TaxTMI 
TaxTMI 
Legislative framework of collection of tax at source (TCS) and issuance of certificates in India : Clause 395(3) & (4) of Income Tax Bill, 2025: Comparative Analysis with Section 206C(5),(9) and (10) of Income-tax Act, 1961
X X X X Extracts X X X X
X X X X Extracts X X X X
....-tax Rules, 1962-introduce clarifications and potential procedural streamlining in the context of the modernized tax administration. This commentary undertakes a detailed analysis of Clause 395(3) and (4), examining their objectives, substantive and procedural elements, practical implications, and comparative positioning vis-`a-vis the existing law. Objective and Purpose The legislative intent behind Clause 395(3) and (4) is twofold: * To provide a mechanism for lower collection of TCS: Recognizing that the standard rates of TCS may not always reflect the actual tax liability of buyers, licensees, or lessees, the provision allows such persons to apply for collection at a lower rate, subject to the satisfaction of the Assessing Offi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on Process: An application must be made to the AO. The precise form and manner would be prescribed by rules (likely via an electronic process, as per current trends). * Assessment by AO: The AO must be satisfied that the applicant's total income justifies a lower collection. This introduces a substantive check, preventing arbitrary or blanket reductions. * Issuance and Validity of Certificate: Once satisfied, the AO issues a certificate specifying the lower rate and period of validity. The collector is bound to collect TCS at this reduced rate for the period of validity. Interpretative Issues: * Scope of AO's Discretion: While the provision mandates satisfaction regarding "total income," the actual criteri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s: * Mandatory Issuance: The obligation to issue certificates is cast upon every person deducting or collecting tax, covering both TDS and TCS situations. * Contents of Certificate: The certificate must detail the amount, rate, and other prescribed particulars, ensuring transparency and enabling recipients to claim credit for taxes paid. * Timelines: The period for issuing such certificates is to be prescribed by rules, providing flexibility for the administration to update procedures as needed. * Employer's Obligation: A specific sub-clause addresses situations where an employer pays tax on behalf of an employee, requiring a certificate to be issued to the employee as evidence of payment to the Central Gover....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n and reduce disputes over TCS credit. * Checks against Evasion: The AO's discretion and the requirement to justify lower TCS rates provide a safeguard against abuse of the certificate mechanism. Comparative Analysis with Existing Provisions 1. Section 206C of the Income-tax Act, 1961 Lower Collection of TCS-Section 206C(9) & (10): * Section 206C(9) allows the AO, on application by the buyer/licensee/lessee, to issue a certificate for collection at a lower rate if satisfied that the applicant's total income justifies it. * The AO's satisfaction is guided by the applicant's income and tax liability, and the certificate remains valid until cancelled (Section 206C(10)). * Section 206C(11) empowers the CBDT to ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 37H of the Income-tax Rules, 1962 Issuance and Validity of Certificate: * The AO, upon satisfaction of the applicant's existing and estimated tax liability (considering current year's estimated income, past four years' income, existing liabilities, and advance tax/TDS/TCS already paid), issues a certificate for lower TCS. * The certificate is valid for the specified assessment year unless cancelled earlier, and is valid only for the person named therein. * Certificates are issued directly to the collector, with advice to the applicant, and the Systems Directorate prescribes the procedural standards. Significance: * Rule 37H provides the substantive criteria and procedural safeguards for the AO's satisfaction, ensu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....riteria, the AO's subjective satisfaction may still lead to inconsistent application unless further standardized through administrative guidance. * Processing Timelines: The Bill and rules prescribe that certificates must be issued within a specified period, but delays in practical processing could affect business operations. * Validity and Cancellation: The power of the AO to cancel certificates, though subject to a hearing, could introduce uncertainty for applicants relying on lower TCS rates for cash flow planning. * Integration with GST and Other Laws: As TCS applies to specific goods and services, coordination with GST compliance and reporting systems may require further clarification. Practical Implications ....