TaxTMI 
TaxTMI 
Correct identification of the "person responsible for payment" : Clause 402(27) of the Income Tax Bill, 2025 Vs. Section 204 of the Income-tax Act, 1961
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....s, and compares it with the existing Section 204 of the Income-tax Act, 1961, highlighting key similarities, differences, and their legal significance. 2. Objective and Purpose The legislative intent behind defining "person responsible for paying" is to clarify, with precision, the entity or individual upon whom the obligation to deduct or collect tax at source is imposed. This is essential for the effective functioning of the TDS/TCS regime, which is a significant source of advance tax collection for the exchequer and a compliance mechanism for tracking taxable transactions. Historically, ambiguities or gaps in this definition have led to litigation and compliance challenges. By providing an exhaustive and context-specific definition, the legislature seeks to minimize interpretational disputes, ensure administrative certainty, and facilitate effective enforcement. The 2025 Bill's Clause 402(27) further aims to address evolving commercial realities, such as digital transactions, cross-border payments, and complex organizational structures, by providing a more nuanced and context-sensitive definition than its predecessor. 3. Detailed Analysis of Clause 402(27) of the Income....
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....on to furnish information relating to payments to non-residents (other than companies) or to foreign companies, irrespective of whether the payment is chargeable under the Act. The responsibility is fixed on the payer or, in the case of companies, on the company and its principal officer. * This is a significant expansion, ensuring that reporting obligations are not limited to taxable payments but extend to all payments to non-residents, thereby strengthening information flow and potential tax enforcement. 5. Payments of "Any Other Sum Chargeable" (Sub-clause (e)) * For all other sums chargeable under the Act, the payer is responsible, with the company and its principal officer being responsible where the payer is a company. This catch-all provision ensures that no chargeable payment escapes the compliance net due to definitional gaps. 6. Payments by or on Behalf of Government (Sub-clause (f)) * Where sums chargeable under the Act are credited or paid by or on behalf of the Central or State Government, the "drawing and disbursing officer" or any other person responsible for making the payment is designated as the person responsible for paying. This aligns with government ac....
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....ential Issues * Overlap with Other Definitions: The clause cross-references other definitions (e.g., "authorised person" under FEMA), which may themselves be subject to change or interpretation. * Practical Enforcement: In complex corporate structures, identifying the "principal officer" may still be contentious, especially where multiple officers have overlapping responsibilities. * Coverage of Digital/E-commerce Payments: While the clause is comprehensive, the rapid evolution of payment mechanisms (e.g., through fintech platforms) may necessitate further clarificatory amendments. 4. Practical Implications The assignment of responsibility under Clause 402(27) has significant practical implications: * Compliance Obligations: The identified person must ensure timely deduction/collection, deposit, and reporting of taxes. Failure attracts interest, penalties, and potential prosecution. * Corporate Governance: For companies, the inclusion of the principal officer increases the onus on senior management to ensure compliance. * Cross-border Transactions: The reference to FEMA ensures that entities involved in cross-border payments are aligned with both tax and foreign excha....
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.... and "electronic commerce." This suggests that the new regime is designed to handle digital economy transactions more effectively, with the possibility of further rules assigning responsibility for TDS/TCS in such contexts. * Clarity in Government Payments: * The Bill's language in Clause 402(27)(f) ("drawing and disbursing officer; or any other person, by whatever name called, responsible for crediting, or paying such sum") is more explicit than the 1961 Act, which could help avoid disputes about responsibility in government payment chains. * Agent Provisions for Non-residents: * Both provisions include agents and persons treated as agents, but the Bill specifically refers to section 306 for the definition of "agent," providing further clarity. * Integration with Other Provisions: * The 2025 Bill's Clause 402(27) is part of a larger, more cohesive set of definitions, which may reduce interpretational issues arising from cross-referencing provisions in the 1961 Act. Potential Advantages of the 2025 Bill's Approach * Reduced Litigation: The more detailed and integrated approach is likely to reduce disputes about who bears TDS/TCS obligations. * Future-pr....