TaxTMI 
TaxTMI 
Recasting Tax Deduction at Source on Cross-Border Investment Income : Clause 393(2)[Table S. No. 13 and 14] of the Income Tax Bill, 2025 Vs. Section 196C of the Income-tax Act, 1961
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....ce and enforcement tool in this context. This commentary undertakes a granular legal analysis of Clause 393(2), specifically [Table S. No. 13 and 14] of the Income Tax Bill, 2025, juxtaposed with the existing Section 196C of the Income-tax Act, 1961. It dissects legislative intent, operational mechanisms, practical implications, and the comparative evolution of these provisions, with a focus on both statutory interpretation and policy objectives. Objective and Purpose The primary objective of TDS provisions on income from foreign currency bonds and GDRs is twofold: to ensure timely collection of tax at the point of income accrual or payment to non-residents, and to provide certainty and clarity to foreign investors regarding their tax obl....
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....ee or at the time of payment by any mode, whichever is earlier. This mirrors the established legal position under the 1961 Act, ensuring that TDS is not deferred or avoided by mere book entries or delayed payments. 3. Scope of Instruments Covered The provision covers: * Interest and dividends on bonds or GDRs (S.No. 13) * Long-term capital gains from transfer of such bonds or GDRs (S.No. 14) The underlying instruments must be those referred to in section 209, which, by analogy with section 115AC, are foreign currency bonds or GDRs issued in accordance with notified schemes and conditions. 4. TDS Rates and Their Rationale The prescribed rates are: * 10% for interest or dividends * 12.5% for long-term capital gains (LTCG) from tr....
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....lysis with Section 196C of the Income-tax Act, 1961 1. Scope and Coverage * Clause 393(2) S. No. 13 & 14: Applies to any non-resident receiving interest/dividends or long-term capital gains from bonds or GDRs referred to in section 209 of the Bill. The language is broad and includes any person making the payment. * Section 196C: Applies to any non-resident receiving interest/dividends or long-term capital gains from bonds or GDRs referred to in section 115AC. The reference to section 115AC is explicit, ensuring only qualifying instruments are covered. Both provisions are substantively similar in scope, targeting the same categories of income and payees, with the cross-reference to the defining section for eligible instruments. 2. Rat....
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.... * The Bill's language is more streamlined, reflecting current drafting standards and removing obsolete references (e.g., to DDT or older payment modes). * Section 196C has been periodically updated to reflect market developments (e.g., inclusion of GDRs, change in rates, payment modes), and the Bill consolidates these changes in a single, coherent provision. 8. Interaction with DTAAs * In both regimes, TDS rates can be reduced by application of a DTAA, provided the non-resident furnishes a valid Tax Residency Certificate and other documentation as prescribed. 9. Compliance and Procedural Aspects * Both require the payer to comply with TDS return filing, issuance of TDS certificates, and maintenance of documentation. The Bill ....
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....amount. * Procedural Parity: Both require compliance with general TDS procedures under the Act. 2. Key Differences and Modernizations * Legislative Structure: The 2025 Bill consolidates all TDS provisions into a single, tabular format under Clause 393, whereas the 1961 Act scattered them across multiple sections (including 196C, 115AC, and related rules). This enhances accessibility and reduces interpretative disputes. * Reference Section: The Bill refers to "section 209" (presumably the new analog of section 115AC), signaling a recasting of the substantive provisions relating to eligible bonds and GDRs. * Explicit LTCG Rate Change: The Bill directly incorporates the LTCG rate change (from 10% to 12.5% post-23 July 2024) in its TDS....
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....and non-resident payees, apply the appropriate TDS rate, and ensure compliance with documentation and reporting requirements. * Exposure to interest, penalties, and disallowance of expenditure for non-compliance. * Need to monitor DTAA eligibility and documentation to apply reduced rates where applicable. For Tax Administration * Clarity and uniformity in TDS provisions facilitate enforcement and reduce disputes. * Scope for data-driven monitoring and risk assessment, especially with digital reporting and cross-border information exchange. Ambiguities and Issues in Interpretation * Definition of Qualifying Instruments: The cross-reference to section 209 (or 115AC) is critical; any ambiguity in the definition of eligible bonds or....