Direct Tax Laws & International Taxation · Deduction, Collection and Recovery of Tax

Assessee in Default and Accountant's Certificate (CA Final DT)

Updated 5 October 2026

An **assessee in default** is a person who must deduct or collect tax but fails to deduct it, or deducts it and fails to deposit it. You are liable for the tax itself, plus interest and possible penalty. To solve: find the failure, compute interest by month, then check if the payee relief and accountant's certificate apply.

Understand Assessee in Default and Accountant's Certificate

This page follows the Income-tax Act, 2025 and the Income-tax Rules, 2026, for tax year 2026-27. A payment made in June 2026 falls under these provisions. Check the form and rule numbers in your ICAI material and do not quote old rule numbers.

Tax deducted at source is the government's money. The deductor only holds it. If you must deduct tax on a payment and you do not, or you deduct and do not deposit it, the law treats you as an assessee in default for that tax. The department can then recover the tax from you, as if you were the taxpayer.

This is a different consequence from the disallowance of an expense in your business income. Default is about recovering the tax, interest and penalty from the deductor. Disallowance is about losing the deduction for the expense when you compute your own income. One failure can trigger both, and an exam question often asks you to separate them.

There are two money consequences in default. Interest is charged for each month or part of a month. The rate is lower when you failed to deduct (1% per month) and higher when you deducted but failed to pay the tax (1.5% per month). The 1% interest runs from the date the tax was deductible to the date it is deducted. The 1.5% interest runs from the date of deduction to the date the tax is actually paid. The 1% period ends on the deduction date and the 1.5% period starts on that same date. The two are cumulative, so a deductor who deducts late and then pays late bears both.

Tax deducted in a month is generally due for deposit by the 7th of the next month. There are exceptions: tax deducted in March has a different due date, payments where the tax is paid with a challan-cum-statement (certain property and rent payments) have their own due date, and the Assessing Officer can permit periodic deposit in some cases. The due date decides when failure to pay makes you in default. It is not a threshold that removes interest. Even a deposit made on or before the due date attracts 1.5% interest for the month or part month from deduction to deposit.

A penalty can also apply. It may be levied up to the amount of tax in arrears, at the Assessing Officer's discretion, and it is not levied if you show a good and sufficient reason for the failure. It is not automatic in every case. Prosecution is also possible where tax is deducted but not deposited with the government.

The law gives relief where the payee is a resident and has already paid the tax on that income. If the payee has furnished the return, taken the income into account in it and paid the tax due on the income declared, you are not treated as in default for the tax. You prove this with a certificate from an accountant in the prescribed form under the Income-tax Rules, 2026. Interest is still payable. The usual rule is that interest for non-deduction runs up to the date the tax is deducted. Under the relief, the date on which the payee furnished the return is treated as the date on which you deducted and paid the tax. So the deemed-payment rule changes only the end point of the interest period.

The rate of disallowance depends on the payee. For a payment to a resident on which tax was not deducted or not deposited, 30% of the expense is disallowed. For specified payments to a non-resident (including a foreign company) on which tax was not deducted, or was deducted but not paid, 100% of the expense is disallowed. This 100% rule does not cover every payment to a non-resident. It applies only to the specified payments on which tax is deductible. The deemed-payment rule also removes the 30% disallowance where the payee-paid relief applies to a resident payee. Because you are treated as having deducted and paid the tax on the date the payee furnished the return, the 30% disallowance does not apply for the year. The reason is the filing of the return and the certificate, not the payee's residence alone. This relief is for a resident payee, so it does not rescue a payment to a non-resident.

So the topic has four moving parts: the trigger (failure), the cost (tax, interest, penalty), the relief (payee paid plus accountant's certificate), and the link with the disallowance of the expense. Learn them in that order.

Key rules to remember

Trigger for default: Failure to deduct, OR deduction made but failure to deposit ⇒ deemed assessee in default for that tax; The tax is recoverable from the deductor. This applies without prejudice to interest, penalty and prosecution.
Interest for failure to deduct: Tax not deducted × 1% × number of months or part of a month; Period runs from the date the tax was deductible to the date it is deducted. Part of a month counts as a full month.
Interest for deducted but not deposited: Tax deducted × 1.5% × number of months or part of a month; Period runs from the date of deduction to the date of actual payment. Part of a month counts as a full month. The due date (generally the 7th of the next month, with exceptions for tax deducted in March, for payments paid with a challan-cum-statement, and for cases where the Assessing Officer permits periodic deposit) decides when you are in default. It does not cut off the interest. If tax was first deducted late, this 1.5% period starts on the deduction date, where the 1% period ends, and the two are cumulative.
Relief from default for resident payee: Payee has furnished the return + taken the income into account + paid the tax due on it + deductor furnishes accountant's certificate in the prescribed form ⇒ no default for the tax; Applies only where the payee is a resident. The deductor must furnish the certificate in the prescribed form under the Income-tax Rules, 2026.
Interest where the relief applies: Interest at 1% per month or part of a month, from the date tax was deductible up to the date the payee furnished the return; The usual end point is the date the tax is deducted. Under the relief, the date the payee furnished the return is the deemed date of deduction and payment, so interest stops there. Interest is not waived.
Penalty: Penalty up to the amount of tax not deducted or not paid, at the Assessing Officer's discretion; It is not a fixed amount equal to the tax. It is not levied if you show a good and sufficient reason for the failure. It is separate from the interest.
Disallowance link: Expense paid without proper TDS ⇒ 30% of the expense is disallowed in business income if the payee is a resident (tax not deducted or not deposited); 100% of the expense is disallowed for specified payments to a non-resident (including a foreign company) on which tax was not deducted or, after deduction, not paid; The disallowed amount is allowed in the year the tax is deducted and deposited, in line with the timing rules. The 100% rule is not a blanket rule for every payment to a non-resident. It covers only the specified payments. Where the payee-paid relief applies to a resident payee, the deductor is treated as having deducted and paid the tax on the date the payee furnished the return, so the 30% disallowance does not apply. This comes from the deemed-payment rule, not from residence alone. The relief is not available for a non-resident payee.

How to solve Assessee in Default and Accountant's Certificate questions

Use the same sequence for any question on default, interest, penalty or the accountant's certificate.

1Identify the payment, the date it was paid or credited, and whether tax was deductible. Note the payee's residential status.
2Classify the failure: not deducted at all, deducted but not deposited, or deducted and deposited late. Note the date of deduction and the date of deposit. The due date (generally the 7th of the next month for non-government deductors) tells you when non-payment makes the deductor in default. It does not stop interest.
3State the consequence in words first: the person is deemed an assessee in default for the tax.
4Choose the interest rate: 1% from the date the tax was deductible to the date of deduction, and 1.5% from the date of deduction to the date of payment. If both failures occurred, the two periods are cumulative and meet on the deduction date. Count every month or part of a month.
5Check the relief: is the payee a resident who filed the return, included the income and paid the tax? Has the accountant's certificate in the prescribed form been furnished?
6If relief applies, cut off the interest at the payee's return date and say that the tax cannot be recovered from the deductor.
7Mention penalty, which is subject to reasonable cause, and prosecution if the question gives a deposit failure.
8Finish with the link to the disallowance of the expense, if the question asks about the deductor's own income. Use 30% of the expense for a resident payee and 100% of the expense for specified payments to a non-resident, unless the payee-paid relief applies to a resident payee.

Quickest way: Four-line default check

When to use it: Use it for MCQs and for short written parts when you have only a few minutes.

Write the failure type: not deducted (1%, from deductible date to deduction date) or deducted but paid later (1.5%, from deduction date to payment date). If both, add the two.
Count months, with part of a month counted in full. Multiply: tax × rate × months.
Ask one question: did the resident payee file the return and pay the tax, and is there an accountant's certificate? If yes, no default, but interest runs up to the payee's return date.
Add one line for disallowance if the question mentions expense or business income: 30% of the expense for a resident payee, 100% of the expense for a specified payment to a non-resident.

Common mistakes in Assessee in Default and Accountant's Certificate

Applying 1.5% interest to a case where tax was never deducted.
Students remember only the higher rate.
Fix: Match the rate to the failure. Not deducted: 1%, up to the date of deduction. Deducted but not paid: 1.5%, from the date of deduction to the date of payment.
Charging no 1.5% interest because the tax was deposited by the due date.
Students treat the 7th of the next month as a free period.
Fix: The 1.5% interest runs from the date of deduction to the date of payment, and part of a month counts as a full month. A deposit on or before the due date still attracts interest for that month or part month. The due date only decides when the deductor falls into default.
Counting complete months only, so 4 months 5 days becomes 4 months.
Ordinary interest calculations use exact days.
Fix: For TDS interest, any part of a month counts as a full month. Count the months and add one if there is a leftover part.
Saying the accountant's certificate removes all liability, including interest.
The word 'relief' is read too widely.
Fix: The certificate only stops the deductor being treated as in default for the tax. Interest still runs until the payee's return date.
Giving the relief for a non-resident payee, or using 30% disallowance for a specified payment to a non-resident.
Students forget the condition that the payee must be a resident who files a return, and they apply one disallowance rate to every payee.
Fix: State the condition. The payee-paid relief with the certificate is for a resident payee. For specified payments to non-residents, give the standard consequences: default, interest and the 100% disallowance of the expense. The 30% rate is for resident payees. Do not extend the 100% rule to every payment to a non-resident.
Treating disallowance and assessee in default as the same thing.
Both arise from a TDS failure, so they are mixed up.
Fix: Write them separately. Default is recovery of tax, interest and penalty from the deductor. Disallowance is a loss of the expense deduction in the deductor's business income.
Forgetting that penalty can be avoided for reasonable cause and that it is separate from interest.
Students list interest and penalty as one combined charge.
Fix: Say that interest is compensatory and automatic. Say that penalty is linked to the tax amount and is not levied if reasonable cause is proved.

Worked examples

Example 1

A company paid ₹10,00,000 to a resident contractor on 10 June 2026. Tax of ₹20,000 was deductible but was not deducted. The company deducted the tax on 15 October 2026 and deposited it on 20 November 2026. Compute the interest payable and name the consequence.

Show the solution

Failure: tax was not deducted when deductible, so the company is deemed an assessee in default for the tax.
Interest for non-deduction at 1%: the period runs from 10 June 2026, when the tax was deductible, up to 15 October 2026, the date of deduction. That is 4 full months (10 June to 10 October) plus part of a month, so 5 months.
Interest for non-deduction = ₹20,000 × 1% × 5 = ₹1,000.
Interest for non-payment at 1.5%: the period starts on 15 October 2026, the date of deduction, where the 1% period ended. It runs to 20 November 2026, the date of deposit. The two interest periods are cumulative.
Period from 15 October to 20 November 2026: 15 October to 15 November is 1 month, plus part of a month, so 2 months. The due date for deposit does not change this count, because interest runs from deduction to payment.
Interest for late payment = ₹20,000 × 1.5% × 2 = ₹600.
Total interest = ₹1,000 + ₹600 = ₹1,600. Penalty can also be considered, subject to reasonable cause. The expense disallowance issue is tested separately, with the timing rules.

Answer: The company is an assessee in default. Interest payable is ₹1,600 (₹1,000 at 1% up to the deduction date, plus ₹600 at 1.5% from the deduction date to the deposit date). Penalty is separate and subject to reasonable cause.

Example 2

A firm failed to deduct tax of ₹50,000 on a payment to a resident vendor made on 20 August 2026. The vendor filed the return on 31 October 2026, included the receipt in income and paid all tax due. The firm furnishes an accountant's certificate in the prescribed form. Can the firm be treated as an assessee in default? Compute the interest.

Show the solution

Check the conditions: the payee is a resident, furnished the return, took the income into account and paid the tax due on it. The firm has furnished the accountant's certificate in the prescribed form.
Result: the firm is not treated as an assessee in default for the tax of ₹50,000. The department cannot recover that tax from the firm again.
The vendor's return filing date, 31 October 2026, is treated as the date on which the firm deducted and paid the tax. The deemed-payment rule changes only the end point of the interest period.
Interest at 1% still applies from 20 August 2026 to 31 October 2026. Count 20 Aug to 20 Sep (1), 20 Sep to 20 Oct (2) and 20 Oct to 31 Oct, a part month (3). So 3 months.
Interest = ₹50,000 × 1% × 3 = ₹1,500.
Because the firm is treated as having deducted and paid the tax on 31 October 2026, the 30% disallowance that applies to payments to residents does not apply to this payment. The reason is the vendor's filing of the return together with the certificate, under the deemed-payment rule, and not merely that the vendor is a resident. Had the payment been a specified payment to a non-resident, the relief would not apply and 100% of the expense would be disallowed. Penalty is separate, depends on a good and sufficient reason, and should not be assumed to vanish.

Answer: The firm is not an assessee in default for the ₹50,000 tax, because of the payee-paid relief and the certificate. It still pays interest of ₹1,500. The expense is not disallowed, because the deemed-payment rule treats the tax as deducted and paid on 31 October 2026, the date the resident vendor furnished the return.

Exam tips

Write the section on default in three short lines: trigger, cost, relief. Examiners mark each point separately.
Always show the interest working with the rate, the months counted and the rule that part of a month is a full month.
In a case scenario, check the payee's residential status and whether the payee has filed the return first. These facts decide whether the relief is available.
When a question asks 'difference between disallowance and default', write two columns of points in sentences: who bears it, what is lost, and the effect of the relief.
Refer to the accountant's certificate in the prescribed form under the Income-tax Rules, 2026. Do not quote a form number, rule number or section number unless you are sure of it.
In a late deposit question, count the 1.5% interest from the date of deduction to the date of deposit. Do not stop it at the due date, and do not skip it because the deposit was made by the due date.

Practice questions from Deduction, Collection and Recovery of Tax

Assessee in Default and Accountant's Certificate: frequently asked questions

Who is treated as an assessee in default under TDS provisions?

A person who is required to deduct or collect tax but fails to do so, or deducts it and fails to deposit it with the government. The tax can then be recovered from that person. Interest, penalty and prosecution can follow.

What does the accountant's certificate do?

It supports the deductor's claim that the resident payee has filed the return, included the income and paid the tax due. When these conditions are met, the deductor is not treated as in default for the tax. Interest still has to be paid up to the payee's return date.

What is the difference between disallowance and assessee in default for non-deduction of TDS?

Assessee in default means the tax, interest and penalty can be recovered from the deductor. Disallowance means part of the expense is not allowed as a deduction in the deductor's business income: 30% for a payment to a resident, and 100% for specified payments to a non-resident (including a foreign company) on which tax was not deducted or not paid. They are separate consequences and both can arise from the same failure.

How is interest on TDS default calculated?

Multiply the tax by the rate and by the number of months or part months. The rate is 1% a month from the date the tax was deductible to the date of deduction. It is 1.5% a month from the date of deduction to the date of payment. Part of a month counts as a full month, and the due date for deposit does not remove the interest.