Section 290 of the Income-tax Act, 1961: Indemnity
Section 290 protects persons who lawfully deduct, retain or pay income tax in relation to income belonging to another person. Its corresponding provision under the Income-tax Act, 2025 is Section 518.
At a glance: The indemnity is linked to tax action taken in pursuance of the Act. It does not confer unrestricted protection for an unauthorised deduction or for unrelated misconduct. The applicable statute depends on the relevant tax year and the savings provisions.
1. Meaning and purpose of indemnity
Indemnity means legal protection against liability for an act within the scope of the statutory protection. Section 290 addresses a practical issue: tax law may require a person to deduct or pay tax from income that legally belongs to somebody else. When the person acts in compliance with the Act, the statute protects that person in respect of that deduction, retention or payment.
The protection is relevant to persons with statutory tax-deduction or payment obligations, including employers, payers of certain income and other persons legally required to withhold or remit tax. Whether a particular transaction qualifies must be assessed under the applicable deduction, collection and payment provisions.
2. Section 290 of the Income-tax Act, 1961: statutory text
Every person deducting, retaining, or paying any tax in pursuance of this Act in respect of income belonging to another person is hereby indemnified for the deduction, retention, or payment thereof.
The provision appears in Chapter XXIII (Miscellaneous) of the Income-tax Act, 1961. See the official consolidated 1961 Act (PDF).
3. When does the protection apply?
- Action concerning another person's income: the deducted, retained or paid tax must relate to income belonging to someone else.
- Statutory basis: the action must be taken in pursuance of the Income-tax Act, rather than merely on the payer's preference.
- Scope of protection: the indemnity relates to the deduction, retention or payment itself, not to every act associated with a transaction.
- Correct governing law: for a historical tax year, the 1961 Act may continue to apply under the repeal-and-savings provisions.
4. Practical examples
Example A: Tax deducted from salary
An employer deducts tax from an employee's salary where required by the applicable income-tax law and remits it as prescribed. The indemnity principle protects the employer in relation to that lawful deduction and payment. This does not excuse a failure to comply with other statutory obligations, such as correct deduction or timely deposit.
Example B: Tax withheld on a contractual payment
A payer deducts tax from a payment to a contractor because a relevant tax-deduction provision applies. Section 290 addresses the payer's protection for the lawful withholding or payment of tax from another person's income. Whether tax was required and at what rate is a separate question under the applicable TDS provision.
Example C: Deduction without statutory authority
A person withholds an amount labelled as income tax even though no statutory provision authorises that withholding. Section 290 should not be assumed to validate the deduction merely because the payer describes it as tax.
5. Income-tax Act, 2025: corresponding Section 518
The Income-tax Act, 2025 came into effect on 1 April 2026. Section 518, titled Indemnity, corresponds to Section 290 of the 1961 Act. It continues the same basic protection in simplified language.
Every person deducting, retaining, or paying any tax in pursuance of this Act in respect of an income belonging to another person shall be indemnified for the deduction, retention, or payment thereof.
The parliamentary examination of the 2025 legislation describes this provision as a textual simplification without a policy change. Refer to the Income Tax Department's Income-tax Act, 2025 portal and the Lok Sabha Select Committee report (PDF).
6. Which Act applies after 1 April 2026?
| Situation | Relevant legal framework |
|---|---|
| Tax years beginning before 1 April 2026 | Income-tax Act, 1961, subject to Section 536 of the 2025 Act and other applicable provisions. |
| Tax years beginning on or after 1 April 2026 | Income-tax Act, 2025, including Section 518 for indemnity. |
| Proceedings relating to earlier tax years that continue after 1 April 2026 | Applicable provisions of the 1961 Act continue under the repeal-and-savings framework. |
For the official explanation of transitional treatment, see the Income Tax Department's guidance on the new Act and savings provisions.
7. Difference between indemnity and other tax obligations
Indemnity under Section 290 is not itself a tax-deduction charging provision. The underlying obligation to deduct, retain or pay tax must arise elsewhere in the Act. Nor is it a substitute for maintaining payment records, furnishing required statements, issuing tax-deduction certificates, or addressing any error through the prescribed process.
It is also distinct from Section 289 (receipt to be given), which requires a receipt for money paid or recovered under the 1961 Act.
8. Frequently asked questions
What is Section 290 of the Income-tax Act, 1961?
It indemnifies a person who deducts, retains or pays tax under that Act in respect of income belonging to another person, for that lawful deduction, retention or payment.
What is the corresponding provision in the Income-tax Act, 2025?
Section 518 of the Income-tax Act, 2025 is the corresponding indemnity provision for the new law.
Does Section 290 protect an unlawful tax deduction?
The statutory protection concerns tax deducted, retained or paid in pursuance of the Act. It should not be read as a general immunity for deductions that are not authorised by law.
Does the Income-tax Act, 1961 still matter after 1 April 2026?
Yes. Section 536 of the Income-tax Act, 2025 preserves application of the former Act to relevant earlier tax years and related proceedings.
9. Official legal sources
- Income-tax Act, 1961, as amended by Finance Act, 2025 (official PDF)
- Income Tax Department: Income-tax Act, 2025 and comparison utility
- Income Tax Department: Objective, scope and transition FAQs
- Parliamentary Select Committee report: Clause 518 and Section 290 correspondence
Editorial note: This article is a general explanation of statutory provisions, not a substitute for checking the governing law and facts of a specific case.