TaxTMI 
TaxTMI 
Modernizing Tax Deduction at Source on Salaries : Clause 392(1)-(6) of the Income Tax Bill, 2025 Vs. Section 192 of the Income Tax Act, 1961
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...., and Rule 30. The analysis is structured provision-wise, highlighting similarities, differences, and the broader implications for employers, employees, and regulators. Objective and Purpose The legislative intent behind Clause 392 is to ensure the efficient collection of income tax at the source from salaries and related payments, thereby minimizing tax evasion and ensuring timely revenue flow to the government. The provision seeks to: * Codify the mechanism for TDS on salaries, including non-monetary perquisites. * Incorporate procedural clarity regarding the consideration of other incomes, losses, and tax reliefs in the TDS calculation. * Specify the obligations of employers and trustees concerning disclosures, statements, and evidence collection. * Align TDS deduction and payment timelines with modern payroll and compliance practices. The historical background of Section 192 demonstrates a gradual expansion of employer obligations, reflecting the growing complexity of salary structures and the need to integrate relief mechanisms, perquisite taxation, and cross-employer salary aggregation into the TDS framework. Clause 392 appears to continue this trajectory, with ref....
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....ity share), at the rates in force for the year of allotment or transfer, within the time specified for the payee in Section 289(3). Section 192(1C): Contains a similar provision for eligible start-ups (Section 80-IAC), specifying timelines for TDS on such perquisites: within 14 days after the expiry of 48 months from the end of the relevant assessment year, or from the date of sale of the security, or from the date of cessation of employment, whichever is earlier. Analysis: * This provision addresses the unique tax timing issue for employee stock options (ESOPs) and sweat equity in start-ups, where immediate taxation may be burdensome for employees who lack liquidity. * Both provisions defer TDS liability to a more appropriate time, balancing the interests of employees and the revenue authorities. * The reference to Section 140 in the Bill (as opposed to Section 80-IAC in the Act) may reflect a renumbering or redefinition of eligible start-ups under the new code. * The link to Section 289(3) for timing suggests a cross-reference to the new procedural timelines, which should be carefully examined for any substantive changes. 4. Consideration of Other Income, Losses, and R....
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.... * The Bill consolidates and clarifies employer obligations, emphasizing the importance of both disclosure (statements of perquisites) and documentation (evidence of claims). * The adjustment provision allows for practical flexibility, enabling employers to correct TDS errors within the tax year, reducing hardship for employees and administrative burden for employers. * The cross-reference to prescribed forms and manner ensures that the detailed requirements (as in Rule 26C) remain adaptable to future changes via delegated legislation. 6. Procedural and Compliance Provisions Statements and Evidence (Rule 26C): - Both the Bill and the existing Act require employers to obtain and maintain evidence for deductions/claims, with Rule 26C specifying the particulars (e.g., landlord/lender PAN, proof of investment). Time and Mode of Payment (Rule 30): - Both frameworks require prompt deposit of TDS to the Central Government, with Rule 30 detailing deadlines (e.g., 7 days from month-end, special timelines for March, and government offices). - Provision for quarterly payment with Assessing Officer's approval remains. Analysis: * The Bill's reliance on "prescribed for....
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....e flexibility but may create uncertainty until corresponding rules are notified. 2. Substantive Changes * The Bill codifies the 10% TDS rate and Rs. 50,000 threshold for provident fund withdrawals, which, while consistent with recent administrative practice, provides greater statutory certainty. * The explicit listing of items to be considered for TDS calculation in Clause 392(4) may reduce interpretational disputes and standardize employer practices. * The reliance on cross-references (e.g., Section 289(3) for start-up perquisites) necessitates careful tracking of related provisions to ensure compliance. 3. Continuity and Transition * Most core principles and mechanisms from Section 192 and related rules are retained, ensuring continuity for stakeholders familiar with the existing regime. * The provision for adjustments of excess/deficiency in TDS during the year is preserved, maintaining administrative flexibility. * Potential for confusion during the transition period, particularly regarding new forms, schedules, or definitions. 4. Potential Ambiguities and Issues * Until the new rules are notified, there may be uncertainty regarding the exact procedural require....