TaxTMI 
TaxTMI 
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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....ment 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 r....
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....curities 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. Consequ....
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....inked 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. Comparative Analysis with Section 191 of the Income-tax Act, 1961 Textual and Structural Parallels 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 timeli....
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....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 c....
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....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. Comparative Table: Clause 391 vs. Section 191 Aspect Clause 391 of the Income Tax Bill, 2025 Section 191 of the Income-tax Act, 1961 General Rule Direct tax payment by assessee if TDS not applicable or not deducted Identical Special Rule for Start-Ups Tax on specified securities/sweat equity from eligible start-ups, timing as per section 289(3) Tax payable within 14 days of earlie....