Loading...

⚠ ✕
❮ Top
☎ Help
☰
×

By creating an account you can:

Logo TaxTMI
Call Us / Help / Feedback✕

Contact Us At :

✉ E-mail: [email protected]

✆ To Call / Whatsapp, Check Contact Us

FAQs :

To know Frequently Asked Questions, Check FAQs

Most Asked Video Tutorials :

For more tutorials, Check Video Tutorials

Submit Feedback/Suggestion :

Email :
Please provide your email address so we can follow up on your feedback.
Category :
Description :
Min 15 characters 0/2000
Make Most of Text Search ✕
  1. Checkout this video tutorial: How to search effectively on TaxTMI.
  2. Put words in double quotes for exact word search, eg: "income tax"
  3. Avoid noise words such as : 'and, of, the, a'
  4. Sort by Relevance to get the most relevant document.
  5. Press Enter to add multiple terms/multiple phrases, and then click on Search to Search.
  6. Text Search
  7. The system will try to fetch results that contains ALL your words.
  8. Once you add keywords, you'll see a new 'Search In' filter that makes your results even more precise.
  9. Text Search
╳
Add to...
You have not created any category. Kindly create one to bookmark this item!
✕
Create New Category
Hide
Title :
Description :
❮❮ Hide
❮ Default View
Expand ❯❯
Close ✕
🔎 Filters / Advanced Search ❯
TEXT

Press 'Enter' to add multiple search terms. Rules for Better Search

Search In
Main Text + AI Text ❯
  • Main Text
  • Main Text + AI Text
  • AI Text
Law:
---- All Laws---- ❯
  • ---- All Laws----
  • Benami Property
  • Bill
  • Central Excise
  • Companies Law
  • Customs
  • DGFT
  • FEMA
  • GST
  • GST - States
  • IBC
  • Income Tax
  • Indian Laws
  • Money Laundering
  • SEBI
  • SEZ
  • Service Tax
  • VAT / Sales Tax
Types:
---- All Types ---- ❯
  • ---- All Types ----
  • Act Rules
  • Case Laws
  • Circulars
  • Manuals
  • News
  • Notifications
Sort By: ?
In Sort By 'Default', exact matches for text search are shown at the top, followed by the remaining results in their regular order.
Relevance Default Date
☰   Show Results ❯
    Consolidated Show Cause Notices under Sections 73 and 74 and Taxability of School Affiliation Servic...
    Fraudulent Input Tax Credit from Non-Existent Suppliers: Application of Sections 16, 74 and 155 of t...
    Case Laws Money Laundering
    Prolonged Pre-Trial Incarceration and Bail under Section 45 of the Prevention of Money-Laundering Ac...
    Case Laws Income Tax
    Prospective Operation of Section 56(2)(x)(b) in Stamp-Value Difference Cases Involving Immovable Pro...
    Seizure of Cash under Section 67 of the CGST Act and Interest on Illegal Retention
    Case Laws Income Tax
    Disallowance of Salary Expenditure for Allegedly Non-Genuine Services under Section 37
    Case Laws Income Tax
    Fair Market Value of Unquoted Equity Shares Under Section 56(2)(viib) and Rule 11UA
    Refund of Excess IGST Paid on Exports Following Clerical Error in FORM GSTR-3B
    Revocation of Cancellation of GST Registration for Non-Filing of Returns under Section 30 and Rule 2...
    Case Laws Income Tax
    TOLA, Section 149 and the Surviving-Time Test for Reassessment Proceedings
    Case Laws Customs
    Provisional Release of Unseized Imported Food Consignments under the Customs Act, 1962
    Case Laws Customs
    Recovery of Unpaid Anti-Dumping Duty After Self-Assessment Under Section 28 of the Customs Act, 1962
    Project-Wise Anti-Profiteering Methodology in Real Estate under Section 171 of the Central Goods and...
    Case Laws Income Tax
    Retirement Leave Encashment Exemption under Section 10(10AA)(ii) and Retrospective Application of No...
    Transit-State Jurisdiction under GST: Limits on Detention and Penalty in External Inter-State Suppli...
    Post-Facto Shareholder Ratification of Diversion of Preferential Issue Proceeds under the PFUTP Regu...
    Case Laws Income Tax
    Section 195 Withholding on Payments to Non-Residents: Royalty, Fees for Technical Services and Busin...
    Penalty: Scope of "Any Person" under Section 122(1A) of the Central Goods and Services Tax Act, 2017
    Recovery of Corporate Debtor Premises and Proof of Tenancy, Lease or Licence Rights under the Insolv...
    Service of GST Notices through the Common Portal: Statutory Validity and Practical Accessibility
❮
❯
❯❯
Maximize Maximize Maximize
0 / 200
Expand Note
Add to Folder

No Folders have been created

+

Are you sure you want to delete "My most important" ?

NOTE:

Notes
Showing Results for :
Reset Filters
Results Found:
Show All Summaries Hide All Summaries
Case Laws GST
Show AI Summary
School affiliation services fall outside educational exemption without a direct nexus to admissions or examination conduct.
Consolidated show cause notices may combine financial years governed by Sections 73 and 74 where liabilities are segregated period-wise, each component independently meets limitation and notice requirements, the additional ingredients for fraud-based proceedings are satisfied, and no actual prejudice arises. School affiliation and affiliation-form processing charges are independent taxable supplies where they concern institutional eligibility and compliance, rather than directly and immediately relating to student admission or the conduct of examinations. A broad connection with education does not satisfy the educational-services exemption.
Case Laws GST
Show AI Summary
Fraudulent input tax credit requires proof of fictitious supplies, absent goods receipt, and fraud-linked self-assessment, not cancellation alone.
Input tax credit from allegedly non-existent suppliers depends on proof of genuine supply and actual receipt of goods or services, not merely invoices, accounting entries, or banking-channel payments. Section 155 places the burden of establishing ITC eligibility on the claimant. Section 74 requires more than ineligible credit: the wrongful availment must be linked to fraud, wilful misstatement, or suppression to evade tax. Retrospective supplier-registration cancellation is relevant evidence but is not conclusive. A fraud-based notice must disclose facts showing fictitious suppliers, absence of supply, and a basis for inferring the recipient's knowledge or participation.
Case Laws Money Laundering
Show AI Summary
Prolonged pre-trial incarceration may justify conditional PMLA bail when delayed trials make continued detention constitutionally disproportionate.
Section 45 of the Prevention of Money-Laundering Act remains the stringent ordinary bail threshold, requiring prosecutorial opportunity and, on opposition, reasonable grounds to believe that the accused is not guilty and unlikely to offend while on bail. Article 21 nevertheless requires a separate, fact-sensitive inquiry where prolonged pre-trial detention and an unrealistic trial timetable make custody disproportionate. Relevant factors include custody length, trial progress, remaining witnesses, secured documentary evidence, source of delay, predicate-case status, and risks of absconding or witness interference. Conditions such as passport surrender, attendance, non-contact directions, and residence disclosure may safeguard the trial.
Case Laws Income Tax
Show AI Summary
Prospective operation of stamp-value taxation prevents retrospective application where property agreements and substantial payments predate the charging provision.
Section 56(2)(x)(b) applies to immovable property received for inadequate consideration only where its temporal and valuation conditions are satisfied. A stamp-value difference alone does not establish taxability. Where consideration was fixed and substantial payments or contractual performance occurred before the charging provision commenced, later conveyance or registration does not by itself attract the later charge. Agreement-date valuation is available only for covered transactions where consideration was fixed and paid, wholly or partly, through prescribed banking or electronic modes on or before the agreement date. The tax authority must identify the correct statutory basis and provide a meaningful opportunity to respond.
Case Laws GST
Show AI Summary
GST cash seizure limits require statutory relevance and restitutionary interest for unlawfully retained currency following searches.
GST seizure powers cannot be used to take cash as a general investigative measure or security for a possible tax demand. Currency is excluded from goods, and "things" is confined contextually to articles useful or relevant as evidence in GST proceedings. Valid seizure and retention require recorded statutory reasons, procedural compliance and observance of return timelines. Unauthorised retention engages property protections; later return does not cure the deprivation, and accrued interest is restitutionary rather than delayed-refund interest.
Case Laws Income Tax
Show AI Summary
Salary expense genuineness requires proof of actual services, business purpose, and fair testing of adverse third-party statements.
Under Section 37(1), salary expenditure is deductible only where it is actually incurred wholly and exclusively for business purposes and is supported by proof of genuine employment, services rendered, business nexus, and payment. Bank transfers and accounting entries alone are not conclusive. Where a third-party statement is central to an allegation of non-genuine salary, the taxpayer should receive disclosure and a meaningful opportunity to rebut it, including cross-examination where appropriate. A retracted and uncorroborated statement is vulnerable as the sole basis for disallowance.
Case Laws Income Tax
Show AI Summary
Discounted cash flow valuation remains taxpayer-selected under prescribed rules, while tax scrutiny must identify specific valuation-date defects.
The taxpayer may elect a prescribed DCF valuation for unquoted equity shares, and scrutiny of that method does not permit substitution with Net Asset Value merely because it produces a lower fair market value. The Assessing Officer may examine projections, discount rates, terminal assumptions, computations and source data, but rejection requires demonstrably wrong facts, material errors, a wholly erroneous basis or objectively unsupported assumptions. Subsequent financial performance cannot alone invalidate a bona fide DCF valuation; the relevant inquiry remains the reasonableness of valuation-date information.
Case Laws GST
Show AI Summary
Excess IGST on exports remains refundable when later correction triggers automated refund and reconciliation proves duplicate payment.
Refund of excess IGST paid on zero-rated exports may arise where turnover and tax are mistakenly entered under non-zero-rated supplies in FORM GSTR-3B while export invoices and shipping bills are correctly reported in FORM GSTR-1. If the exporter then pays the same IGST in the correct zero-rated field and the automated refund is credited against that later payment, the earlier payment remains a separately identifiable potential excess; its claim is not a repeat request for the same export-tax refund.
Case Laws GST
Show AI Summary
GST registration revocation requires timely application, return compliance, payment of dues, and a reasoned statutory decision.
GST registration revocation after cancellation for return default is a conditional, time-bound process. An application under Section 30 and Rule 23 must ordinarily be filed within ninety days, subject to prescribed extension, and cannot be made until pending returns are filed and tax, interest, penalty and late fee are paid. Portal non-acceptance may permit online or physical submission where technically unavailable, but does not condone delay or ensure revocation. The competent authority must assess statutory eligibility, sufficient grounds and compliance while following notice and hearing requirements before rejection.
Case Laws Income Tax
Show AI Summary
Reassessment limitation under TOLA requires final notices to issue within surviving time and satisfy statutory safeguards.
Reassessment limitation under TOLA is a jurisdictional restraint. Transitional notices issued between 1 April 2021 and 30 June 2021 are treated as Section 148A(b) show-cause notices, but only the surviving time remaining until 30 June 2021 is available for completing the reassessment process. Periods for supply of material and the assessee's response are excluded, but the Section 148A(d) decision, statutory approval and final Section 148 notice must issue within the remaining period. For Assessment Year 2015-16, post-1 April 2021 notices are treated as time-barred.
Case Laws Customs
Show AI Summary
Unseized food consignments cannot face indefinite detention without lawful seizure, valid sampling, and prompt assessment.
Provisional release of an unseized imported food consignment is not mechanically governed by Section 110A, which applies to goods seized under Section 110. Customs may examine, test, verify and reassess imports, but indefinite retention without a seizure memorandum or disclosed reasons connecting the goods with confiscation is not justified. Food sampling should follow the specialised food-safety process through an authorised officer. A valid food-safety report may support conditional clearance, while classification, duty liability, confiscation and adjudication remain open. Revenue may be protected through proportionate security.
Case Laws Customs
Show AI Summary
Anti-dumping duty recovery permits post-clearance demands and consequential import IGST where self-assessment omitted an applicable levy.
Unpaid anti-dumping duty omitted during self-assessment may be pursued through the customs recovery procedure without prior appellate modification of the self-assessment. The recovery framework applies to anti-dumping duty through statutory incorporation of provisions concerning assessment, non-levy, short-levy, interest and recovery. Where anti-dumping duty is chargeable, it forms part of the aggregate value used to compute IGST on imports, potentially creating a consequential IGST short-payment. Recovery requires accurate assessment of notification coverage, product, origin, rate, valuation, limitation and procedural safeguards.
Case Laws GST
Show AI Summary
Project-wise anti-profiteering requires actual input tax credit measurement and area-based allocation of benefits to real-estate purchasers.
Real-estate anti-profiteering under Section 171 requires project-level identification of additional input tax credit and allocation of the saving across total project area on a per-square-foot basis. Purchase value may quantify credit attributable to project expenditure, but turnover or collections cannot serve as the allocation basis. The comparison must use pre-GST credit actually availed rather than merely available credit. GST collected on consideration inflated by an undistributed benefit forms part of the amount not passed on and remains distinct from statutory interest.
Case Laws Income Tax
Show AI Summary
Retirement leave encashment exemption applies under the enhanced notified ceiling while preserving non-government employee classification and statutory conditions.
Section 10(10AA)(ii) governs retirement leave-encashment exemption for non-Government employees, subject to the ten-month earned-leave measure, average-salary computation, and the notified monetary ceiling. Notification No. 31/2023 specifies an enhanced ceiling of Rs. 25,00,000, is deemed effective from 1 April 2023, and certifies that retrospective effect causes no adverse effect. The enhanced ceiling is treated as a remedial rationalisation of an existing exemption and may govern pending earlier-period matters, while preserving the distinction between Government and non-Government employees.
Case Laws GST
Show AI Summary
Transit GST jurisdiction limits detention penalties for documented inter-State supplies lacking a local taxable nexus.
Transit-State jurisdiction under GST permits interception, document production, e-way bill verification and authorised physical inspection of goods moving through an intermediate State. It does not, in a pure transit movement, support detention-related penalty for an external inter-State supply where origin and destination lie outside the intercepting State, no tax is payable there, and there is no evidence of diversion, local supply, fictitious or mismatched documents, or mismatch of goods. Cross-empowerment is administrative and does not create an independent territorial taxable nexus.
Case Laws SEBI
Show AI Summary
Shareholder ratification cannot cure preferential-issue fund diversion when disclosed objectives are abandoned, triggering securities-market fraud and disclosure concerns.
Post-facto shareholder approval cannot retrospectively validate diversion of preferential-issue proceeds contrary to issue-specific objects disclosed to shareholders and the market. A special resolution authorises the issue but does not permit unrestricted use of proceeds. Periodic deviation reporting, audit-committee review and utilisation disclosures promote transparency; they do not enable diversion followed by later regularisation. Immediate diversion, inadequate commercial justification and missing documentation may indicate that disclosed objects were not genuinely intended to be performed. Later amendment of corporate objects or shareholder ratification cannot cure a completed securities-market disclosure breach.
Case Laws Income Tax
Show AI Summary
Cross-border software payments require copyright-right, technical-service, and permanent-establishment analysis before withholding obligations are determined under applicable treaties.
Section 195 requires withholding only from a remittance to a non-resident that includes income chargeable in India. For software, royalty depends on transfer of copyright rights, not merely the right to install, access, use, or distribute a copyrighted article under restrictive terms. Where a DTAA is more beneficial, its royalty and FTS definitions control; treaty FTS may require technology to be made available. Amounts that are neither royalty nor FTS require consideration as business profits, ordinarily taxable only where profits are attributable to a permanent establishment. Composite payments require component-wise allocation and analysis.
Case Laws GST
Show AI Summary
Personal GST penalty requires proof that the beneficiary retained benefit and directed a covered invoice or credit transaction.
Section 122(1A) may impose personal GST penalty on a registered or unregistered person only for a covered invoice or input tax credit transaction. Liability requires cumulative proof that the individual retained an identifiable personal benefit and that the transaction was conducted at that person's instance. Directorship, employment, registration, signature authority, or association with the taxable entity neither independently establishes nor excludes liability. Proceedings require transaction-specific and person-specific allegations and findings. The provision operates prospectively for underlying acts or transactions occurring on or after 01.01.2021.
Case Laws IBC
Show AI Summary
Proof of tenancy rights governs insolvency recovery of corporate-debtor premises from occupants lacking enforceable possessory interests.
Where premises form part of the corporate debtor's assets, Sections 18 and 25 of the Insolvency and Bankruptcy Code, 2016 require the resolution professional to take custody, control, preservation and protection measures. An occupant resisting recovery must prove a subsisting tenancy, leasehold interest or enforceable licence through reliable evidence of the parties' intended relationship and its essential terms. Permission to stock goods or conduct limited business activity, prolonged occupation, and business or utility records do not independently create rights in the premises. Section 60(5)(c) supports insolvency jurisdiction over asset-recovery measures connected with the insolvency estate.
Case Laws GST
Show AI Summary
GST portal service requires statutory validity and practical accessibility before ex parte adjudication can fairly proceed.
GST portal service is a statutory method under Section 169, but its use in an ex parte demand proceeding depends on effective accessibility and a meaningful opportunity to reply and be heard. Rule 142 requires electronic DRC-01 and DRC-07 summaries to operate alongside the underlying show-cause notice and reasoned order. Portal placement, complete communication, e-mail transmission, technical reliability and proof of actual access may determine whether service is effective, whether waiver applies, and whether appellate limitation begins.

TMI Notes

Back

All TMI Notes

Showing Results for :
Reset Filters
No Records Found

TMI Notes

Tax Deduction at Source on Contractual and Professional Payments : Clause 393(1)[Table: S.No. 6(ii)] of Income Tax Bill, 2025 Vs. Section 194M of the Income-tax Act, 1961

24 June, 2025

Contents
Acts
Rules & Regulations
Summary
Note

Note

-

Bookmark

(New) -

Download

Print

Print

Clause 393 Tax to be deducted at source.

Income Tax Bill, 2025

Legal Commentary on

Introduction

The mechanism of Tax Deduction at Source (TDS) is a cornerstone of the Indian income tax regime, ensuring steady revenue inflow to the government and promoting tax compliance at the source of income generation. Over the years, the scope and application of TDS provisions have evolved, adapting to changing economic realities and policy objectives. Two such provisions - Clause 393(1)[Table: S.No. 6(ii)] of the Income Tax Bill, 2025 and Section 194M of the Income-tax Act, 1961-are particularly significant for individuals and Hindu Undivided Families (HUFs) making substantial payments for contractual work, professional services, or commissions/brokerages. This commentary provides a comprehensive analysis of Clause 393(1)[Table: S.No. 6(ii)], explores its legislative intent, practical implications, and potential ambiguities, and juxtaposes it with the existing Section 194M to elucidate continuities, changes, and implications for stakeholders.

Objective and Purpose

The legislative intent behind introducing specific TDS provisions for individuals and HUFs not engaged in business or professional activities, or not otherwise liable to deduct TDS under the main business provisions (such as Sections 194C, 194H, or 194J), is to widen the tax base and plug potential revenue leakages. Historically, individuals and HUFs making high-value payments for personal or non-business purposes could escape the TDS net, creating a compliance gap and facilitating tax evasion or under-reporting by recipients. Section 194M, inserted by the Finance (No. 2) Act, 2019, addressed this gap by mandating TDS on certain payments by individuals/HUFs exceeding a prescribed threshold. The Income Tax Bill, 2025, through Clause 393(1)[Table: S.No. 6(ii)], seeks to continue and rationalize this regime, possibly with refinements in scope, definitions, and compliance requirements, as part of a broader overhaul of the TDS framework.

Detailed Analysis of Clause 393(1)[Table: S.No. 6(ii)] of the Income Tax Bill, 2025

1. Structure and Scope of the Provision

Clause 393(1) lays down the general rule for TDS, specifying that where any income or sum of the nature specified in the accompanying Table is credited or paid by the person specified, to a resident, the payer shall deduct income-tax at the specified rate, subject to threshold limits and timing rules. The Table is organized by serial numbers, each corresponding to a category of payment or income.

Serial No. 6(ii) reads as follows:

  • Nature of Payment: Any sum-
    • (a) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract; or
    • (b) by way of fees for professional services; or
    • (c) by way of commission [not being insurance commission referred to in serial number 1(i)] or brokerage.
  • Payer: Any person, being an individual or Hindu undivided family [other than those required to deduct income-tax as per Sl. No. 6(i) and (iii) or Sl. No. 1(ii)].
  • Rate: 2%.
  • Threshold limit: Rs. 50,00,000.

This provision essentially covers high-value payments by individuals or HUFs (not otherwise required to deduct tax under the main business/professional TDS provisions) for contractual work, professional services, commission, or brokerage, with a threshold of Rs. 50 lakh per financial year, and a TDS rate of 2%.

2. Definitions and Exclusions

  • Payer: The provision applies to individuals or HUFs who are not required to deduct TDS under:
    • Sl. No. 6(i): Payments by a "designated person" (typically those in business/profession with turnover above a threshold, akin to the main TDS provisions under the 1961 Act such as 194C, 194H, or 194J).
    • Sl. No. 6(iii): Payments by a "specified person" (possibly companies, firms, etc. as defined elsewhere).
    • Sl. No. 1(ii): Commission or brokerage by a "specified person".
  • Nature of Payments: The terms "work", "professional services", "commission", and "brokerage" are not defined in the extract, but are likely to adopt definitions similar to those in the current 1961 Act:
    • "Work" (as per 194C Explanation): Includes advertising, broadcasting, carriage of goods/passengers, catering, manufacturing/supplying product as per customer specification, etc.
    • "Professional services" (as per 194J Explanation): Includes services rendered by legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, etc.
    • "Commission or brokerage" (as per 194H Explanation): Any payment received/directly/indirectly for services rendered in the course of buying/selling goods, transactions relating to any asset, valuable article, or thing, excluding insurance commission.
  • Threshold Limit: No TDS is required if the sum, or aggregate of sums, paid to a resident during the financial year does not exceed Rs. 50,00,000. This is a significant threshold, ensuring that only high-value transactions are covered, thus balancing compliance burden with revenue interests.
  • Rate: The TDS rate is 2% of the sum paid or credited.
  • Timing: TDS is to be deducted at the time of credit or payment, whichever is earlier.

3. Procedural Aspects and Compliance

  • Exemption from Main TDS Provisions: The provision applies only if the payer is not otherwise liable to deduct tax under the main TDS sections (i.e., not in business/profession above prescribed turnover, not a company/firm, etc.). This ensures that there is no overlap or double deduction.
  • Aggregation: The threshold applies on an aggregate basis for payments to each payee during the financial year, requiring payers to monitor cumulative payments for compliance.
  • Rate and Nature of Deduction: The flat 2% rate applies regardless of the nature of underlying service (work, professional, commission), simplifying compliance.
  • Documentation and Reporting: The provision does not specify PAN requirements, TDS certificate issuance, or return filing, but these may be detailed in rules or subsequent sections. Under the current Section 194M, there is no requirement to obtain a TAN (Tax Deduction Account Number), easing compliance for individuals/HUFs-whether this continues under the new provision would depend on subordinate legislation.
  • Exclusions: Payments for personal purposes are not explicitly excluded in the main text, but under the "No Deduction at Source" Table, payments by individuals/HUFs exclusively for personal purposes are exempt-this aligns with the policy of not burdening personal/non-commercial transactions with TDS compliance.

4. Interplay with Other Provisions and Ambiguities

  • Overlap with Other TDS Provisions: The clause is carefully drafted to avoid overlap with Sl. No. 6(i) (business/profession payers) and 6(iii) (specified persons). However, practical issues may arise if the status of the payer changes during the year, or if there is ambiguity in classification.
  • Definition of Terms: The lack of explicit definitions in the Bill may create interpretative ambiguity, especially if the definitions in the 1961 Act are amended or repealed. Judicial guidance or clarificatory circulars may be required to resolve disputes.
  • Aggregation and Threshold Calculation: The provision requires aggregation of payments for threshold determination, but does not clarify whether this is on a contract-wise or payee-wise basis. The prevailing practice is payee-wise aggregation, but explicit clarification would aid compliance.
  • Nature of Payment: The inclusion of both "work" and "professional services" ensures wide coverage, but may also lead to interpretative disputes where the distinction is blurred (e.g., technical consultancy vs. contract work).
  • No Deduction at Source Table: As per Sl. No. 8(b) and Sl. No. 9, payments exclusively for personal purposes by individuals/HUFs are exempt from TDS, providing relief for non-commercial transactions and aligning with the legislative intent of targeting only large, non-personal payments.

Practical Implications

  • For Individuals and HUFs: The provision brings high-value, non-business payments by individuals/HUFs within the TDS net, requiring them to monitor payments, deduct tax, deposit it with the government, and comply with reporting requirements. While the high threshold of Rs. 50 lakh limits the scope to significant transactions (such as construction contracts, large professional fees, property renovations, etc.), it does impose compliance on non-business taxpayers who may not be familiar with TDS processes.
  • For Recipients (Contractors, Professionals, Agents): The provision ensures greater reporting and traceability of high-value income, reducing the scope for tax evasion. However, it may also lead to cash flow issues if TDS is not appropriately credited, and require recipients to reconcile TDS credits in their tax returns.
  • For Tax Authorities: The provision enhances the ability to track high-value transactions and widen the tax base, but also necessitates clear administrative guidance to address ambiguities and ensure smooth compliance by non-business payers.
  • Compliance Requirements: While procedural relaxations (such as exemption from TAN in Section 194M) reduce compliance burden, the need to monitor cumulative payments, deduct and deposit TDS, and issue TDS certificates remains a challenge for individuals/HUFs not accustomed to tax withholding obligations.

Comparative Analysis with Section 194M of the Income-tax Act, 1961

1. Text of Section 194M

Section 194M, inserted by the Finance (No. 2) Act, 2019 (effective from 1 September 2019), provides as follows:

  • Any individual or HUF (other than those required to deduct tax under 194C, 194H, or 194J) responsible for paying any sum to a resident for carrying out any work (including supply of labour), commission (not being insurance commission), brokerage, or fees for professional services, shall deduct TDS at 2% (w.e.f. 1 October 2024; earlier 5%) if the aggregate payments exceed Rs. 50,00,000 in a financial year.
  • No requirement to obtain TAN (Section 203A not applicable).
  • Definitions of "contract", "commission or brokerage", "professional services", and "work" are as per corresponding explanations in Sections 194C, 194H, and 194J.

2. Key Similarities

  • Coverage: Both provisions apply to individuals/HUFs not otherwise liable to deduct TDS under the main business/professional TDS sections, and cover payments for contract work, professional services, and commission/brokerage.
  • Threshold: Both have a threshold of Rs. 50 lakh per financial year, ensuring only high-value payments are covered.
  • Rate: Both prescribe a TDS rate of 2% (Section 194M was amended from 5% to 2% effective 1 October 2024).
  • Timing: Both require deduction at the time of credit or payment, whichever is earlier.
  • Definitions: Both rely on definitions from the main TDS sections for key terms, ensuring consistency and clarity.
  • Aggregation: Both require aggregation of payments to each payee for threshold determination.
  • Exemption for Personal Purposes: Both exempt payments made exclusively for personal purposes by individuals/HUFs from TDS, aligning with the policy of targeting only non-personal, high-value transactions.

3. Key Differences and Evolution

  • Structural Integration: Clause 393(1)[Table: S.No. 6(ii)] is part of a comprehensive, tabular TDS regime in the 2025 Bill, integrating various TDS provisions into a single framework, whereas Section 194M is a standalone section in the 1961 Act.
  • Reference to Other Provisions: The new provision cross-references other serial numbers in the Table (e.g., excluding those liable under 6(i), 6(iii), 1(ii)), while Section 194M refers to 194C, 194H, and 194J. The underlying intent is similar, but the drafting is adapted to the new structure.
  • Definitions: Section 194M explicitly adopts definitions from other sections, while the Bill relies on cross-references and may require reading definitions from elsewhere in the Bill or subordinate legislation.
  • Procedural Relaxations: Section 194M explicitly exempts payers from obtaining a TAN, easing compliance. The Bill's provision does not specify this, leaving the matter to rules or administrative instructions. If the exemption continues, it would be a significant relief for non-business payers.
  • Wording and Clarity: The Bill's provision is more concise and tabular, which aids in quick reference but may create interpretative challenges for complex cases. Section 194M's narrative format is more detailed.
  • Potential for Expansion: The Bill's tabular structure allows for easier modification, addition, or rationalization of TDS categories in the future, potentially increasing flexibility for policymakers.

4. Policy and Compliance Considerations

  • Compliance Burden: Both provisions impose new compliance requirements on individuals/HUFs making high-value payments, but the high threshold ensures that only significant transactions are covered. The exemption from TAN and simplified procedures u/s 194M should ideally be retained in the new regime to avoid discouraging compliance.
  • Revenue Impact: The provision is aimed at plugging revenue leakages from high-value, non-business transactions, and is likely to yield significant tax collections from sectors such as construction, consultancy, and agency services.
  • Risk of Litigation: Ambiguities in definitions, aggregation, and classification of payments may lead to disputes, particularly where the line between personal and non-personal payments is blurred, or where the payer's status changes during the year.
  • Administrative Guidance: Clear rules, FAQs, and circulars will be essential to ensure smooth transition and compliance, especially for non-business taxpayers unfamiliar with TDS processes.

Comparative Table

 

Aspect Clause 393(1)[Table: S.No. 6(ii)] of the Income Tax Bill, 2025 Section 194M of the Income-tax Act, 1961
Payer Individual or HUF (not required to deduct under S.No. 6(i), 6(iii), or 1(ii)) Individual or HUF (not required to deduct under 194C, 194H, or 194J)
Payee Resident Resident
Nature of Payment Work contracts, professional services, commission/brokerage (excluding insurance commission) Work contracts, professional services, commission/brokerage (excluding insurance commission)
Threshold Rs. 50,00,000 (aggregate in tax year) Rs. 50,00,000 (aggregate in financial year)
Rate 2% 2% (w.e.f. 1-10-2024; previously 5%)
Timing Credit or payment, whichever is earlier Credit or payment, whichever is earlier
Definitions Not expressly defined, but to be interpreted as per existing law Explicitly references definitions in 194C, 194H, 194J
Exemptions Does not apply where payer is otherwise required to deduct TDS under other provisions Does not apply where payer is otherwise required to deduct TDS under 194C, 194H, or 194J
Procedural Simplicity Implied, but not specified; expected to follow existing simplified regime No TAN required; simplified compliance

Conclusion

Clause 393(1)[Table: S.No. 6(ii)] of the Income Tax Bill, 2025 represents a continuation and rationalization of the policy embodied in Section 194M of the Income-tax Act, 1961, targeting high-value payments by individuals and HUFs for contract work, professional services, and commissions/brokerages. The provision is carefully crafted to avoid overlap with the main TDS sections, applies a high threshold to minimize compliance burden, and adopts a flat 2% rate for simplicity. Its integration into a comprehensive, tabular TDS framework enhances clarity and flexibility, but also necessitates careful administrative guidance to address potential ambiguities and ensure smooth compliance. The comparative analysis reveals substantial continuity between the two regimes, with refinements in drafting and structure reflecting broader reforms in the TDS framework. Going forward, clarity on procedural requirements (such as TAN exemption), aggregation methodology, and definitions will be critical to achieving the policy objectives of widening the tax base and promoting compliance, while minimizing undue burden on non-business taxpayers.


Full Text:

Clause 393 Tax to be deducted at source.

Topics

Acts Income Tax