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CS Executive · Tax Laws and Practice · Direct Tax at a Glance

Hari Traders Ltd. paid ₹5,00,000 to a contractor and, though the Act required tax deduction at source, did not deduct it. The contractor has also not paid the tax directly. Under the direct payment provisions of the Income-tax Act, 2025, what is the position?

Hari Traders Ltd. is deemed an assessee in default in respect of the tax it failed to deduct, because the contractor also did not pay the tax directly. This is in addition to any other consequences the company may incur under the Act.

  1. AOnly the contractor is liable, and Hari Traders Ltd. has no consequence
  2. BHari Traders Ltd. is deemed an assessee in default in respect of that tax, apart from any other consequences it may incurCorrect
  3. CThe tax is automatically waived because both parties defaulted
  4. DHari Traders Ltd. becomes liable only if the contractor files an appeal

Explanation

The direct payment provision says that where a person required to deduct tax does not deduct it and the assessee has also failed to pay the tax directly, that person is deemed an assessee in default in respect of such tax, apart from other consequences. The tax is not waived, and liability does not depend on any appeal.

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