TaxTMI 
TaxTMI 
Ensuring Tax Base Integrity in Indian Income Taxation : Clause 396 of the Income Tax Bill, 2025 Vs. Section 198 of the Income-tax Act, 1961
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....are not excluded from the tax base due to the mechanics of deduction or payment. This commentary provides a detailed analysis of Clause 396, its objectives, key provisions, and implications, followed by a comparative analysis with the existing Section 198, highlighting similarities, differences, and the evolution in legislative approach. Objective and Purpose The primary objective of both Clause 396 and Section 198 is to prevent the exclusion of income from the tax base merely because tax has been deducted at source or paid outside India. These provisions codify the principle that the act of tax deduction or withholding does not, in itself, result in the income escaping assessment in the hands of the recipient. Instead, such sums are deem....
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....5). Breakdown of Key Provisions * (a) Amount deducted under this Chapter: This provision covers all sums deducted under the relevant chapter (presumably the chapter dealing with deduction and collection at source). The effect is that any payment subject to TDS is deemed to be income received by the assessee, regardless of whether the assessee actually receives the gross amount. This ensures the inclusion of the gross amount in the recipient's total income, with the TDS amount being available as a credit against tax liability. * (b) Income-tax paid outside India by way of deduction (with credit allowed): This clause extends the deeming fiction to taxes paid outside India by way of deduction, provided the assessee is allowed a cr....
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....s withheld in multiple jurisdictions. Practical Implications Impact on Stakeholders * Assessees (Individuals and Businesses): The provision ensures that income subject to TDS is not excluded from taxable receipts, even if the net amount received is lower. Assessees must account for the gross amount as income and claim credit for TDS or foreign tax paid. This places a premium on accurate record-keeping and reconciliation of TDS certificates and foreign tax credits. * Employers and Payers: Payers are required to deduct tax at source and issue appropriate certificates, ensuring that the recipient can claim the deemed income and corresponding credit. The exceptions may affect employer strategies regarding tax equalization or gross-up ....
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....s specifying exceptions Main clause with "except" carve-outs Amendment History Frequent amendments to address new TDS types and specific scenarios Presumably designed to be more general and adaptable Substantive Differences and Policy Shifts * Generalization vs. Specificity: Section 198 historically enumerated specific TDS sections (e.g., 192 to 196D), with subsequent amendments to add new types. Clause 396 appears to generalize the principle to "amount deducted under this Chapter," potentially reducing the need for frequent legislative amendments as new TDS provisions are introduced. * Exceptions: Section 198 specifies exceptions for tax paid by employer (192(1A)) and TDS on cash withdrawals (194N), reflecting policy choic....