TaxTMI 
TaxTMI 
Source-Based Taxation of Foreign Sports and Entertainment Income : Clause 393(2)[Table: S.No.1] of the Income Tax Bill, 2025 Vs. Section 194E of the Income-tax Act, 1961
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.... through participation in sports, entertainment events, or related activities. The rationale is to capture income at the source, thereby reducing the risk of tax evasion and ensuring compliance with the principle of source-based taxation. The following commentary undertakes a detailed analysis of Clause 393(2)[Table: S.No.1] of the Income Tax Bill, 2025, followed by a comparative and analytical review vis-`a-vis Section 194E of the Income-tax Act, 1961. The focus is on the scope, operation, legislative intent, practical implications, ambiguities, and the evolution of the law in this area. Objective and Purpose The primary objective of both Clause 393(2)[Table: S.No.1] and Section 194E is to ensure that income accruing to non-resident spo....
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....me to the specified non-resident must deduct tax at the rate of 20% at the time of credit or payment, whichever is earlier. Interpretation of Key Terms * Income referred to in section 211: While the Bill's text does not elaborate within Clause 393, by analogy to the 1961 Act, this would encompass income derived from participation in any game or sport (including advertisement income), or income from performances as an entertainer. * Non-resident sportsman (including an athlete): The term is broad and covers all individuals participating in sports in India, provided they are not Indian citizens. * Entertainer: Inclusion of entertainers is significant, expanding the scope beyond just sports to cover performances in music, dance, dra....
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....icipation, advertisement, and related activities. The cross-reference ensures that only income arising from specified activities is subject to TDS under this clause. Ambiguities and Issues * Definition of Entertainer: The term is not defined in the Bill, which may lead to interpretational disputes regarding the inclusion of certain types of performers. * Overlap with DTAAs: The flat rate of 20% may be overridden by beneficial rates in tax treaties. The Bill does not explicitly address the interaction, but under general principles, the DTAA would prevail to the extent it is more beneficial to the taxpayer. * Grossing Up: If the contract is on a net-of-tax basis, the payer is required to gross up the income, as provided in sub-section ....
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..... Comparative Analysis with Section 194E of the Income-tax Act, 1961 Textual Comparison Feature Clause 393(2)[Table: S.No.1] of the Income Tax Bill, 2025 Section 194E of the Income-tax Act, 1961 Scope Payments to non-resident sportsmen (including athletes), entertainers (not citizens of India), and non-resident sports associations/institutions Payments to non-resident sportsmen (including athletes), entertainers (not citizens of India), and non-resident sports associations/institutions Nature of Income Income referred to in section 211 (likely analogous to section 115BBA-participation, advertisements, performances) Income referred to in section 115BBA (participation, advertisements, performances) Payer Any person A....
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....ct. * Grossing Up: The 2025 Bill explicitly provides for grossing up in sub-section (10), clarifying the computation where the payer bears the tax. Section 194E relies on general principles and judicial interpretation for grossing up. * Reference to Subsections: Clause 393(2) is subject to several sub-sections dealing with exceptions, declarations, and administrative rules, providing a more integrated approach. Section 194E is more self-contained. * Terminology and Structure: The 2025 Bill uses updated terminology and a tabular format for clarity and ease of reference, whereas the 1961 Act uses traditional narrative drafting. Implications of the New Regime * Administrative Efficiency: The tabular, consolidated approach in the 2025 ....
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....ndatory under both the 1961 Act and the 2025 Bill, unless a DTAA provides a lower rate. * Music Concert: A non-resident singer performs in India. The organizer must deduct TDS at 20% on the performance fee. * Sports Association Payment: Payment to a foreign sports association for participation in a league attracts TDS at 20%. * Advertisement Income: If a non-resident sportsman earns income from advertisements in India, TDS applies at 20%. International and Comparative Perspectives Many jurisdictions apply withholding tax on payments to non-resident entertainers and sportsmen. The Indian regime is consistent with international practice, where source taxation is justified on the basis that the income arises from activities conducted w....