslips, Form 16 or Form 16A, payment advice, bank records and correspondence establishing the deduction. A missing entry in Form 26AS or AIS may require reconciliation; it does not, by itself, establish that no tax was deducted.
4. Practical illustration
Suppose a taxpayer earns income of Rs. 1,00,000 and the payer deducts Rs. 10,000 as TDS, but fails to remit that sum. If the deduction is established, the taxpayer may rely on Section 205 to contest a direct demand for that Rs. 10,000. Any additional tax due on the taxpayer's overall taxable income is considered separately.
5. Section 401 of the Income-tax Act, 2025
Section 401, titled Bar against direct demand on assessee, states that where tax is deductible at source under the relevant Chapter, the assessee shall not be called upon to pay tax himself to the extent it has been deducted from that income. The 2025 Act came into force on 1 April 2026, and this is the corresponding provision for the new regime.
Read the official Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Income Tax Department section correspondence table.
6. Steps to dispute an incorrect demand
- Check the relevant assessment or tax year and identify the applicable Act.
- Confirm that tax was actually deducted from the income in question.
- Collect documentary proof of the deduction and the corresponding income.
- Seek correction or reconciliation from the deductor and respond to the demand through the official Income Tax e-Filing Portal, where applicable.
- Specifically invoke Section 205 or Section 401, as applicable, and pursue the available statutory remedy within the prescribed time.
7. Legislative history and related provisions
The Finance (No. 2) Act, 2004 substituted the earlier enumeration of TDS sections in Section 205 with the broader reference to the foregoing provisions of Chapter XVII, effective 1 October 2004. Related provisions of the 1961 Act include Section 199 (credit for tax deducted), Section 200 (duties of deductor), Section 201 (failure to deduct or pay), Section 203 (TDS certificate), and Section 204 (person responsible for paying).
8. Frequently asked questions
Can the Department demand TDS again from the recipient?
To the extent tax was actually deducted from the recipient's income, Section 205 provides a statutory bar against requiring that recipient to pay the same tax again, subject to the facts and applicable law.
Does Section 205 apply when no TDS was deducted?
No. The statutory protection is expressly limited to the extent tax has been deducted from the relevant income.
Which provision applies after 1 April 2026?
Section 401 of the Income-tax Act, 2025 is the corresponding provision for matters governed by the new Act. The 1961 Act may continue to govern earlier years under applicable savings and transition provisions.
Updated: 27 October 2026. This article is for general legal information and does not replace advice based on individual facts and current statutory provisions.