Section 226 of ITA, 1961 : Section 226: Other Modes Of Recovery

Explanation using Example

Imagine a scenario where Mr. Sharma, a software engineer, has unpaid taxes after the assessment of his income tax return. The Assessing Officer (AO) has issued a demand notice to Mr. Sharma for the unpaid taxes, but Mr. Sharma has not settled the dues within the stipulated time.

In order to recover the tax arrears, the AO decides to apply Section 226 of the Income-tax Act, 1961. Since Mr. Sharma receives a regular salary from his employer, ABC Tech Pvt. Ltd., the AO issues a notice to the company under Section 226(2), instructing them to deduct the tax arrears from Mr. Sharma's subsequent salary payments. ABC Tech, being the employer, is legally bound to comply with this notice and deducts the specified amount from Mr. Sharma's salary, paying it directly to the credit of the Central Government.

If Mr. Sharma had any other receivables, like a rental income from a tenant, the AO could also issue a notice under Section 226(3) to the tenant, directing them to pay the rent directly to the AO to settle the tax arrears instead of paying it to Mr. Sharma.

In this way, Section 226 provides the tax authorities with various methods to recover tax dues directly from different sources of an assessee's income when the assessee has not paid the tax voluntarily.