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TaxTMI 
Principles of Tax Deduction Credit in Indian Income Tax Law : Clause 390(5)-(6) of Income Tax Bill, 2025: Comparative Analysis with Section 199, Income-tax Act, 1961
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....llected at source (TDS/TCS) and related payments. These clauses are intended to supplant and update the existing regime established by Section 199 of the Income-tax Act, 1961, and its operationalization through Rule 37BA of the Income-tax Rules, 1962. This commentary provides a detailed, issue-wise analysis of Clause 390(5) and (6), their objectives, operative mechanisms, practical implications, and a comparative assessment with the current legal framework, highlighting both continuity and innovation. Objective and Purpose The principal objective of Clause 390(5) and (6) is to ensure that tax deducted or collected at source, as well as certain advance payments, are credited appropriately to the person in respect of whose income such ....
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....r which the credit shall be given." The structure of these clauses mirrors the existing Section 199 and the rule-making power therein, but with updated language and some notable clarifications, especially regarding the scope of rule-making and the explicit inclusion of sums paid u/s 392(2)(a). Key Features and Interpretative Issues 1. Attribution of TDS/TCS as Tax Payment Clause 390(5) codifies the principle that TDS/TCS or specified sums, once remitted to the Central Government, are to be treated as tax paid on behalf of the relevant taxpayer. This is vital to prevent the same income from being taxed twice and to ensure that the taxpayer is not prejudiced by the mechanism of tax collection. * Scope of Beneficiaries: The clause covers....
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....or credit is crucial, especially where income is spread over multiple years or where there is a mismatch between deduction and assessment. However, the absence of statutory guidance may lead to disputes unless the rules are clear and consistent. Practical Implications 1. For Taxpayers * Credit Mechanism: Taxpayers whose income has suffered TDS/TCS or who have made advance payments can rely on statutory entitlement to credit, reducing the risk of double taxation. * Complex Ownership/Attribution: In cases involving joint ownership, income clubbing, or income assessable in another's hands (e.g., minors, HUFs, trusts), the rules framed under Clause 390(6) will be critical in determining who gets the credit and in what proportion. * ....
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....joint ownership, with credit to be given in the same proportion as income is assessable. * Rule-Making Power: Sub-section (3) empowers the Board to make rules for giving credit to persons other than those directly affected and for specifying the assessment year for such credit. Section 199 is thus both broad and flexible, but its operation has been subject to detailed rules to address practical complexities. 2. Rule 37BA of the Income-tax Rules, 1962 Rule 37BA operationalizes Section 199 by providing: * Credit to Deductee: As a default, credit is given to the person to whom payment is made or credited (the "deductee") based on information furnished by the deductor. * Credit to Other Persons: Where income is assessable in the hands ....
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....redit for assessment year in which income is assessable; spread over years if applicable Scope Includes TDS, TCS, and sums u/s 392(2)(a) Primarily TDS/TCS Primarily TDS; special cases for TCS and section 194N Operational Detail Delegates to rules Delegates to rules Provides detailed operational mechanism 4. Key Points of Continuity and Change * Continuity: The new clauses reaffirm the core principle that TDS/TCS is tax paid on behalf of the taxpayer, and that credit is to be given accordingly. The rule-making power is retained and even slightly expanded. * Change: The language of Clause 390(5)-(6) is more streamlined and general, avoiding the highly specific references of Section 199. The explicit inclusion of sums u/s ....