TaxTMI 
TaxTMI 
Innovations in TDS/TCS Reporting and Compliance : Clause 397(3) of Income Tax Bill, 2025 vs. Section 206C(3),(3A),(3B),(5) and (6) of Income Tax Act, 1961
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....ghlight key departures and improvements proposed by the new Bill. Objective and Purpose The legislative intent behind Clause 397(3) is to create a comprehensive and uniform framework for the timely payment, reporting, and rectification of TDS and TCS transactions. The provision aims to: * Ensure timely remittance of tax deducted or collected at source to the Central Government. * Mandate the submission of detailed statements to the prescribed authorities, enhancing transparency and traceability. * Empower authorities and responsible persons to rectify discrepancies, thereby improving the accuracy of tax records. * Facilitate the furnishing of information regarding payments to non-residents, strengthening compliance with international tax obligations. * Hold government offices to specific reporting standards, even in the absence of challan-based remittance. The provision is also intended to harmonize the compliance procedures across different categories of deductors and collectors, leveraging technology for efficient data management and reporting. Detailed Analysis of Clause 397(3) of the Income Tax Bill, 2025 1. Payment of Deducted or Collected Tax to the Central Gov....
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....ause 397(3)(d)) This clause introduces a specific reporting obligation for payments to non-residents (other than companies or foreign companies), regardless of whether the sum is chargeable to tax. The deductor/collector must furnish information in the prescribed form and manner. Comparative Note: While Section 206C and Rule 31AA focus on domestic transactions, Clause 397(3)(d) expands the reporting net to cross-border payments, aligning with international best practices on automatic exchange of information and anti-abuse measures. 5. Special Provisions for Government Offices (Clause 397(3)(e)) Recognizing the unique payment and accounting systems in government offices, this clause provides that where taxes are paid without production of a challan (i.e., through book entries), the responsible officer (Pay and Accounts Officer, Treasury Officer, etc.) must deliver a statement to the prescribed authority, verified and containing prescribed particulars. Rationale: * Addresses the practical reality that government payments may not generate standard challans. * Ensures that such payments are properly reported and credited in the tax system. Section 206C(3A) contains a similar ....
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....the classes of persons required to report. * Data Integrity and Correction: The explicit allowance for correction statements within six years supports the maintenance of accurate records and reduces the risk of permanent errors affecting taxpayers. * Government Accountability: By specifying the officers responsible for reporting in government offices, the provision enforces accountability and transparency, even where traditional banking channels are not used. * Alignment with International Practices: The requirement to report payments to non-residents, even if not taxable, aligns India's tax administration with global standards on information exchange and anti-money laundering. * Technological Enablement: The provision's technology-neutral language anticipates electronic filing and digital verification, supporting modernization and ease of compliance. * Legal Certainty: The detailed prescription of reporting obligations, correction mechanisms, and the identification of responsible persons reduces ambiguity and potential for litigation. Comparative Analysis with section 206C of the Income-tax Act, 1961 Section 206C of the Income-tax Act, ....
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....ble officers and the verification requirements. 5. Reporting Below-Threshold Payments and Board Mandates Clause 397(3)(g) introduces mandatory reporting for payments below the TDS threshold (specifically interest payments), and empowers the Board to mandate reporting by other payers. This is a notable departure from Section 206C, which generally focuses on amounts above threshold limits. 6. Ultimate Liability for Collection Failures Section 206C(6) and Clause 397(3)(h) both stipulate that a failure to collect tax does not absolve the collector of the obligation to pay the tax to the government. This principle is maintained and reinforced in the new Bill. 7. Statement Delivery to Taxpayers Section 206C(5) and Rule 31AA require the collector to furnish a certificate to the collectee. Clause 397(3)(c) innovates by requiring the prescribed authority to deliver a statement to the buyer/licensee/lessee, potentially reducing reliance on the collector's compliance and enhancing taxpayer service. Comparison with rule 31AA of the Income-tax Rules, 1962 Rule 31AA operationalizes the reporting requirements u/s 206C, prescribing the form (Form 27EQ), due dates, modes of filing ....
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....s. * Reporting of Non-Taxable Payments to Non-Residents: The requirement to report all payments to non-residents, regardless of taxability, may increase the compliance burden and could require further guidance for implementation. Practical Implications for Stakeholders For Businesses and Employers: * Increased compliance obligations, especially for reporting non-resident payments and below-threshold interest. * Need for robust internal controls to ensure timely and accurate reporting, correction of errors, and maintenance of records for at least six years. * Requirement to interface with digital reporting systems, necessitating investment in technology and staff training. For Government Offices: * Clear identification of responsible officers for compliance, reducing ambiguity and potential for lapses. * Obligation to report even in the absence of challan-based remittance, ensuring all transactions are captured. For Collectees (Buyers, Licensors, Lessees): * Greater transparency and certainty regarding TCS credits, as statements must be delivered to them by the prescribed authority. * Improved ability to claim tax credits and reconcile records. For Tax Auth....