TaxTMI 
TaxTMI 
Transformation of TDS Provisions on Income from Units : Clause 393(1)[Table: S.No. 4(i)] and 393(4)[Table: S.No. 4], Income Tax Bill, 2025, Vs. Section 194K of Income-tax Act, 1961
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....lection. With the advent of the Income Tax Bill, 2025, a comprehensive overhaul of TDS provisions is underway, encapsulated in Clause 393 and its accompanying tables. This commentary provides a detailed analysis of Clause 393(1)[Table: S.No. 4(i)] and the corresponding exemption in Clause 393(4)[Table: S.No. 4], and compares these with the existing Section 194K. The analysis will address the scope, mechanism, exceptions, and practical implications of the new provisions, while contrasting them with the current law. The discussion will also consider the legislative intent, policy rationale, and potential areas of ambiguity or concern, providing a holistic understanding for legal practitioners, tax professionals, and policymakers. Objective ....
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....m Capital Market (Units of Mutual Funds, etc.) Provision: * Nature of Income: Income in respect of units of a Mutual Fund specified under Schedule VII (Table: Sl. No. 20 or 21); units from the Administrator of the specified undertaking; units from the specified company. * Payer: Any person. * Rate: 10%. * Threshold: Rs. 10,000. * Timing: At the time of credit or payment, whichever is earlier. This provision mirrors the structure of Section 194K, covering income distributed by mutual funds and related entities to resident investors. The threshold of Rs. 10,000 is in line with the updated Section 194K (post-Finance Act, 2025). The rate of 10% is also consistent. 2. Clause 393(4)[Table: S.No. 4] - Exemption for Capital Gains ....
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....ital gains is subject to TDS. This is crucial, as capital gains are taxed under a different regime, with their own rates, exemptions, and reporting requirements. * Operational Clarity: The payer must distinguish between income in the nature of dividends or interest (subject to TDS) and capital gains (not subject to TDS). This requires robust internal systems and clarity in the nature of payments being made. Comparative Analysis with Section 194K of the Income-tax Act, 1961 1 Section 194K - Text and Key Features Section 194K, as substituted and amended up to Finance Act, 2025, reads: * Applies to any person responsible for paying to a resident any income in respect of units of a Mutual Fund specified u/s 10(23D), units from the Admini....
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....h are collated in tables for ease of administration. Section 194K deals with its own exemptions within the section. * Broader Integration: The Bill integrates TDS on income from units with other capital market and investment income, potentially streamlining compliance for payers who deal with multiple income types. * Definitions: While Section 194K defines key terms, the Bill refers to Schedules for definitions, which may require additional cross-referencing but allows for central updating of definitions. * Potential for Administrative Simplification: The tabular approach of the Bill is arguably more user-friendly for large payers and for digital processing. 4 Ambiguities and Potential Issues * Nature of Income: Both provisions req....
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.... is earlier Deeming Provision (Suspense Account) Provided in general sub-section (11) of Clause 393 Explicitly provided in Explanation 2 Practical Implications 1 For Mutual Funds and Other Payers * Need to implement robust systems to track aggregate payments to each investor and apply the Rs. 10,000 threshold. * Responsibility to correctly characterize income as capital gain or otherwise, requiring coordination with fund accounting teams. * Obligation to deduct TDS at 10% for eligible payments and deposit the same within prescribed timelines. * Requirement to issue TDS certificates and report deductees in quarterly TDS returns. 2 For Investors (Payees) * Investors receiving income in excess of Rs. 10,000 in a year from mu....