Just a moment...

Report
FeedbackReport
Bars
×

By creating an account you can:

Logo TaxTMI
>
Feedback/Report an Error
Email :
Please provide your email address so we can follow up on your feedback.
Category :
Description :
Min 15 characters0/2000
Make Most of Text Search
  1. Put words in double quotes for exact word search, eg: "income tax"
  2. Avoid noise words such as : 'and, of, the, a'
  3. Sort by Relevance to get the most relevant document.
  4. Press Enter to add multiple terms/multiple phrases, and then click on Search to Search.
  5. Text Search
  6. The system will try to fetch results that contains ALL your words.
  7. Once you add keywords, you'll see a new 'Search In' filter that makes your results even more precise.
  8. Text Search
Add to...
You have not created any category. Kindly create one to bookmark this item!
Create New Category
Hide
Title :
Description :
❮❮ Hide
Expand ❯❯
Close ✕
Filter in All Notes
    Act Rules Bills
    Jurisdictional Framework for Tax Prosecutions : Clause 496 of the Income Tax Bill, 2025 Vs. Section ...
    Act Rules Bills
    Designation and functioning of Special Courts for the trial of offences under the proposed legislati...
    Act Rules Bills
    Legal Protections against Unauthorized Disclosure in Indian Tax Law : Clause 494 of Income Tax Bill,...
    Act Rules Bills
    Proof of Official Entries in Tax Prosecutions : Clause 493 of the Income Tax Bill, 2025 Vs. Section ...
    Act Rules Bills
    Comparative Review of Non-Cognizable Offences in Indian Income Tax Legislation : Clause 492 of the I...
    Act Rules Bills
    Safeguards and Procedures in Income Tax Prosecution : Clause 491 of the Income Tax Bill, 2025 Vs. Se...
    Act Rules Bills
    Judicial and Legislative Perspectives on Mens Rea in Income Tax Prosecutions :Clause 490 of the Inco...
    Act Rules Bills
    Presumptions in Tax Offence Prosecutions : Clause 489 of the Income Tax Bill, 2025 Vs. Section 278D ...
    Act Rules Bills
    Karta and Member Liability for Tax Offences : Clause 488 of the Income Tax Bill, 2025 Vs. Section 27...
    Act Rules Bills
    Directors' and Officers' Liability for Corporate Tax Offences : Clause 487 of the Income Tax Bill, 2...
    Act Rules Bills
    Balancing Deterrence and Fairness : Clause 486 of Income Tax Bill, 2025 Vs. Section 278AA of Income-...
    Act Rules Bills
    Enhanced Penalties for Repeat Tax Offenders specified under Indian Tax Law: Clause 485 of the Income...
    Act Rules Bills
    Penal Provision for abetment in relation to the making and delivering of false returns - Clause 484 ...
    Act Rules Bills
    Penal Provision for Offences Relating to Falsification of Books in Indian Tax Law : Clause 483 of th...
    Act Rules Bills
    Prosecution for False Verification under Indian Tax Statutes : Clause 482 of the Income Tax Bill, 20...
    Act Rules Bills
    Penal Provisions for Failure to Produce Accounts and Documents : Clause 481 of the Income Tax Bill, ...
    Act Rules Bills
    Penal Provision for Failure to Furnish Return in Search Cases : Clause 480 of Income Tax Bill, 2025 ...
    Act Rules Bills
    Penal Provisions for Failure to File Income Tax Returns : Clause 479 of Income Tax Bill, 2025 Vs. Se...
    Act Rules Bills
    Criminal Liability for Tax Evasion in India : Clause 478 of the Income Tax Bill, 2025 Vs. Section 27...
    Act Rules Bills
    Criminal Liability for TCS Defaults : Clause 477 of Income Tax Bill, 2025 vs. Section 276BB of Incom...

Are you sure you want to delete "My most important" ?

NOTE:

Back

All TMI Notes

Showing Results for : Law : AllReset Filters
Kindly select a record to view
Show Listing
Case ID :
Bills

Harmonizing TDS Provisions for National Savings Instruments in India : Clause 393(3)[S.No. 6] of the Income Tax Bill, 2025 Vs. Section 194EE of the Income-tax Act, 1961

📋
Contents
Summary
Note

Note

Note

Bookmark

print

Print

Clause 393 Tax to be deducted at source.

Income Tax Bill, 2025

Introduction

Clause 393 of the Income Tax Bill, 2025, seeks to consolidate, rationalize, and modernize the provisions relating to Tax Deduction at Source (TDS) as part of a comprehensive overhaul of the Indian direct tax regime. This clause introduces a new framework for TDS, covering a wide spectrum of payments and income streams, and is designed to replace several existing provisions in the Income-tax Act, 1961. The focus of this commentary is on Clause 393(3)[Table: S.No. 6], which pertains to TDS on payments in respect of deposits under National Savings Scheme (NSS) and similar schemes. This provision is intended to replace Section 194EE of the Income-tax Act, 1961. A detailed analysis of each aspect of this new provision will be undertaken, followed by a comparative study with the existing law, highlighting continuities, departures, and the practical impact of the changes.

Objective and Purpose

The legislative intent behind Clause 393(3)[Table: S.No. 6] is to streamline the TDS mechanism applicable to withdrawals from specified savings schemes, notably those covered u/s 80CCA(2)(a) of the Income-tax Act, 1961, such as the National Savings Scheme. The provision is aimed at ensuring tax compliance at the point of withdrawal, reducing tax evasion, and simplifying the TDS process for both payers and payees. The threshold for deduction, the rate of deduction, and the exemptions are calibrated to balance the need for revenue with considerations of administrative convenience and taxpayer relief, especially for small investors and legal heirs.

Historically, Section 194EE was introduced to address the issue of untaxed withdrawals from tax-benefited savings schemes. Over time, the provision has been amended to adjust deduction rates and thresholds, reflecting inflation and changes in savings behavior. The new Bill continues this approach but seeks to provide greater clarity and harmonization across various TDS provisions.

Detailed Analysis of Clause 393(3)[Table: S.No. 6] of the Income Tax Bill, 2025

A. Text of the Provision

Clause 393(3)[Table: S.No. 6] sets out the following:

  • Nature of Income or Sum: Any amount referred to in section 80CCA(2)(a) of the Income-tax Act, 1961.
  • Payer: Any person.
  • Rate: 10%.
  • Threshold Limit: Rs. 2,500.

The provision requires any person responsible for paying an amount (as defined above) to deduct income-tax at the rate of 10% at the time of payment, provided the amount or aggregate amount paid during the tax year exceeds Rs. 2,500. The Table under sub-section (4), Sl. No. 19, further provides that payment made to an assessee being an individual, or to the heirs of an assessee, is exempt from TDS under this provision.

B. Key Features and Interpretation

  1. Scope of Application:
    • The provision applies to payments made in respect of deposits under the National Savings Scheme and similar schemes as defined in Section 80CCA(2)(a) of the Income-tax Act, 1961. This includes schemes notified by the Central Government that are eligible for deduction under Chapter VI-A.
    • The payer can be any person, including government entities, post offices, banks, or any other institution managing such schemes.
  2. Obligation to Deduct Tax:
    • The obligation to deduct tax is triggered when the payment is made, irrespective of the mode (cash, cheque, draft, or any other mode).
    • The deduction must be made at the time of payment, aligning with the principle of "pay as you earn" and ensuring timely collection of tax.
  3. Rate of Deduction:
    • The prescribed rate is 10% of the payment amount. This is a flat rate, without reference to the recipient's marginal rate of taxation. The rate is consistent with the current regime u/s 194EE post-2016.
  4. Threshold Limit:
    • No tax is required to be deducted if the amount paid or aggregate of amounts paid to the payee during the tax year is less than Rs. 2,500. This threshold is designed to provide relief to small depositors and reduce administrative burden for both payers and the tax department.
  5. Exemptions:
    • The Table under sub-section (4), Sl. No. 19, specifies that no TDS is required where payment is made to:
      1. An assessee being an individual, or
      2. The heirs of an assessee.
    • This mirrors the exemption for payments to heirs u/s 194EE and extends the benefit to individuals, thereby potentially broadening the scope of exemption.
  6. Procedural Requirements and Compliance:
    • The payer must ensure deduction at the time of payment, deposit the tax with the government within the prescribed time, and file necessary TDS returns/statements.
    • The provision is subject to the general compliance framework under the new Bill, including penalties for failure to deduct or deposit TDS.
  7. Interaction with Declaration for No Deduction:
    • Sub-section (6) of Clause 393 allows certain persons to furnish a declaration that their estimated total income will be below the taxable limit, in which case no TDS is required.
    • However, the Table under sub-section (6) does not specifically list payments under Clause 393(3)[Table: S.No. 6], suggesting that the general rule of declaration may not apply to these payments.

C. Ambiguities and Issues in Interpretation

  • Definition of "Any Person": The provision uses the term "any person" as the payer, which is broad and could include entities not typically associated with NSS-type payments. Clarity may be required through subordinate legislation or guidelines.
  • Aggregation Rule: The threshold of Rs. 2,500 is based on aggregate payments during the tax year. The mechanism for aggregation, especially in cases of multiple accounts or branches, may need further procedural clarification.
  • Overlap with Exemption: There is potential ambiguity regarding the interplay between the basic provision (which covers all payments) and the exemption for individuals and heirs. The legislative intent appears to be to exempt all such payments to individuals and heirs, but the drafting could be more explicit to avoid interpretational disputes.
  • Non-Resident Recipients: The provision is silent on non-resident recipients. However, since the Table is under "FOR PAYMENTS TO ANY PERSON," it could arguably extend to non-residents unless specifically excluded elsewhere in the Bill.

Practical Implications

A. For Payers

  • Procedural Compliance: Entities responsible for making payments under NSS and similar schemes must implement systems to track aggregate payments per payee per tax year and ensure timely deduction and deposit of TDS.
  • Reporting Obligations: Payers must file TDS returns/statements and furnish TDS certificates to payees, enabling them to claim credit in their tax returns.
  • Handling Exemptions: Payers must be vigilant in identifying cases where the exemption for individuals and heirs applies, to avoid unnecessary deduction and subsequent refund claims.

B. For Payees

  • Cash Flow Impact: For payees not covered by the exemption, a 10% deduction at source may impact cash flows, especially if their total income is below the taxable limit and they need to claim a refund.
  • Refund Mechanism: Payees who are exempt but have TDS deducted in error will need to claim refunds through their income tax returns, leading to delays and administrative burden.
  • Documentation: Payees must maintain proper documentation to substantiate their claim for exemption or refund, especially in the case of heirs.

C. For the Tax Administration

  • Monitoring and Enforcement: The tax department will need to monitor compliance with the new provision, including correct application of the threshold and exemptions.
  • Dispute Resolution: The provision may give rise to disputes regarding eligibility for exemption, especially in cases involving heirs or multiple payments.
  • Data Integration: The new regime offers an opportunity to integrate TDS data with taxpayer profiles, improving compliance and reducing evasion.

D. For Heirs and Legal Representatives

  • Simplified Compliance: The explicit exemption for payments to heirs reduces compliance burden and prevents unnecessary tax deduction in cases of succession.
  • Proof of Heirship: Heirs may be required to furnish documentary evidence to establish their status, and payers must have mechanisms to verify such claims.

Comparative Analysis with Section 194EE of the Income-tax Act, 1961

A. Text of Section 194EE (Income-tax Act, 1961)

Section 194EE reads:

The person responsible for paying to any person any amount referred to in clause (a) of sub-section (2) of section 80CCA shall, at the time of payment thereof, deduct income-tax thereon at the rate of ten per cent.
Provided that no deduction shall be made under this section where the amount of such payment or, as the case may be, the aggregate amount of such payments to the payee during the financial year is less than two thousand five hundred rupees:
Provided further that nothing contained in this section shall apply to the payment of the said amount to the heirs of the assessee.

B. Side-by-Side Comparison

Aspect Section 194EE of the Income-tax Act, 1961 Clause 393(3)[Table: S.No. 6] of the Income Tax Bill, 2025
Scope Payments in respect of deposits under NSS and similar schemes (as per 80CCA(2)(a) of the Income-tax Act, 1961) Same scope, refers to Section 80CCA(2)(a) of the Income-tax Act, 1961 for definition
Payer Person responsible for payment Any person
Rate of Deduction 10% (20% prior to 2016) 10%
Threshold Rs. 2,500 per financial year, aggregate basis Rs. 2,500 per tax year, aggregate basis
Exemption for Heirs Yes, explicit Yes, explicit (Table under sub-section (4), Sl. No. 19)
Exemption for Individuals No general exemption; applies to all payees except heirs Table under sub-section (4), Sl. No. 19, exempts individuals and heirs (potentially broader)
Time of Deduction At the time of payment At the time of payment
Declaration for No Deduction No explicit provision No explicit listing under declaration table; general rule may not apply
Procedural Compliance General TDS compliance under the 1961 Act Comprehensive compliance regime under the new Bill

C. Analysis of Key Differences and Similarities

  1. Continuity in Substance:
    • The core requirement to deduct TDS at 10% on withdrawals from specified savings schemes above Rs. 2,500 remains unchanged.
    • The exemption for payments to heirs is continued.
  2. Potential Broadening of Exemption:
    • The exemption under the new Bill (Table under sub-section (4), Sl. No. 19) appears to cover both individuals and heirs, which may be interpreted as a broader exemption than u/s 194EE, which only exempted heirs. If so, this would mean that all payments to individuals (not just heirs) are exempt from TDS, reducing the reach of the provision significantly.
    • This may be an intentional policy shift to reduce compliance burden for individual investors or may require clarification to avoid unintended revenue loss.
  3. Terminology and Structure:
    • The new Bill uses updated terminology ("any person" as payer, "tax year" instead of "financial year") and a tabular structure for clarity and ease of reference.
    • The organization of exemptions and thresholds is more systematic, with a consolidated table for no deduction at source.
  4. Procedural Modernization:
    • The new Bill is part of a broader effort to modernize tax administration, with likely integration of electronic compliance, centralized TDS returns, and real-time reporting.
    • This should facilitate easier compliance for payers and improved monitoring for the tax department.
  5. Absence of Declaration Mechanism:
    • Unlike some TDS provisions which allow payees to furnish declarations for non-deduction (e.g., Form 15G/15H u/s 197A), neither Section 194EE nor the new provision explicitly provides for such a mechanism. This continues under the new regime, maintaining the same compliance approach.
  6. Potential for Ambiguity:
    • The new provision's broader language regarding exemption for individuals may lead to interpretational disputes, especially if the legislative intent was only to exempt heirs, as under the previous regime. Clarificatory circulars or amendments may be necessary.

D. Policy Considerations and Rationale for Changes

  • Administrative Efficiency: By consolidating TDS provisions and clarifying thresholds/exemptions, the new Bill aims to reduce administrative complexity and improve compliance.
  • Taxpayer Relief: The potential expansion of exemption to all individuals (if so intended) would provide significant relief to small savers, aligning with the government's objective of promoting financial inclusion and encouraging long-term savings.
  • Revenue Protection: The retention of a low threshold and a flat deduction rate seeks to minimize revenue leakage while balancing the burden on small investors.

Conclusion

Clause 393(3)[Table: S.No. 6] of the Income Tax Bill, 2025 represents a faithful and modernized continuation of the regime established by Section 194EE of the Income-tax Act, 1961. The key features-scope, rate, threshold, and exemptions-remain unchanged, reflecting legislative satisfaction with the existing policy. The 2025 Bill enhances procedural clarity, integrates TDS provisions into a unified framework, and ensures the regime's relevance in the context of modern payment systems. For stakeholders, the practical impact is minimal, as the substance of the law is preserved. The explicit exemption for heirs, clear thresholds, and alignment with digital payment practices ensure fairness and administrative efficiency. However, the unchanged threshold may warrant future review to reflect economic realities. The harmonization and consolidation of TDS provisions in the 2025 Bill, as exemplified by Clause 393(3)[Table: S.No. 6], signal a commitment to clarity, ease of compliance, and continued vigilance in tax administration.


Full Text:

Clause 393 Tax to be deducted at source.

Topics

ActsIncome Tax