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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 at Source on Securitisation Trust Distributions : Clause 393(1)[Table: S.No. 4(iv)] and Clause 393(2)[Table: S.No. 9] of the Income-tax Bill, 2025 Vs. Section 194LBC of the Income Tax Act, 1961
Legal Commentary: Tax Deduction at Source on Income from Securitisation Trusts under the Income Tax Bill, 2025 and Section 194LBC of the Income-tax Act, 1961
Introduction
The taxation of income arising from investments in securitisation trusts has been a focus area in Indian tax law, reflecting the need to ensure proper reporting and collection of tax on complex financial instruments. The Income Tax Bill, 2025, through Clause 393(1)[Table: S.No. 4(iv)] and Clause 393(2)[Table: S.No. 9], proposes a framework for tax deduction at source (TDS) on such income, for both resident and non-resident investors. These provisions are intended to replace and rationalize the existing regime u/s 194LBC of the Income-tax Act, 1961, which specifically governs TDS on income from securitisation trusts.
This commentary provides a detailed analysis of the relevant clauses in the Income Tax Bill, 2025, a comparative assessment with Section 194LBC of the 1961 Act, and an exploration of the practical and legal implications of the proposed changes. The focus will be on the statutory language, legislative intent, operational mechanics, and the impact on stakeholders, with particular attention to potential ambiguities, compliance requirements, and areas for future clarification.
Objective and Purpose
The legislative intent behind TDS provisions for income from securitisation trusts is twofold. First, to ensure timely collection of tax on income distributed by such trusts, which are often structured in ways that may otherwise escape immediate taxation. Second, to provide administrative convenience and certainty in the tax treatment of such income, given the diversity of investors (residents and non-residents) and the complexity of securitisation transactions. The evolution from Section 194LBC to the proposed regime under the Income Tax Bill, 2025, is informed by the need for simplification, alignment with international best practices, and the closing of loopholes that may have been exploited under the prior regime.
"Any income, in respect of an investment in a securitisation trust specified in section 221 to an investor."
- Payer: Any securitisation trust specified in section 221.
- Rate: 10%
- Threshold limit: Nil.
Interpretation and Scope:
This provision mandates that any income distributed by a securitisation trust (as defined in section 221) to an investor, who is a resident, is subject to TDS at the rate of 10%, with no minimum threshold for deduction. The absence of a threshold means that even a single rupee of income paid to a resident investor triggers TDS liability.
Mechanics of Deduction:
- The deduction is to be made at the earlier of credit or payment, aligning with the general TDS principles.
- The responsibility to deduct lies with the securitisation trust, which is consistent with the entity-based approach to TDS.
- The provision covers all forms of income distributed by the trust, unless specifically exempted elsewhere in the Act.
Key Features:
Uniform rate of 10% for all resident investors, regardless of their status (individual, HUF, company, etc.).
No threshold, ensuring comprehensive tax coverage.
Clear identification of the payer and payee, reducing ambiguity in compliance.
Potential Ambiguities:
- The provision does not explicitly distinguish between types of income (e.g., interest, principal, capital gains) distributed by the trust. However, by referring to "any income," it is presumed to cover all taxable distributions.
- The definition of "securitisation trust" is cross-referenced to section 221, which must be carefully interpreted to avoid disputes on the scope of covered entities.
"Any income in respect of an investment in a securitisation trust specified in section 221."
- Payee: Any investor, being a non-resident (not being a company) or a foreign company.
- Payer: Any securitisation trust specified in section 221.
- Rate: Rates in force.
Interpretation and Scope:
This provision applies to income distributed by a securitisation trust to non-resident investors (including foreign companies). Unlike the resident case, the rate of TDS is not fixed at 10% but is to be applied at "rates in force," which typically means the rates prescribed under the Finance Act or applicable Double Taxation Avoidance Agreements (DTAAs).
Mechanics of Deduction:
- TDS is to be deducted at the earlier of credit or payment.
- The trust is responsible for deduction.
- The "rates in force" concept may require reference to the relevant Finance Act and DTAAs, potentially necessitating grossing up if the tax is to be borne by the payer.
Key Features:
Applies to all non-resident investors, regardless of their legal form.
Variable rate, increasing complexity but allowing for treaty relief.
No threshold, ensuring all payments are covered.
Potential Ambiguities:
- The need to determine the applicable "rates in force" for each payee may create administrative complexity.
- The provision does not specify whether grossing up is mandatory if the tax is to be borne by the payer under an agreement, but general principles would apply.
Practical Implications
For Securitisation Trusts (Payers)
Compliance: Trusts must ensure TDS is deducted at the applicable rate (10% for residents, rates in force for non-residents) on every distribution, with proper reporting and remittance to the government.
Documentation: Trusts must maintain records of payee status (resident/non-resident, individual/non-individual), applicable rates, and any treaty documentation for non-residents.
Thresholds: The elimination of thresholds means even small distributions must be tracked and TDS applied.
Suspense Accounts: Both regimes ensure that credit to any account (including suspense accounts) is deemed a credit to the payee for TDS purposes, preventing deferral of TDS.
For Investors (Payees)
Residents: Will receive income net of 10% TDS, which can be claimed as credit against their final tax liability.
Non-Residents: Subject to TDS at rates in force, and may be eligible for lower rates under DTAAs. Must furnish appropriate documentation (e.g., tax residency certificate) to avail treaty benefits.
Refunds: If the investor's final tax liability is lower than the TDS deducted, they must claim a refund through the return filing process.
For Tax Authorities
Enforcement: The comprehensive coverage and reporting requirements facilitate tracking and enforcement of tax compliance on income from securitisation trusts.
Information Flow: The alignment of TDS provisions with PAN/Aadhaar requirements enhances information flow and reduces evasion.
Potential Issues and Ambiguities
Nature of Income: Both regimes refer to "any income" from the trust, but disputes may arise if the trust distributes amounts that include return of principal or capital gains. Clarification may be needed on the tax treatment of such components.
Double Taxation: Non-resident investors may face TDS in India and taxation in their home country. Treaty provisions mitigate this, but procedural complexities remain.
Grossing Up: Where the tax is to be borne by the trust (payer) under an agreement, grossing up provisions must be carefully applied to ensure the correct amount of TDS is remitted.
Section 194LBC was inserted in 2016 to address the growing importance of securitisation trusts in the Indian financial sector and to ensure that income distributed by such trusts was subject to appropriate TDS. The section has since been amended to rationalize rates and align with evolving policy objectives.
Key Features:
For residents, a flat rate of 10% TDS (from 1 April 2025; previously, higher rates applied to non-individuals).
For non-residents, TDS at "rates in force," allowing for DTAA application.
Applies to all forms of income from securitisation trusts, unless specifically exempted.
Specific deeming provision for suspense accounts, ensuring TDS cannot be avoided by crediting to such accounts.
1. Scope and Applicability
Both the new Bill and Section 194LBC apply to income distributed by securitisation trusts to investors, covering both residents and non-residents.
The definition of "securitisation trust" is now harmonized under the Bill (section 221), whereas Section 194LBC referenced clause (d) of the Explanation after section 115TCA. This harmonization is aimed at reducing interpretational disputes.
2. TDS Rates
For Residents:
Section 194LBC (as amended from 1 April 2025): Flat 10% for all residents.
Income Tax Bill, 2025: Flat 10% for all residents (Clause 393(1)[Table: S.No. 4(iv)]).
Significance: The Bill cements the rate at 10% for all residents, removing the earlier (pre-2025) differential rates for individuals/HUFs and others.
For Non-Residents:
Both regimes: TDS at "rates in force," allowing for treaty application.
No threshold in either regime, ensuring all distributions are covered.
3. Timing of Deduction
Both regimes require TDS at the earlier of credit or payment, ensuring timely tax collection and preventing deferral through accounting practices.
4. Thresholds
Neither regime prescribes a monetary threshold for TDS on income from securitisation trusts. This ensures even small amounts are subject to TDS, reducing the risk of revenue leakage.
5. Deeming Provisions
Both regimes have deeming provisions that treat credits to suspense accounts or similar as credits to the payee, ensuring TDS cannot be avoided by mere accounting entries.
6. Definitions and Cross-References
The new Bill consolidates the definition of "securitisation trust" u/s 221, providing a single point of reference. Section 194LBC relied on an Explanation after section 115TCA, which could lead to confusion.
7. Procedural and Compliance Aspects
The Bill aligns the TDS procedure for securitisation trusts with the broader TDS framework, including reporting, remittance, and information requirements.
No major changes are envisaged in the compliance burden for trusts or investors, except for the harmonization and simplification of rate structures.
8. Exemptions and Non-deduction Cases
Both regimes allow for non-deduction in cases where the income is exempt or where the payee provides a valid declaration (e.g., nil tax liability). The Bill further clarifies such scenarios in its detailed tables for non-deduction at source.
9. Policy Rationale and Evolution
The shift from the earlier, more complex rate structure of Section 194LBC (with higher rates for non-individuals) to a uniform 10% rate for residents reflects a policy decision to simplify the regime and reduce the cost of compliance.
The continued use of "rates in force" for non-residents acknowledges the importance of treaty relief and the need to avoid double taxation.
Practical Implications
1. For Securitisation Trusts (Payers)
Trusts must ensure robust systems for identifying resident and non-resident investors, applying the correct TDS rate, and complying with reporting requirements.
The harmonisation of the rate for residents at 10% simplifies system configuration and reduces the risk of errors.
For non-resident investors, trusts must track changes in tax treaties, Finance Act rates, and maintain documentation for lower withholding under DTAA, if applicable.
Any ambiguity in the definition of "securitisation trust" or "investor" under the new Bill must be clarified internally or through legal advice to avoid inadvertent non-compliance.
2. For Investors
Resident investors will benefit from the reduction in TDS rates (for non-individuals) and the certainty of a flat rate, but must continue to monitor TDS credits and claim refunds if tax deducted exceeds their actual tax liability.
Non-resident investors must ensure that their documentation is in order to avail of treaty benefits and avoid excess withholding.
Both resident and non-resident investors should be aware that TDS is only a mechanism for tax collection; the actual tax liability will be determined at the time of assessment, and excess TDS can be claimed as a refund.
3. For Tax Authorities
The shift to a harmonised TDS regime reduces administrative complexity and potential for disputes over rates and categorisation of investors.
However, the need to monitor compliance with DTAA provisions for non-residents remains a challenge, especially given the increasing sophistication of cross-border investment structures.
Potential Ambiguities and Issues in Interpretation
The Bill's reference to "securitisation trust specified in section 221" requires close scrutiny of the definition in section 221 to ensure continuity with the existing regime. Any change could inadvertently exclude or include certain trusts.
The term "income" is not defined in these provisions, but judicial and administrative guidance suggests that only the income component (and not principal repayment) should be subject to TDS. However, in practice, trusts must carefully segregate income and principal in their distributions.
The Bill does not provide for any threshold exemption, which may result in small investors being subject to TDS and having to seek refunds if their income is below the taxable limit.
The obligation to deduct at "rates in force" for non-residents requires trusts to stay abreast of changes in the Finance Act and DTAAs, increasing compliance complexity.
The possibility of double deduction (e.g., if income is also subject to TDS under another provision) is not addressed, but in practice, the specific provision for securitisation trust income should prevail.
Conclusion
The provisions for TDS on income from securitisation trusts under the Income Tax Bill, 2025, represent a logical evolution from the regime established by Section 194LBC of the Income-tax Act, 1961. The new framework harmonizes rates, clarifies definitions, and aligns the compliance process with the broader TDS architecture, thereby reducing complexity and the potential for disputes. For resident investors, the move to a flat 10% rate simplifies tax planning and administration. For non-residents, the continued application of "rates in force" ensures compatibility with international tax obligations and treaty rights.
While the new provisions are largely a restatement and rationalization of the old regime, their clarity and alignment with modern financial practices are significant. Securitisation trusts and their investors must remain vigilant in compliance, particularly in documenting payee status, applying the correct rates, and managing cross-border tax issues. The tax authorities, in turn, should issue clarifications and guidance as needed to address any residual ambiguities, particularly regarding the character of distributed income and the application of grossing up provisions.
The overall approach of the Income Tax Bill, 2025, to TDS on income from securitisation trusts is a positive step towards a more transparent, predictable, and administratively efficient tax regime for complex financial instruments in India.
Tax Deduction at Source on Securitisation Trust Distributions : Clause 393(1)[Table: S.No. 4(iv)] and Clause 393(2)[Table: S.No. 9] of the Income-tax Bill, 2025 Vs. Section 194LBC of the Income Tax Act, 1961
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Income Tax Bill 2025 Clause 393 sets 10% TDS rate on securitisation trust distributions for residents
The Income Tax Bill 2025 introduces Clause 393 governing tax deduction at source on securitisation trust distributions, replacing Section 194LBC of the Income Tax Act 1961. For resident investors, TDS applies at a flat 10% rate with no threshold limit on any income from securitisation trusts. Non-resident investors face TDS at applicable rates in force. The new framework harmonizes definitions, simplifies rate structures, and aligns compliance procedures with broader TDS provisions. Key changes include consolidating securitisation trust definitions under section 221 and eliminating previous differential rates for different investor categories, creating administrative efficiency while maintaining comprehensive tax coverage.
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