Modernizing Withholding Tax on Non-Resident Unit Income : Clause 393(2)[Table: S.No. 10] and Clause 393(4)[Table: S.No. 15] of the Income Tax Bill, 2025 Vs. Section 196A of the Income-tax Act, 1961

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....f the TDS framework, as encapsulated in Clause 393, which consolidates and rationalizes the provisions relating to deduction and collection at source. Two key sub-clauses are particularly relevant to the treatment of income in respect of units paid to non-residents: * Clause 393(2)[Table: S.No. 10]: Governs TDS on income in respect of units of a Mutual Fund or specified company paid to non-residents (not being a company) or foreign companies. * Clause 393(4)[Table: S.No. 15]: Provides for exemption from TDS in respect of income payable in respect of units of the Unit Trust of India (UTI) to specified non-residents, subject to prescribed conditions. This commentary undertakes a detailed, item-wise analysis of these provisions, situates ....

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....: As per Note 2. Key Features: * Scope: Applies to income in respect of units of specified mutual funds and specified companies, paid to non-residents (not being a company) or foreign companies. * Payer: Any person responsible for paying such income. * Payee: Non-resident individuals, foreign companies. * Rate: The applicable rate is to be determined as per Note 2 (which, though not reproduced in full, typically refers to the rate prescribed under the Act or as per Double Taxation Avoidance Agreements (DTAAs), whichever is beneficial to the assessee). * Timing: Deduction is to be made at the time of credit or payment, whichever is earlier. Interpretation and Issues: * Wider Applicability: The provision covers both mutual funds....

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.... that the units must have been acquired from UTI out of funds in a Non-resident (External) Account (NRE) maintained with a bank in India or by remittance in foreign currency, in accordance with FEMA and its rules. * Legislative Continuity: This provision ensures continuity of the long-standing policy of exempting certain NRI investments in UTI units from TDS, in order to promote foreign investment and simplify compliance for genuine investments made through prescribed channels. Practical Implications 1. For Non-Resident Investors * Withholding Obligations: Non-resident investors in mutual funds or specified companies will continue to be subject to TDS on income from units, ensuring upfront tax collection and reducing the risk of tax l....

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....tracting stable foreign investment, while the general TDS requirement ensures the integrity of the tax base. Comparative Analysis with Section 196A of the Income-tax Act, 1961 1. Substantive Parity Both the new Bill and the existing Section 196A are fundamentally aligned in their approach: * Both require TDS on income in respect of units paid to non-residents (individuals and foreign companies). * Both provide for DTAA override, subject to documentation. * Both contain an exemption for UTI units held by NRIs/non-resident HUFs, subject to funding and FEMA compliance. 2. Differences and Rationalizations * Structural Changes: The Bill consolidates TDS provisions into a single, tabular format, enhancing clarity and ease of reference....

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....y to be addressed through rules or notifications. * Interpretation of "Specified Company": The Bill refers to "specified company," which must be read in conjunction with the relevant schedules and definitions. Care must be taken to ensure that this term is consistently interpreted with reference to the legacy provisions. * Overlap with Other Provisions: The Bill's integrated approach may raise questions regarding the interplay with other TDS provisions, but the inclusion of precedence and overriding clauses should mitigate most conflicts. Conclusion Clause 393(2)[Table: S.No. 10] and Clause 393(4)[Table: S.No. 15] of the Income Tax Bill, 2025, represent a modernization and rationalization of the TDS regime for income in respect of....