TaxTMI 
TaxTMI 
Transforming Tax Reporting and Compliance in India : Clause 397(3) of Income Tax Bill, 2025 Vs. Section 206A of Income-tax Act, 1961
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....ance, and ensure greater transparency and accountability in the reporting of TDS/TCS transactions. This commentary provides a detailed clause-wise analysis, explores the objectives and legislative intent, discusses practical implications, and undertakes a comparative study with the existing statutory and regulatory framework. Objective and Purpose The primary objective behind Clause 397(3) is to ensure timely and accurate reporting of tax deducted or collected at source, as well as payments made to employees and non-residents, to the Central Government. The provision aims to: * Consolidate and clarify the reporting obligations of various entities responsible for TDS and TCS. * Facilitate seamless credit of taxes to the Central Government. * Introduce mechanisms for rectification and updating of statements to accommodate corrections and evolving information. * Expand the scope of reporting to include payments to non-residents and payments made without deduction of tax in certain cases. * Leverage technology by mandating electronic filing and digital verification of statements. The legislative intent is to enhance compliance, reduce tax evasion, and bring greater account....
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....ion relating to such payment in a prescribed form and manner. This requirement is consistent with global trends in tax transparency and information exchange, such as the OECD's Common Reporting Standard (CRS), and aims to curb base erosion and profit shifting (BEPS) by ensuring that cross-border payments are adequately reported. 5. Special Provisions for Government Offices (Clause 397(3)(e)) The clause recognizes the unique position of government offices, which may remit TDS/TCS without the production of a challan. In such cases, the Pay and Accounts Officer, Treasury Officer, Cheque Drawing and Disbursing Officer, or other responsible persons must deliver a statement to the prescribed authority, verified and containing the required particulars. This ensures that even in the absence of standard banking challans, the government's tax remittances are properly reported and reconciled. 6. Correction and Updating of Statements (Clause 397(3)(f)) A progressive feature of Clause 397(3) is the explicit provision for correction statements. Persons who have furnished statements under sub-clauses (b) or (e) may correct discrepancies or update information by filing a correction s....
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....ional best practices and facilitating information exchange. * Recipients of Income: Improved visibility and traceability of TDS/TCS credits, reducing disputes and facilitating tax credit claims. The provision for correction statements within six years allows for the rectification of errors, reducing the risk of penal consequences and enabling accurate tax credit to recipients Comparative Analysis with Existing Section 206A, Rule 31AC, and Rule 31ACA 1. Section 206A of the Income-tax Act, 1961 Section 206A focuses on the furnishing of statements by banking companies, co-operative societies, or public companies in respect of payment of interest to residents without deduction of tax at source, where the amount does not exceed specified thresholds. The section also empowers the Board to require other persons, responsible for paying income liable for TDS, to furnish statements. Key features include: * Obligation to prepare and deliver statements in prescribed form, manner, and time. * Provision for correction statements for rectification or updating information. However, Section 206A is narrower in scope: * It is primarily limited to interest payments without deduction of ....
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....ding all TDS/TCS, non-resident payments, and government transactions, whereas Section 206A is limited to interest payments below threshold. * Correction Window: The six-year period for correction statements is a progressive step, offering greater flexibility than was previously available. * Integration of Technology: Both regimes envisage the use of digital forms and computer-readable media, but the new clause is likely to further integrate IT-enabled compliance, aligning with contemporary e-governance standards. * Enhanced Transparency and Data Exchange: The requirement for authorities to deliver statements to recipients and the mandatory reporting of non-resident payments reflect a shift towards greater transparency and international information exchange. Potential Ambiguities and Issues in Interpretation Despite its comprehensive nature, Clause 397(3) may give rise to certain interpretational challenges: * Prescribed Forms and Manner: Much of the operational detail is left to be prescribed by the Board, which could lead to uncertainty or frequent changes. * Overlap and Duplication: Entities may be subject to overlapping obligations under different sub-clauses, especi....