Section 397 — Compliance and reporting
Old Act equivalent: Sections 200, 203, 203A, 206AA of IT Act 1961 Sub-part: B.—Deduction and collection at source
Statutory Text
- (1) TAN allotment and quoting requirements: (a) Every person deducting or collecting tax shall apply for allotment of a tax deduction and collection account number (TAN); (b) TAN must be quoted in challans, certificates, returns, and other prescribed documents; (c) Exemptions: Individuals deducting tax under certain provisions (rent, immovable property, VDA) need not obtain TAN.
(2) PAN furnishing by deductee/collectee and higher rate consequences: (a) Every person entitled to receive any sum or income on which tax is deductible shall furnish PAN to the deductor; (b) Every buyer/licensee/lessee from whom tax is collectible shall furnish PAN to the collector; (c)-(h) Where PAN is not furnished: higher rate TDS applies at 5% for goods purchase/e-commerce transactions or 20% in other cases; higher rate TCS at higher of twice the applicable rate or 5% (maximum 20%);
- Non-resident exceptions for certain payments;
- Rent TDS limitation;
- Declaration or certificate under section 395 invalid without PAN;
- Provisions for specific relaxations.
(3) Payment and statement filing obligations: (a) Tax deducted/collected to be paid to credit of Central Government within prescribed time; (b) Delivery of statements (TDS/TCS returns) in prescribed form within prescribed time; (c)-(d) Prescribed particulars and verification requirements for statements; (e) Banks and financial institutions to furnish information statements for interest payments below TDS threshold; (f) Correction statements may be delivered within 2 years from end of the tax year; (g) Government office procedures for TDS/TCS payment; (h) TCS payment obligation applies even where collection has not been made (collector deemed to have collected and must pay).
Sub-sections
Sub-section (1) — TAN
Every person deducting or collecting tax must apply for TAN and quote it in all challans, certificates, returns, and prescribed documents. Exception: individuals deducting under Sl. Nos. 2(i), 3(i), 6(ii) of section 393 or VDA transactions need not obtain TAN.
Sub-section (2) — PAN and higher rates
Every deductee/collectee must furnish PAN to the deductor/collector. Failure to furnish PAN results in higher rate TDS (5% for goods purchase/e-commerce or 20% in other cases) or higher rate TCS (higher of twice the rate or 5%, maximum 20%). Relaxations for certain non-resident payments. Declaration or certificate under section 395 is invalid without PAN.
Sub-section (3) — Payment and statements
Tax deducted/collected to be paid to government within prescribed time. TDS/TCS statements (returns) to be filed in prescribed form and time. Correction statements within 2 years from end of tax year. Banks to furnish information statements for interest below threshold. Government offices follow specific procedures. TCS payment obligation applies even if collection was not actually made.
Provisos
None.
Explanations
None.
Tables
None.
Key Structure
- Applies to: Every person deducting or collecting tax (TAN and payment/statement obligations); every deductee and collectee (PAN furnishing obligation).
- Conditions: TAN allotment and quoting mandatory for all deductors/collectors (with limited exceptions); PAN must be furnished by recipients; tax to be paid and statements filed within prescribed time.
- Time limits: Tax payment to government — within prescribed time; statements (returns) — within prescribed time; correction statements — within 2 years from end of the tax year in which original statement was due.
- Monetary limits: Higher TDS at 5% (goods purchase/e-commerce) or 20% (other cases) where PAN not furnished; higher TCS at higher of twice the rate or 5% (maximum cap of 20%).
- Exceptions: TAN not required for individuals deducting under Sl. Nos. 2(i), 3(i), 6(ii) of section 393 or VDA transactions; PAN provisions relaxed for certain non-resident payments.
Cross-References
- s392 — salary TDS provisions.
- s393 — TDS on non-salary payments; Sl. Nos. 2(i), 3(i), 6(ii) for TAN exemption.
- s394 — TCS provisions.
- s395 — certificates for lower/nil deduction or collection; invalid without PAN.
- s398 — consequences of failure to deduct, collect, or pay.
- s402 — interpretation provisions.
Amendment Notes
None noted from the extracted pages.
Practical Notes
- This section consolidates multiple old provisions — section 200 (duty to pay TDS to government), section 203 (TDS certificates), section 203A (TAN), and section 206AA (PAN requirement and higher rates) — into a single compliance provision.
- The 2-year window for correction statements (sub-section 3(f)) is a hard deadline — corrections filed after this period will not be accepted by the system.
- The higher rate for non-furnishing of PAN (20% in general cases) can be a significant burden — practitioners must ensure PAN is obtained and verified before the first payment/credit.
- Sub-section (3)(h) creates a deemed collection for TCS — even if the collector fails to actually collect TCS from the buyer, the collector is deemed to have collected and must deposit it with the government. This makes TCS a cost to the collector if not recovered.
- Banks must file information statements for interest payments below TDS threshold — this ensures the department has data even where no TDS is deducted.
- For government offices, separate payment procedures apply — DDOs must follow the prescribed mechanism for depositing TDS/TCS.