Indemnity
[As per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Every person deducting, retaining, or paying any tax in pursuance of this Act in respect of an income belonging to another person shall be indemnified for the deduction, retention, or payment thereof.
FAQs on Section 518 – Indemnity
FAQs related to Section 518 of the Income Tax Act, 2025 for the Tax Year 2025-26:
1. What does Section 518 of the Income Tax Act, 2025, state?
Section 518 provides indemnity to any person who deducts, retains, or pays tax under the Act on behalf of another person. This means they will not be held liable for any legal consequences arising from such deduction, retention, or payment.
2. Who is covered under Section 518 indemnity?
Any person or entity responsible for deducting, retaining, or paying tax on behalf of another person, such as:
- Employers deducting tax at source from employees
- Banks deducting withholding tax on interest payments
- Companies deducting tax on dividends
- Any other withholding agent under the Income Tax Act
3. From when is Section 518 applicable?
This section is effective from April 1, 2026, for the tax year 2025-26 and onwards.
4. Does this indemnity protect against penalties or fraud?
No. The indemnity only applies to lawful tax deductions, retentions, or payments. If a person willfully evades tax, miscalculates deductions, or commits fraud, they will be held accountable.
5. What happens if tax is wrongly deducted under this section?
If tax is deducted incorrectly, the taxpayer can seek a refund or adjustment as per the provisions of the Act. However, the deductor remains indemnified if they acted in good faith and in accordance with the law.
6. Is there a requirement to notify the taxpayer about the deduction?
Yes. In most cases, withholding agents must provide a tax deduction certificate or acknowledgment to the taxpayer for record-keeping and filing purposes.
7. How does Section 518 help businesses and employers?
It ensures that businesses, employers, and financial institutions are not legally liable for tax deductions they make in compliance with the law, protecting them from disputes or claims.
Section 518 of the Income Tax Act, 2025, effective from April 1, 2026, provides indemnity to any person deducting, retaining, or paying tax on behalf of another under the law. This protects employers, businesses, banks, and other withholding agents from legal liability for lawful tax deductions.
However, it does not cover fraudulent or erroneous deductions, and taxpayers can seek refunds for wrongful deductions. Withholding agents must issue tax deduction certificates where applicable, ensuring transparency and compliance.
