Section 396 — Tax deducted is income received
Old Act equivalent: 199 of IT Act 1961 Sub-part: B.—Deduction and collection at source
Statutory Text
- The following sums shall be deemed as income received for the purposes of computing the income of an assessee— (a) sums deducted under this Chapter; and (b) income-tax paid outside India by way of deduction in respect of which an assessee is allowed a credit against the tax payable under this Act, except tax paid under section 392(2)(a) and tax deducted as per section 393(3) (Table: Sl. No. 5).
Sub-sections
This section has no sub-sections — it is a single operative provision with two clauses and two exceptions.
Clause (a)
All sums deducted under Chapter XIX (TDS) are deemed to be income received by the assessee for purposes of computing total income (grossing-up principle).
Clause (b)
Income-tax paid outside India by way of deduction, for which the assessee is allowed foreign tax credit against Indian tax liability, is also deemed income received.
Exceptions
- Tax paid by employer on non-monetary perquisites under section 392(2)(a) — not deemed income of the employee.
- Tax deducted on cash withdrawals under section 393(3) (Table: Sl. No. 5) — not deemed income received.
Provisos
None.
Explanations
None.
Tables
None.
Key Structure
- Applies to: All assessees from whose income TDS has been deducted under Chapter XIX; assessees claiming foreign tax credit for taxes paid outside India by way of deduction.
- Conditions: Sums must have been deducted under this Chapter; or foreign tax paid by deduction with credit allowed under the Act.
- Time limits: None specified.
- Monetary limits: None specified.
- Exceptions: (1) Tax paid by employer on non-monetary perquisites under section 392(2)(a) is not deemed income of the employee; (2) TDS on cash withdrawals under section 393(3) (Table: Sl. No. 5) is not treated as deemed income received.
Cross-References
- s392(2)(a) — employer payment of tax on non-monetary perquisites.
- s393(3) Table Sl. No. 5 — TDS on cash withdrawals from banking company.
Amendment Notes
None noted from the extracted pages.
Practical Notes
- This section embodies the grossing-up principle — when TDS is deducted, the assessee’s income is computed on the gross amount (before deduction), not the net amount received.
- The exception for employer-paid tax on perquisites (section 392(2)(a)) ensures that the tax burden borne by the employer on non-monetary perquisites is not treated as additional income of the employee — this is a significant benefit for employees receiving non-cash perquisites.
- The exception for cash withdrawal TDS (section 393(3), Sl. No. 5) recognises that cash withdrawals are not income — the TDS is merely a mechanism to encourage digital transactions and is fully adjustable against the assessee’s tax liability.
- Consolidates old sections 198 (tax deducted is income received) and 199 (credit for tax deducted) into a single provision.