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Income Tax Bill 2025 Clause 496 grants Special Courts exclusive jurisdiction over tax offences replacing Section 280B The Income Tax Bill 2025's Clause 496 establishes exclusive jurisdiction for Special Courts to try tax offences, replacing Section 280B of the Income-tax Act 1961. The provision includes an overriding clause against the Bharatiya Nagarik Suraksha Sanhita 2023, requires authorized authority complaints for cognizance, and provides transitional arrangements for pending cases. Key changes include updated references to the new criminal procedure code and cross-reference to section 520 instead of section 292. The framework maintains policy continuity while modernizing procedural alignment, ensuring specialized adjudication of tax offences through designated courts with flexibility for geographical or case-specific designations.
Income Tax Bill 2025 Clause 495 creates Special Courts for tax offense trials with specialized magistrates The Income Tax Bill, 2025's Clause 495 establishes Special Courts for tax offense trials, continuing the framework from Section 280A of the Income-tax Act, 1961. The Central Government, after consulting with the Chief Justice of the High Court, may designate Judicial Magistrates of first class as Special Courts for specific areas or case categories. These courts can also try connected offenses under the Bharatiya Nagarik Suraksha Sanhita, 2023, which replaces the Code of Criminal Procedure, 1973. The provision aims to ensure specialized, expeditious adjudication of tax offenses while maintaining judicial oversight and procedural consistency with updated criminal procedure laws.
Income Tax Bill 2025 Clause 494 criminalizes unauthorized taxpayer information disclosure with six months imprisonment and fines Clause 494 of the Income Tax Bill, 2025 criminalizes unauthorized disclosure of taxpayer information by public servants, imposing imprisonment up to six months and fines for violations of section 258(3). The provision requires prior Central Government sanction for prosecution. This mirrors Section 280 of the Income-tax Act, 1961, maintaining identical punishment and procedural safeguards while updating cross-referenced confidentiality provisions. The legislation aims to protect taxpayer privacy and maintain tax administration integrity through deterrent criminal penalties. The comparative analysis reveals substantial continuity between the old and new provisions, with the primary change being reference to reorganized confidentiality sections in the modernized tax code.
Income Tax Bill 2025 Clause 493 allows tax authority records as evidence in prosecutions The Income Tax Bill 2025's Clause 493 addresses proof of official entries in tax prosecutions, mirroring Section 279B of the Income Tax Act 1961. The provision mandates that entries in records maintained by income-tax authorities shall be admitted as evidence in prosecution proceedings for tax offences. Evidence may be proved through either production of original records or certified copies signed by the custodian authority, stating authenticity and custody of originals. While substantively identical to existing law, the new clause restructures the provision into clearer sub-clauses for better readability, maintaining the same evidentiary framework for tax prosecutions.
Income Tax Bill 2025 Clause 492 makes specific tax offences non-cognizable requiring warrants for arrest The Income Tax Bill 2025's Clause 492 designates certain tax offences as non-cognizable, overriding the Bharatiya Nagarik Suraksha Sanhita 2023. This provision covers offences under sections 476, 478, 479, 480, 482, and 484, requiring warrants for arrest and judicial authorization for investigations. The clause succeeds Section 279A of the Income-tax Act 1961, which similarly classified specific tax offences as non-cognizable under the former Criminal Procedure Code. This legislative approach balances tax enforcement with procedural safeguards, protecting taxpayers from arbitrary arrest while maintaining prosecution capabilities through judicial oversight and encouraging voluntary compliance.
Income Tax Bill 2025 Clause 491 expands prosecution sanction authorities and strengthens oversight procedures The Income Tax Bill 2025's Clause 491 updates prosecution procedures from Section 279 of the Income Tax Act 1961. Both provisions require prior sanction from designated senior officers before initiating prosecution for specified tax offences. Key features include: empowering authorities to grant prosecution sanction, allowing compounding of offences before or after proceedings, prohibiting prosecution where penalties are waived or reduced, establishing evidentiary rules for statements made during proceedings, and granting the Board power to issue binding instructions. The 2025 provision expands sanctioning authorities to include appellate officers and strengthens centralized oversight while maintaining core safeguards against arbitrary prosecution.
Income Tax Bill 2025 Clause 490 shifts burden to accused proving no culpable mental state in tax prosecutions The Income Tax Bill 2025's Clause 490 establishes a presumption of culpable mental state in tax prosecutions, nearly identical to Section 278E of the Income Tax Act 1961. The provision requires courts to presume the existence of mens rea (including intention, motive, knowledge, or belief) in tax offense prosecutions. The accused may rebut this presumption but must prove absence of culpable mental state beyond reasonable doubt, shifting the evidentiary burden from prosecution to defense. This approach aims to address difficulties in proving intent in complex tax cases while maintaining balance through the defense opportunity, though it raises concerns about presumption of innocence.
Income Tax Bill 2025 Clause 489 creates rebuttable presumptions for assets found during searches including virtual digital assets The Income Tax Bill, 2025's Clause 489 updates presumptions in tax offense prosecutions, replacing Section 278D of the Income-tax Act, 1961. The provision creates rebuttable presumptions regarding ownership and authenticity of assets, books, and documents found during searches under section 247 or requisitions under section 248. Key updates include explicit coverage of virtual digital assets, reflecting modern economic realities. The presumption applies to persons in possession and those referenced in section 484. Like its predecessor, the provision shifts evidentiary burden to facilitate prosecution while maintaining rebuttable nature to protect due process rights.
Clause 488 Income Tax Bill 2025 maintains karta liability for HUF tax offences with due diligence defence Clause 488 of the Income Tax Bill, 2025 addresses criminal liability for tax offences committed by Hindu Undivided Families, essentially replicating Section 278C of the Income-tax Act, 1961. The provision creates a statutory presumption that the karta is guilty of offences committed by the HUF, with defences available for lack of knowledge or due diligence. Other family members may also face liability if they consented to, connived in, or neglected duties leading to the offence. The clause maintains the existing framework's balance between ensuring accountability and preventing unjust punishment, with no substantive changes from current law.
Income Tax Bill 2025 Clause 487 creates corporate tax liability for directors and officers The Income Tax Bill 2025's Clause 487 establishes liability for corporate tax offences, mirroring Section 278B of the Income-tax Act 1961 with minimal changes. The provision creates deemed guilt for persons in charge of companies when offences occur, while allowing defenses for lack of knowledge or due diligence. It also imposes liability on directors, managers, and officers for offences committed with their consent, connivance, or neglect. Companies face fines while individuals may receive imprisonment and fines. The clause covers all business entities including firms and associations, ensuring comprehensive coverage against tax evasion through corporate structures.
Income Tax Bill 2025 Clause 486 narrows reasonable cause defense compared to current Section 278AA coverage The Income Tax Bill 2025's Clause 486 and the Income-tax Act 1961's Section 278AA both provide a "reasonable cause" defense against criminal liability for tax-related failures. Clause 486 applies to failures under sections 476 and 477 of the new Bill, while Section 278AA covers failures under sections 276A, 276AB, 276B, and 276BB of the current Act. Both provisions require the accused to prove reasonable cause existed for non-compliance. The defense operates as a non obstante clause, overriding penal consequences when successfully invoked. While sharing similar objectives of balancing deterrence with fairness, Clause 486 has a narrower scope than Section 278AA, potentially limiting its protective coverage for taxpayers.
Income Tax Bill 2025 Clause 485 imposes six months to seven years imprisonment for repeat tax offenders The Income Tax Bill 2025's Clause 485 introduces enhanced penalties for repeat tax offenders, mirroring Section 278A of the Income-tax Act 1961. The provision mandates rigorous imprisonment of six months to seven years plus mandatory fines for individuals convicted of second or subsequent offenses under specified sections (476, 477, 478(1), 479, 480, 482, 484). Key similarities include the trigger mechanism requiring prior conviction, identical punishment ranges, and mandatory minimum sentences. Primary differences involve the covered offense sections, with the new clause consolidating and potentially modernizing the approach. The provision reflects legislative intent to deter recidivism through stringent penalties while maintaining policy continuity from the existing framework.
Taxpayer challenges constitutional validity of abetment provisions criminalizing assistance in filing false tax returns A taxpayer challenged the constitutional validity of abetment provisions in tax legislation. The Income Tax Bill 2025's Clause 484 criminalizes abetting or inducing false tax returns, maintaining similar structure to existing Section 278 of the Income-tax Act 1961. Both provisions prescribe rigorous imprisonment of six months to seven years for amounts exceeding twenty-five lakh rupees, and three months to two years for lesser amounts, plus mandatory fines. The offence requires knowledge of falsity or disbelief in truth. The new provision excludes fringe benefits references, reflecting policy shifts while maintaining quantum thresholds and sentencing structures for deterring tax evasion facilitators.
Income Tax Bill 2025 Clause 483 criminalizes falsifying documents to help others evade tax with imprisonment up to two years The Income Tax Bill 2025's Clause 483 criminalizes falsification of books of account or documents with intent to enable another person to evade tax, interest, or penalty. The provision prescribes rigorous imprisonment for three months to two years plus fine. It requires proving willful conduct and intent to facilitate evasion but eliminates the need to prove actual evasion occurred. This clause substantially mirrors Section 277A of the Income-tax Act 1961, maintaining identical punishment and scope while targeting both direct offenders and facilitators of tax evasion schemes.
Taxpayer faces criminal prosecution for false tax statements under Section 277 and proposed Clause 482 with graded punishment A taxpayer faces criminal prosecution for making false statements in tax verifications or submitting false accounts under both the existing Income Tax Act, 1961 (Section 277) and the proposed Income Tax Bill, 2025 (Clause 482). The provisions require proof that the person knew or believed the statement was false. Punishment is graded based on potential tax evasion: where evaded tax exceeds twenty-five lakh rupees, rigorous imprisonment ranges from six months to seven years plus fine; in other cases, three months to two years plus fine. The 2025 Bill maintains nearly identical language and structure as the 1961 Act, ensuring continuity in enforcement and judicial interpretation while deterring deliberate tax evasion.
Income Tax Bill 2025 Clause 481 criminalizes willful failure to produce tax documents with one year imprisonment and mandatory fine The Income Tax Bill 2025's Clause 481 criminalizes willful failure to produce accounts and documents as required by tax authorities, prescribing rigorous imprisonment up to one year and mandatory fine. This provision largely mirrors Section 276D of the Income-tax Act 1961, maintaining similar penal consequences for non-compliance with statutory notices. The key difference lies in updated procedural references and slightly modified language regarding fine imposition. Both provisions require proof of willful default rather than mere negligence, serving as enforcement tools to compel taxpayer compliance and deter obstruction of assessment processes. The provision emphasizes maintaining proper documentation and timely response to official requisitions.
Income Tax Bill 2025 Clause 480 sets criminal penalties for willful failure to file returns after search operations The Income Tax Bill 2025's Clause 480 addresses criminal penalties for willful failure to file income tax returns following search operations. The provision prescribes imprisonment of three months to three years plus fines for deliberate non-compliance with notices issued under section 294(1)(a). This replaces Section 276CCC of the 1961 Act with similar penalties but removes transitional exemptions and aligns with the new legislative framework. The offense requires proving willful intent, providing safeguards against inadvertent lapses while maintaining strong deterrent measures against tax evasion in search cases.
Income Tax Bill 2025 Clause 479 extends compliance window for filing returns to avoid criminal prosecution The Income Tax Bill 2025's Clause 479 replaces Section 276CC of the Income-tax Act 1961, criminalizing willful failure to file income tax returns. Both provisions impose graded punishments based on tax evasion amounts: rigorous imprisonment of 6 months to 7 years plus fine if tax evaded exceeds Rs. 25 lakh, otherwise 3 months to 2 years imprisonment plus fine. Key change: Clause 479 extends the compliance window from "assessment year" to "one year from tax year end" for avoiding prosecution. Both exempt prosecution if returns are filed within specified timeframes or if tax payable by individuals doesn't exceed Rs. 10,000. The updated provision modernizes terminology while maintaining deterrent effect against deliberate non-compliance.
Income Tax Bill 2025 Clause 478 maintains criminal penalties for tax evasion with imprisonment up to seven years The Income Tax Bill 2025's Clause 478 largely replicates Section 276C of the Income-tax Act 1961, criminalizing wilful attempts to evade tax, penalty, or interest. Both provisions impose rigorous imprisonment of six months to seven years for evasion exceeding Rs. 25 lakh, and three months to two years for lesser amounts, plus fines. The provisions include identical Rs. 25 lakh thresholds, quantum-based punishment structures, and inclusive definitions of wilful attempt covering false entries, statements, and omissions. Minor modifications in Clause 478 include modernized language and clearer penalty provisions, while maintaining the core framework for prosecuting tax evasion with requirements for proving deliberate intent.
Income Tax Bill 2025 Clause 477 mirrors existing criminal penalties for non-deposit of collected taxes The Income Tax Bill 2025's Clause 477 maintains substantially identical provisions to Section 276BB of the Income Tax Act 1961 regarding criminal liability for failure to deposit tax collected at source. Both provisions prescribe rigorous imprisonment of three months to seven years plus fine for non-payment of collected taxes. The key exemption remains unchanged - no prosecution if payment is made before the deadline for filing the prescribed statement. The primary differences are structural, involving renumbering of cross-referenced sections rather than substantive changes. This continuity ensures smooth transition while maintaining deterrent effect against misappropriation of collected taxes, though interpretational issues regarding multiple offences and vicarious liability may require judicial clarification.
Tax Deduction Failures and Direct Payment Modernizing the Assessee's Obligations :Clause 391 of the Income Tax Bill, 2025 Vs. Section 191 of the Income-tax Act, 1961
Clause 391 of the Income Tax Bill, 2025, represents a significant statutory provision governing the direct payment of income tax by an assessee in circumstances where tax deduction at source (TDS) is either not mandated or not effectuated. The provision is a successor and re-codification of the principles enshrined in Section 191 of the Income-tax Act, 1961, which has, for decades, formed the backbone of the direct payment mechanism under Indian tax jurisprudence. This commentary provides an in-depth analysis of Clause 391, its objectives, operative mechanics, and implications, and juxtaposes its provisions with those of the extant Section 191, highlighting both continuity and innovation in legislative approach. The analysis also delves into the practical and compliance implications for stakeholders, and explores interpretative nuances that may arise in application.
Objective and Purpose
The primary objective of Clause 391, much like Section 191 of the 1961 Act, is to ensure the collection of income tax in situations where the mechanism of TDS does not operate, is not applicable, or has failed. The legislative intent is twofold:
First, to prevent revenue leakage by placing the ultimate responsibility for tax payment on the recipient of income (the assessee) in the absence of TDS, and
Second, to provide a clear legal framework for the timing and manner of such direct payment, including special provisions for specified securities or sweat equity shares allotted by eligible start-ups.
The provision is also designed to reinforce the accountability of persons responsible for deducting tax at source, by deeming them assessees-in-default in cases of non-deduction or non-payment, subject to the failure of the recipient to discharge the tax liability directly.
The sub-clause (1) codifies the principle that the liability to pay income tax is not extinguished merely because the mechanism of TDS is not triggered. Two scenarios are envisaged:
No TDS Provision: Where the nature of income is such that the law does not require TDS at the time of payment (for example, certain exempt incomes, or incomes outside the TDS net), the assessee must pay tax directly.
Failure to Deduct: Where TDS is required but has not been effected (either due to oversight, error, or intentional omission), the onus shifts to the assessee to pay the tax directly.
This ensures that the tax liability is not contingent upon the actions or inactions of the payer, and that the revenue's right to collect tax remains intact.
Special Provision for Specified Securities or Sweat Equity Shares
The sub-clause (2) addresses a contemporary issue arising from the grant of specified securities or sweat equity shares by eligible start-ups to employees. Recognizing the unique challenges in taxing such perquisites-often illiquid and difficult to value at the time of grant-the provision mandates a deferred timeline for direct tax payment, as prescribed in section 289(3). The cross-reference to section 17(1)(d) and section 140 ensures that the provision is tightly scoped to start-up-related employee stock benefits.
The rationale is to balance the need for tax collection with the practical difficulties faced by employees in liquidating such securities to meet tax obligations immediately upon grant.
Consequences of Non-deduction/Non-payment by Deductor or Employer
The sub-clause (3) creates a cascading liability mechanism. If the person responsible for TDS (including principal officers and employers) fails in their duty, and the assessee also defaults in direct payment, the former is deemed an assessee in default for the purposes of section 398(1) (analogous to section 201(1) of the 1961 Act). This provision:
Ensures accountability of the deductor/employer, and
Protects the revenue by providing a fallback liability on the payer in addition to the payee.
The deeming fiction is "apart from any other consequences", preserving the applicability of penalties, interest, and prosecution under other provisions.
Practical Implications
For Assessees: There is an unequivocal obligation to pay tax directly on incomes not subject to TDS, or where TDS has not been deducted. This requires vigilance in tax computation and timely payment to avoid interest and penalty consequences.
For Employers and Deductors: The risk of being treated as an assessee in default is contingent on the failure of both the deductor and the assessee. However, if the assessee discharges the tax liability, the deductor is shielded from default status, though interest for delayed deduction may still apply.
For Start-up Employees: The deferred tax payment mechanism for sweat equity or ESOPs provides relief, but also necessitates tracking of statutory timelines (as per section 289(3)), which may be linked to sale of shares, cessation of employment, or expiry of specified periods.
For the Revenue: The provision maintains the integrity of tax collection, ensuring that procedural lapses in TDS do not result in permanent revenue loss.
Both Clause 391 and Section 191 share a common legislative ancestry and are structurally similar in their core components:
Direct Payment Principle: Both provisions declare that the assessee is liable to pay tax directly where TDS is not applicable or not deducted.
Special Provision for Specified Securities/Sweat Equity: Section 191(2) (inserted by the Finance Act, 2020) provides a specific timeline for direct payment of tax on ESOPs granted by eligible start-ups, mirroring Clause 391(2), though with cross-references to different sections (section 80-IAC in the 1961 Act; section 140 in the 2025 Bill).
Deeming Default: Both provisions create a deeming fiction for the person responsible for deduction (including principal officers and employers) to be treated as an assessee in default if both the deductor and the assessee fail to pay the tax.
Key Differences and Innovations
Legislative Drafting: Clause 391 is more streamlined, with clearer sub-clauses, and cross-references to other sections of the new Bill, reflecting an effort to modernize and clarify the law.
Reference to Start-up Provisions: Section 191(2) refers to "eligible start-ups" u/s 80-IAC of the 1961 Act, whereas Clause 391(2) references section 140 of the 2025 Bill. The substantive eligibility criteria may differ based on the definitions in the respective statutes.
Timeline for Payment: Section 191(2) specifies the tax must be paid within 14 days of the earliest of three events: expiry of 48 months from the end of the relevant assessment year, sale of the security, or cessation of employment. Clause 391(2) defers to section 289(3) for the timeline, suggesting a possible change or rationalization of the payment schedule in the new regime.
Default Provisions: Section 191's explanation links the default to section 201(1) of the 1961 Act, while Clause 391 refers to section 398(1) of the new Bill. The substantive consequences may be similar, but the cross-referencing reflects the new legislative architecture.
Coverage of Principal Officers: Both provisions include principal officers of companies, but Clause 391's language is slightly broader, encompassing persons "including the principal officer of the company."
Clarity and Accessibility: Clause 391, being a product of legislative revision, is arguably more accessible, with explicit sub-clauses and improved readability.
Potential Ambiguities and Issues in Interpretation
Scope of "Direct Payment": Both provisions are silent on the procedural aspects of how and when the assessee is to be notified or reminded of their direct payment obligation, especially in cases of unintentional non-deduction.
Overlap with Advance Tax Provisions: The interaction between direct payment obligations and advance tax requirements could lead to interpretative challenges, particularly in timing and interest computation.
Definition of "Eligible Start-up": Changes in the definition or eligibility conditions u/s 140 (2025 Bill) as compared to section 80-IAC (1961 Act) may affect the scope of relief available to start-up employees.
Deeming Default and Double Jeopardy: The provision that both the deductor and assessee may be liable for the same tax, subject to appropriate credit being given, could give rise to disputes over recovery and adjustment of tax paid.
Cross-referencing: The reliance on other sections (such as section 289(3) and section 398(1)) may require careful navigation to ensure compliance, especially for non-expert assessees.
Implications for Compliance and Administration
Increased Compliance Burden: Assessees must be vigilant in identifying incomes not subject to TDS, and ensure timely direct payment, failing which interest and penalties may be levied.
Employer and Deductor Risk Management: Employers and deductors must maintain robust systems to ensure TDS compliance, but may take comfort in the provision that liability as assessee-in-default arises only if the assessee also defaults.
Start-up Sector: The special provisions for ESOPs and sweat equity shares are a recognition of the unique nature of start-up remuneration, but require careful tracking of vesting, sale, and employment cessation events to trigger tax payment within prescribed timelines.
Revenue Assurance: The dual liability mechanism ensures that the revenue is protected, regardless of which party defaults, and provides for interest and penalty recovery from the appropriate person.
Clause 391 of the Income Tax Bill, 2025, represents a thoughtful continuation and modernization of the principles embodied in Section 191 of the Income-tax Act, 1961. The provision balances the need for effective tax collection with practical realities faced by assessees, particularly in the context of start-up remuneration. While the core principle-that the ultimate liability to pay tax rests with the recipient of income-remains unchanged, the new provision offers improved clarity, accessibility, and administrative robustness.
The comparative analysis reveals a strong continuity of approach, with certain innovations aimed at addressing contemporary challenges, especially in the start-up sector. The cascading liability mechanism, special timelines for ESOP taxation, and streamlined drafting reflect a maturing tax legislative framework. Nevertheless, practical challenges in compliance, potential for interpretative disputes, and the need for clear administrative guidance persist, warranting ongoing attention from both the legislature and the revenue authorities.
Tax Deduction Failures and Direct Payment Modernizing the Assessee's Obligations :Clause 391 of the Income Tax Bill, 2025 Vs. Section 191 of the Income-tax Act, 1961
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Clause 391 of Income Tax Bill 2025 requires direct tax payment when TDS fails or doesn't apply
The Income Tax Bill 2025's Clause 391 modernizes direct tax payment obligations when tax deduction at source fails or is inapplicable. The provision requires assessees to pay tax directly on income not subject to TDS or where TDS was not deducted. It includes special provisions for start-up employee stock benefits, allowing deferred payment timelines. The clause creates cascading liability where both deductors and assessees can be deemed in default if tax remains unpaid. Compared to Section 191 of the 1961 Act, Clause 391 offers streamlined language, updated cross-references, and improved clarity while maintaining core principles of ensuring tax collection regardless of TDS procedural failures.
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