TDS Obligations When Paying a Corporate Debtor Under CIRP

A counterparty paying a corporate debtor undergoing the corporate insolvency resolution process (CIRP) or liquidation under the Insolvency and Bankruptcy Code, 2016 must continue deducting tax at source under Chapter XVII-B of the Income-tax Act, 1961, since the moratorium under Section 14 of the Code protects the corporate debtor from proceedings, not the payer from its own withholding duty. Failure to deduct or deposit makes the payer an assessee in default under Section 201, with interest, penalty, and prosecution exposure regardless of the payee's insolvency. This article covers routine deduction, certificates under Section 197, and payments where the corporate debtor was itself the deductor before admission.

The Moratorium Protects the Corporate Debtor, Not the Payer

Section 14 of the Code prohibits the institution or continuation of suits and proceedings against the corporate debtor and the recovery of property in its possession. Chapter XVII-B of the IT Act does not operate against the corporate debtor when a payment is made to it. It casts a duty on the payer to deduct at the time of credit or payment, whichever is earlier, and to deposit under section 200 within the prescribed time. Deduction is not the institution of a proceeding against anyone; the deductor collects on behalf of the revenue. Failure makes the payer an assessee in default under section 201, with interest, penalty under section 271C, prosecution exposure under section 276B, and disallowance under section 40(a)(ia) in the payer's own assessment. None of that is suspended by the payee's admission to insolvency.

The corporate debtor also remains a person under section 2(31) of the IT Act throughout. Admission does not dissolve it, does not extinguish its permanent account number, and does not create a new assessee. The contrast with indirect tax is instructive, because the goods and services tax framework requires a corporate debtor in CIRP to take a fresh registration under a notified special procedure while income tax requires nothing of the kind.

What Actually Changes: The Signatory, Not the Deductee

Section 17 of the Code suspends the board and vests the powers of management in the interim resolution professional, and section 25 continues that position with the resolution professional. The permanent account number and tax deduction account number of the corporate debtor carry on unchanged, as does its e-filing profile; only the person authorised to operate them changes. For a payer the consequences are narrow but worth writing into the payment protocol: obtain the admission order and the professional's authorisation for assignment, treat only written instructions from the professional as valid, and refuse any change of bank details that does not come from that source. Deposit the tax against the corporate debtor's existing account number. A challan filed against the wrong number has to be corrected through a revised statement, and until that happens the credit does not reach the payee at all.

The Withholding Map for an Accounts Payable Team

The scenarios below are the ones that recur once a payee enters insolvency, with the obligation, the exposure and the step that closes it.

What Happens if the Corporate Debtor Was Itself the Deductor?

The roles are often reversed before admission. The corporate debtor deducted tax from payments made to you, may or may not have issued a certificate, and never deposited the money. The credit then does not appear in your annual tax statement, and the system reads the shortfall as yours.

Section 205 of the IT Act bars a direct demand on an assessee to the extent that tax has been deducted from its income, and it does not condition that bar on the deductor having actually paid the money over. Rule 37BA governs how credit is given. The revenue's remedy lies against the corporate debtor as an assessee in default under section 201, and once the corporate debtor is admitted that becomes a claim to be proved in the insolvency rather than a recovery action to be pursued. What this means operationally is that you should claim the credit on the strength of the deduction itself, retain the invoice, the payment advice showing the net amount and any certificate received, and be ready to invoke section 205 when the credit is denied on a matching failure. File a claim in the CIRP for the unrecovered balance, but do not allow the claim to displace the statutory defence.

Section 178, Section 194-IA and the Liquidation Sale

Section 178 of the IT Act requires a liquidator to give notice of appointment to the Assessing Officer within thirty days, requires the Assessing Officer to notify within three months the amount to be set aside for tax, prohibits the liquidator from parting with assets in the meantime, and makes the liquidator personally liable for breach. Section 178(6) declares that the section has effect notwithstanding anything to the contrary in any other law in force.

That override does not survive contact with the Code. In Principal Commissioner of Income Tax v. Monnet Ispat and Energy Limited [Supreme Court of India, order dated 10 August 2018], the Court held that section 238 of the Code overrides anything inconsistent in any other enactment, the IT Act included, so that income tax dues claim no precedence over the distribution scheme the Code lays down.

Why Does an Auction Purchaser Not Deduct TDS Under Section 194-IA?

The consequence that reaches a counterparty directly concerns section 194-IA. In Om Prakash Agrawal, Liquidator of S. Kumars Nationwide Limited v. Chief Commissioner of Income Tax (TDS) [National Company Law Appellate Tribunal, judgment dated 8 February 2021], the Appellate Tribunal held that deduction under section 194-IA is in substance advance capital gains tax recovered through the transferee, which is inconsistent with the waterfall in section 53(1)(e) of the Code, and that by force of section 238 the Code prevails. A purchaser of immovable property in a liquidation sale is therefore not required to deduct one per cent of the consideration. Buyers who deduct in any event have had to pursue refunds, and tribunals have directed the department to return the amount to the estate. The cleaner course is to record the position in the sale documents and obtain the liquidator's written confirmation before the payment is released.

Section 194Q, the End of Section 206C(1H), and Certificates Under Section 197

Section 194Q obliges a buyer whose turnover exceeded ten crore rupees in the preceding financial year to deduct at 0.1 per cent on the value of goods bought from a resident seller beyond fifty lakh rupees in a year, at credit or payment, whichever is earlier. Insolvency of the seller changes none of it. The long-standing overlap with section 206C(1H), which required the seller to collect on the same transaction, has been removed: that provision was omitted with effect from 1 April 2025, as were sections 206AB and 206CCA, which imposed higher rates where the counterparty had not filed its returns. The omission of section 206AB matters here more than it first appears, because a company in CIRP is very often behind on its filings and would previously have attracted the higher rate through no act of the payer.

Can a Resolution Professional Obtain a Lower TDS Certificate Under Section 197?

Section 197 permits the Assessing Officer, on an application by the recipient of the income, to certify deduction at a lower rate or no deduction where the recipient's total income justifies it. The application is made in Form 13 by the assessee. Since section 17 of the Code vests the powers of the board in the professional, the application is made for the corporate debtor by the professional as the person authorised to act for it, and nothing in the IT Act bars an entity in insolvency from applying. For a corporate debtor carrying accumulated losses, a nil or lower certificate is a genuine liquidity measure during a process that has to be funded month by month.

The obligation the certificate creates for the payer is exact rather than general. It is issued against a named deductor's account number, for a specified period, and up to a specified amount. Applying it to a different account number, beyond its validity, or past the certified ceiling produces a short deduction for which the payer answers. Verify it on the reporting portal before the first payment run in which it is used, and revert to the ordinary rate the moment the ceiling is exhausted.

The Clean Slate Cuts Off Claims Against the Debtor, Not Your Own Defaults

Section 31(6) of the Code, inserted by the Insolvency and Bankruptcy Code (Amendment) Act, 2026 and in force from 26 May 2026, extinguishes all claims against the corporate debtor and its assets on approval of a resolution plan. The same result had been reached before codification in Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited [(2021) 9 SCC 657]. Pre-CIRP tax claims that were not admitted in the process do not survive the plan.

None of that speaks to the payer's position. A demand raised on you under section 201 for tax you failed to deduct or deposit on a payment made after admission is your own liability, arising from your own default, and plan approval leaves it untouched. So do your quarterly statements under section 200(3), the certificates you owe the payee, and any correction statement needed to fix a misdirected challan. The line worth holding internally is a simple one: the corporate debtor's tax history is a claims question for the insolvency process, while your deduction and deposit remain a compliance question that runs on unchanged.

Frequently Asked Questions

Does the moratorium excuse deduction on payments to a company in CIRP?

No. Section 14 of the Code restrains proceedings against the corporate debtor. Your duty to deduct and deposit under Chapter XVII-B is your own statutory obligation as payer, and a request from the professional to suspend it carries no legal weight. Deduct, deposit and issue the certificate as usual.

Should a fresh account number be used once a professional takes charge?

No. Unlike the goods and services tax position, income tax does not require a new registration for a corporate debtor in CIRP. The permanent account number and tax deduction account number continue, and only the authorised signatory changes. Depositing against anything else creates a mismatch that has to be corrected by revised statement.

Is tax deducted when buying property in a liquidation sale?

On the appellate tribunal's ruling, no. Section 194-IA is inconsistent with the waterfall in section 53(1)(e) of the Code and yields to it under section 238. Record the basis in the sale documents, obtain the liquidator's written confirmation, and keep the correspondence with the assessment record.

Can a resolution professional apply for a nil deduction certificate?

Yes. The application under section 197 is made in Form 13 for the corporate debtor by the professional, who exercises the powers of the suspended board under section 17 of the Code. As payer, apply the certificate only within the account number, period and amount stated on it.

What if the corporate debtor deducted tax from you and never deposited it?

Section 205 bars a direct demand on you to the extent tax was deducted from your income, whether or not it reached the exchequer. Claim credit on the deduction, keep the invoice and payment advice showing the net amount, and file a claim in the insolvency for anything you cannot recover through credit.

Does plan approval wipe out your own withholding defaults?

No. Section 31(6) extinguishes claims against the corporate debtor. A section 201 demand against you for failing to deduct or deposit is a claim against you, and it survives the plan intact, as do your quarterly statements and certificate obligations for the period concerned.

Does a resolution professional face personal liability for TDS defaults by the corporate debtor?

The withholding obligation is that of the corporate debtor as deductor, operating through its permanent account number and tax deduction account number, which continue unchanged during CIRP. The resolution professional, as the person authorised under section 17 of the Code to exercise the powers of the suspended board, is responsible for ensuring the corporate debtor's compliance during the CIRP period, including deduction and deposit on payments the corporate debtor itself makes as deductor, but the statutory liability under section 201 attaches to the corporate debtor as the deductor, not to the professional personally, in the ordinary case.

What happens to TDS credit deducted from the corporate debtor's income before it was admitted to CIRP?

Credit for tax deducted from the corporate debtor's own income before admission is governed by the ordinary Chapter XVII-B mechanism and Rule 37BA, and is claimed by the corporate debtor, through the resolution professional, against its own tax liability in the usual way. Admission to CIRP does not itself affect the corporate debtor's entitlement to credit for tax already deducted by others on payments made to it; the entitlement continues to be matched against its permanent account number as before.

Why does the goods and services tax framework require a fresh registration for a corporate debtor in CIRP when income tax does not?

The goods and services tax framework has a notified special procedure requiring a corporate debtor undergoing CIRP to obtain a fresh registration during the insolvency resolution process, reflecting the distinct compliance architecture of indirect tax. The Income-tax Act, 1961 contains no equivalent requirement: the corporate debtor's permanent account number, tax deduction account number, and e-filing profile continue unchanged throughout CIRP, with only the authorised signatory changing to the resolution professional.

Can a certificate obtained under section 197 be used for payments to a different bank account of the corporate debtor?

The certificate under section 197 is issued against a specific deductor account number, for a defined period, and up to a stated amount. A payer must verify these particulars on the reporting portal before relying on the certificate and must deposit tax against the same account number for which it was issued. Applying the certificate to a different account, beyond its validity period, or beyond the certified ceiling results in a short deduction for which the payer remains answerable under section 201.

What is the effect of section 238 of the Insolvency and Bankruptcy Code, 2016 on tax provisions like section 178?

Section 238 of the Code gives the Code overriding effect over anything inconsistent in any other enactment in force, including the Income-tax Act, 1961. Although section 178(6) of the IT Act itself declares that section to have effect notwithstanding other laws, courts have held that this does not survive contact with the Code: section 178 does not override the distribution waterfall set out in section 53(1)(e) of the Code once liquidation is under way.

Does the omission of section 206C(1H) change a buyer's obligation under section 194Q?

No. Section 194Q obliges a buyer whose turnover exceeded ten crore rupees in the preceding financial year to deduct on purchases of goods above fifty lakh rupees from a resident seller, and this obligation is unaffected by the insolvency of the seller. What has changed is the overlapping seller-side collection under section 206C(1H), which stood omitted with effect from 1 April 2025, removing the earlier duplication between deduction and collection on the same transaction.

Who deposits tax deducted at source when a liquidator, rather than a resolution professional, is in charge?

The deposit obligation continues to run against the corporate debtor's existing tax deduction account number regardless of whether an interim resolution professional, a resolution professional, or a liquidator is currently authorised to act for it. Section 178 of the Income-tax Act, 1961 separately requires a liquidator to notify the Assessing Officer of the appointment within thirty days and imposes personal liability on the liquidator for parting with assets before the tax authority notifies the amount to be set aside, a distinct obligation from the routine Chapter XVII-B withholding duty a counterparty owes as payer.

Vikrant D. Shetty | Vikrant D. Shetty leads the Insolvency and Corporate Practice at the law firm Vikrant D. Shetty & Associates, Advocates & Solicitors, which advises financial creditors, operational creditors and corporate debtors in proceedings before the National Company Law Tribunal (NCLT), Mumbai Bench, and advises Indian and international clients on commercial contracts, counterparty compliance, withholding tax exposure on distressed transactions and regulatory matters, appearing before the Bombay High Court in disputes involving companies, insolvency and contractual enforcement.

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This article is for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please seek direct consultation with an advocate.