Collection, Recovery and Refund of Tax: formula sheet

Key formulas

Modes of payment of tax

Tax is payable by: (a) deduction or collection at source; (b) advance payment; (c) payment under section 392(2)(a)

Section 390(1). It applies irrespective of when assessment is made (section 390(2)).

Credit of tax deducted or collected

Tax paid to the Central Government = payment of tax on behalf of the person whose income it was deducted from (or from whom it was collected)

Section 390(5). Credit rules and the tax year of credit are made by the Board (section 390(6)).

Lower or nil deduction certificate

Payee applies; the Assessing Officer, if satisfied that total income justifies it, issues a certificate; the payer deducts at that rate, or nil, until it is valid

Section 395(1). Under section 395(6), the application may also be filed before the prescribed authority, who may issue the certificate or reject the application after electronic verification. The AO may cancel a certificate after reasonable opportunity (section 395(5)).

Lower collection certificate

Buyer, licensee or lessee applies for collection at a lower rate; the collector collects at the certificate rate until it is valid

Section 395(3). It covers a lower rate only, not nil.

Payment to a non-resident, part not chargeable

Payer applies; AO determines the proportion chargeable; tax is deducted only on that proportion

Section 395(2), for payments in section 393(2) Table Sl. No. 17.

Failure to furnish PAN: deduction

Tax is deducted at the highest of: rate in the provision; rate or rates in force; 5% where section 393(1) Table Sl. No. 8(ii) or 8(v) applies, or 20% in any other case

Section 397(2)(b)(i). Not applicable to certain non-residents (not companies) for specified payments (section 397(2)(c)).

Failure to furnish PAN: collection

Tax is collected at the higher of twice the specified rate or 5%, not exceeding 20%

Section 397(2)(b)(ii). It does not apply to a non-resident without a permanent establishment in India (section 397(2)(d)).

Rent cap on higher deduction

Higher-rate deduction on rent under Table Sl. No. 2(i) ≤ rent payable for the last month of the tax year or tenancy

Section 397(2)(e).

Correction statement time limit

Within two years from the end of the tax year in which the statement was required to be delivered

Section 397(3)(f).

Certificate of deduction or collection

Deductor or collector issues a certificate showing amount of tax, rate and other prescribed particulars, within the prescribed period

Section 395(4)(a). An employer paying tax under section 392(2)(a) gives a certificate under section 395(4)(b).

Instalment schedule (section 408(1))

15 June: ≥ 15%; 15 September: ≥ 45%; 15 December: ≥ 75%; 15 March: 100% of advance tax (all cumulative, less earlier payments)

Each instalment payable = cumulative % × advance tax − amounts already paid.

Presumptive taxpayer (section 408(2))

Whole advance tax on or before 15 March

Applies to an assessee declaring profits under section 58(2) (Table Sl. No. 1 or 3).

Tax due on returned income (section 425(5))

Tax on total income in the return − TDS/TCS − reliefs under sections 157, 159(1), 159(2), 160 − tax credits in 425(5)(f)

This is the base for all interest calculations.

Interest on shortfall (section 425(1))

Shortfall at 15 June, 15 Sept, 15 Dec: 3% each. Shortfall at 15 March: 1%

Benchmarks on returned income are 15%, 45%, 75%, 100%. Shortfall = benchmark − advance tax paid by that date.

No-interest safe harbour (section 425(2))

Paid by 15 June ≥ 12% and by 15 September ≥ 36% of tax due on returned income

Protects only the June and September instalments. It does not protect December or March.

Presumptive assessee interest (section 425(3))

1% simple interest on shortfall from tax due on returned income

For assessees under section 58(2) (Table Sl. No. 1 or 3), measured against payment by 15 March.

Exclusion for unforeseen income (section 425(4))

No interest on shortfall due to under-estimating capital gains, income under section 2(49)(n), first-time business profits or dividend, if the tax is paid in full in the remaining instalments or by 31 March

Both conditions must be met. Dividend excludes sub-clause (e) of section 2(40).

Interest for late deduction

Tax × 1% × months (or part of a month) from date deductible to date deducted

Simple interest. A part of a month counts as a full month.

Interest for late payment after deduction

Tax × 1.5% × months (or part of a month) from date deducted to date paid

Simple interest. Section 398(3)(a)(ii).

Relief from default status

Payee filed return under section 263 + included the income + paid the tax + accountant's certificate

Section 398(2). All conditions must be met. Interest at 1% then runs till the payee's return date.

Time limit for order

Later of: 6 years from end of the tax year of deductibility, or 2 years from end of the tax year of correction statement

Section 398(5). No order after that.

Penalty for failure to deduct or collect

Penalty = tax not deducted or collected (sections 448 and 449)

Imposed by the Assessing Officer. 'May impose', so it is discretionary.

Penalty for tax in default

Total penalty under section 412 ≤ tax in arrears

Not levied without a hearing or if default was for good and sufficient reasons.

Penalty for statement default

₹10,000 minimum to ₹1,00,000 maximum (section 461); ₹500 per day (section 465(2)(k)), capped at tax deductible or collectible (section 465(3))

Section 461(2): no penalty if tax with fee and interest was paid and statement filed within one month of the due date.

Certificate and modes (section 413)

Default → TRO certificate → attach and sell movable / attach and sell immovable / receiver

Modes may be used one or more at a time, whether or not any other mode has been tried. Arrest and detention was removed with effect from 1 April 2026.

Finality of certificate (section 413(3) and (4))

Assessee cannot dispute; TRO may cancel or correct clerical or arithmetical mistakes

Challenge to the underlying demand lies through appeal, not against the certificate.

Which TRO (section 414(1))

Business or profession place OR residence OR location of any property

Jurisdiction is as assigned by the Board or an authorised authority of Commissioner rank or above.

Transfer to other TRO (section 414(2))

Property under several TROs + (cannot recover fully OR expediting or securing recovery) → send certificate or certified copy

A copy is used where only a part of the amount is to be recovered.

Stay and amendment (section 415)

TRO may grant time and stay till expiry; if demand reduced → stay the reduced part while further proceedings pend; if final → amend or cancel certificate

Applies where the order is modified in appeal or other proceeding.

Other modes (section 416)

Salary deduction; notice to debtor or money-holder; application to court; distraint and sale

Distraint needs authorisation by an authority of Commissioner rank or above.

Foreign recovery (section 418)

Agreement with foreign country → certificate exchanged via the Board → TRO recovers and remits after deducting expenses

Works in both directions.

Basic interest on refund

Interest = Refund amount × 0.5% × number of months (or part of a month)

Simple interest, section 437(1). Part of a month counts as a full month. Interest runs on the refund amount.

Row 1: TCS, advance tax, tax treated as paid under section 390(5)

Return filed on or before due date under section 263(1): from 1 April of the year following the tax year to the date of grant. Otherwise: from the date of furnishing the return to the date of grant.

Applies to refunds out of tax collected at source under section 394, advance tax, or tax treated as paid under section 390(5), during the financial year.

Row 2: Tax paid under section 266

Period = later of (date of furnishing return, date of payment of tax) to the date of grant

Interest starts from whichever date is later.

Row 3: Any other case

Period = date(s) on which tax or penalty in the demand notice under section 289 was paid in excess of the demand, to the date of grant

Typical for excess payment against a demand notice.

Minimum refund threshold

No interest under Row 1 or Row 2 if refund < 10% of the tax determined under section 270(1) or on regular assessment

Section 437(2). Does not apply to Row 3.

Refund on application under section 288(1)

Interest at 0.5% per month or part of month from the date of application to the date of grant

Section 437(3), for Row 1 refunds arising from an order on an application under section 288(1).

Additional interest on appellate and similar orders

Additional interest = Refund × 3% p.a. for the period from the day after the time allowed under section 286(1) expires to the date of grant

Section 437(4). Applies when the refund arises by giving effect to an order under sections 359, 363, 365(10), 368, 377 or 378 otherwise than by fresh assessment or reassessment. It is in addition to interest under sub-section (1).

Refund to a deductor

Interest at 0.5% per month or part of month from the date of claim for refund (or date of tax payment where the refund arises from an order) to the date of grant

Section 437(6), for amounts paid to the Central Government under Chapter XIX-B.

Exclusion of assessee's delay

Period of delay attributable to the assessee or deductor is excluded

Section 437(7). Disputes on the period to be excluded are decided by the senior authority named in section 437(8), and the decision is final.

Withholding limit

Withhold up to 60 days from the date of assessment or reassessment

Section 438(3). Needs recorded reasons and previous approval of the Principal Commissioner or Commissioner.

Quick revision

• Section 390 gives three modes of payment: deduction or collection at source, advance payment, and payment under section 392(2)(a).
• Tax is payable under this Chapter even if assessment is made in a later tax year.
• Tax deducted, collected or paid is treated as paid on behalf of the person whose income it is.
• Self-assessment tax, with interest and fee, must be paid before furnishing the return, with proof of payment attached.
• Credits against self-assessment include advance tax, TDS, TCS, foreign tax relief and listed tax credits.
• A short payment under self-assessment is adjusted first to fee, then to interest, then to tax.
• Failure to pay the whole amount under self-assessment makes the person an assessee in default for the unpaid amount.
• Section 424 interest is simple interest at 1% for every month or part of a month.
• Section 424 applies if advance tax is not paid, or is less than 90% of assessed tax.
• Interest base is the full assessed tax if no advance tax was paid, otherwise the shortfall.
• Assessed tax is tax on total income less TDS, TCS, foreign tax relief and listed tax credits.
• Interest under section 424 starts from 1 April following the tax year.

Common mistakes

• Treating TDS and TCS as the same thing. Fix: Remember the direction: TDS is taken out of a payment you make. TCS is added on to a price you receive.
• Ignoring the no-PAN rule and deducting at the normal rate. Fix: Always check PAN. Under section 397(2)(b) apply the higher of the specified rate, the rate in force, or 5% or 20% as stated.
• Taking 15% of tax on total income without deducting TDS. Fix: Always compute the net figure under section 425(5) first.
• Treating instalments as separate 15%, 45%, 75% amounts. Fix: They are cumulative. The 15 September payment is 45% less what was already paid.
• Using 1.5% for the whole period. Fix: 1% covers deductible-to-deducted. 1.5% covers deducted-to-paid.
• Counting exact days or ignoring part of a month. Fix: Count every month or part of a month as a full month.
• Listing arrest and detention of the assessee as a mode of recovery. Fix: Section 413(1) now has only attachment and sale of movable property, of immovable property, and appointment of a receiver, since 1 April 2026.
• Saying the assessee can challenge the certificate before the TRO. Fix: Section 413(3) bars disputing correctness on any ground. The TRO may only correct clerical or arithmetical mistakes or cancel it.
• Treating interest as compound or as an annual rate Fix: Section 437(1) gives simple interest at 0.5% per month or part of a month. Multiply by the number of months only.
• Ignoring the part-of-a-month rule Fix: Any part of a month is counted as a full month. Round the period up before multiplying.

Exam tips

• Quote the section number with the rule: section 390 for modes of payment, 395 for certificates, 397 for PAN, TAN, deposit and statements. Use only numbers you are sure of.
• In a case question, state the rate and the reason, such as no PAN or a valid certificate, before the figure. This secures method marks.
• Learn the difference between deduction, collection and section 392(2)(a) payment by an employer. MCQs often test it.
• Close each answer with the effect on the deductee: credit under section 390(5) and the certificate under section 395(4).
• Read the table references carefully. Item numbers in sections 393 and 394 drive many of the exceptions in section 397.
• Draw the date-wise table first. Marks are given for each shortfall and rate, even if the total slips.
• Write the net tax due on returned income, with TDS deducted, as your first line.
• Test the 12% and 36% limits explicitly for June and September.