Just a moment...

Top
Help
×

By creating an account you can:

Logo TaxTMI
Call Us / Help / Feedback

Contact Us At :

E-mail: [email protected]

Call / WhatsApp at: +91 99117 96707

For more information, 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 characters0/2000
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 ✕
🔎 TMI Notes - Adv. Search
TEXT SEARCH:

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.
RelevanceDefaultDate
    NewsBills
    Section 194-IB - Payment of rent by certain individuals or HUF (Rationalisation and Simplification o...
    NewsBills
    Section 194M - Payment of certain sums by certain individuals or Hindu undivided family (Rationalisa...
    NewsBills
    Section 194-O - Payment of certain sums by e-commerce operator to e-commerce participant (Rationalis...
    NewsBills
    Section 194F - TDS on payments on repurchase of units by mutual fund or UTI (Rationalisation and Sim...
    NewsBills
    Ease in claiming credit for TCS collected/TDS deducted by salaried employees
    NewsBills
    Alignment of interest rates for late payment to Government account of TCS
    NewsBills
    Increase in limit of remuneration to working partners of a firm allowed as deduction
    NewsBills
    Claiming credit for TCS of minor in the hands of parent
    NewsBills
    Tax on distributed income of domestic company for buy-back of shares (WIDENING AND DEEPENING OF TAX ...
    NewsBills
    Revision of rates of securities transaction tax by amendment to the Finance (No.2) Act, 2004 (WIDENI...
    NewsBills
    Reporting of income from letting out of house property under ‘Income from House Property’ (WIDEN...
    NewsBills
    Amendment of section 47 (WIDENING AND DEEPENING OF TAX BASE AND ANTI-AVOIDANCE)
    NewsBills
    TDS on payment of salary, remuneration, interest, bonus or commission by partnership firm to partner...
    NewsBills
    TCS under sub-section (1F) of section 206C on notified goods (WIDENING AND DEEPENING OF TAX BASE AND...
    NewsBills
    Amendment of provisions of TDS on sale of immovable property (WIDENING AND DEEPENING OF TAX BASE AND...
    NewsBills
    Tax Deduction at source on Floating Rate Savings (Taxable) Bonds (FRSB) 2020 (WIDENING AND DEEPENING...
    NewsBills
    Preventing misuse of deductions of expenses claimed by life insurance business (WIDENING AND DEEPENI...
    NewsBills
    Inclusion of taxes withheld outside India for purposes of calculating total income (WIDENING AND DEE...
    NewsBills
    Excluding sums paid under section 194J from section 194C (Payments to Contractors) (WIDENING AND DEE...
    NewsBills
    Disallowance of settlement amounts being paid to settle contraventions (WIDENING AND DEEPENING OF TA...
❯❯
MaximizeMaximizeMaximize
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 SummariesHide All Summaries
    NewsBills
    Show AI Summary
    TDS on rent reduced for individuals and HUFs, lowering withholding obligations for specified high-value rent payments.
    Section 194-IB presently obliges individuals and Hindu undivided families (except those excluded by the second proviso to section 194-I) paying rent above the monthly threshold to deduct tax at source; the Finance Bill amends the provision to reduce the TDS rate from five percent to two percent, with the amendment operative from 1 October 2024.
    NewsBills
    Show AI Summary
    TDS on payments for work, commission and professional fees reduced to a lower withholding rate, effective from October.
    Section 194M requires individuals and Hindu undivided families (except those already required to deduct under related contractor, commission or professional service provisions) to deduct tax at the earlier of credit or payment on sums for carrying out work (including supply of labour), commission or brokerage (excluding insurance commission), and fees for professional services. The Finance Bill proposes to reduce the prescribed withholding rate under Section 194M, with the amendment effective from 1 October 2024 as Clause 60.
    NewsBills
    Show AI Summary
    TDS on e-commerce transactions reduced to align with offline parity under the Finance Bill amendment.
    Section 194-O obliges an e-commerce operator to deduct tax at source on the gross amount of sales or services when that amount is credited to an e-commerce participant's account or paid, whichever is earlier. The Finance Bill proposes reducing the operator's TDS rate to achieve parity with lower rates applicable to comparable offline provisions, with an effective date specified in the Bill.
    NewsBills
    Show AI Summary
    TDS on mutual fund unit repurchase proposed to be omitted under section 194F, simplifying taxation of capital gains.
    Proposal deletes section 194F, removing the TDS obligation on payments for repurchase of units by mutual funds and UTI as part of capital gains tax rationalisation; the amendment takes effect from the first day of October under the Finance (No.2) Bill, 2024 (Clause 55).
    NewsBills
    Show AI Summary
    Tax credit for collected or deducted tax: salaried employees may use such credits to reduce salary TDS, easing compliance.
    Amendment modifies the rule for computing tax to be deducted from salary so that any tax deducted or collected under the statutory collection-at-source and related withholding regimes is taken into account when determining salary tax deduction, thereby reducing cash-flow impacts on employees and the need to claim refunds; effective from 1 October 2024.
    NewsBills
    Show AI Summary
    Interest on TCS increased to align with TDS parity, raising monthly simple interest for late remittance to government account.
    The Bill amends section 206C(7) to increase the simple interest rate for failure to remit tax collected at source from one percent to one and one-half percent per month or part thereof, calculated from the date of collection until actual payment to the Government; the amendment is prospective and effective from 1 April 2025.
    NewsBills
    Show AI Summary
    Remuneration limit for working partners raised, permitting higher deductible partner compensation starting in the next assessment year.
    The Finance Bill raises the allowable deduction threshold for remuneration to working partners under section 40(b)(v), preserving the two-tier structure that gives a more favourable limit on the initial portion of book-profit and a lower ceiling on the balance. The amendment takes effect from 1 April 2025 and applies to assessment year 2025-26 and subsequent years, with deductions permitted only where remuneration is authorised by and accords with the partnership deed.
    NewsBills
    Show AI Summary
    TCS credit for minor's income: parents may claim tax collected where the minor's income is clubbed with the parent.
    Proposal empowers the Board to notify rules permitting allocation of tax collected at source to persons other than the collectee, addressing cases where tax is collected in a minor's name. Credit of a minor's TCS is allowed only when the minor's income is included in the parent's total income under the income clubbing rule, thereby conditioning credit on that inclusion and providing safeguards against misuse.
    NewsBills
    Show AI Summary
    Taxation of buy-back proceeds treated as deemed dividend, with capital loss carry-forward to offset future gains.
    Sums paid by a domestic company for purchase of its own shares are proposed to be treated as deemed dividend taxable in the hands of recipient shareholders at applicable rates with no expense deductions; concurrently, the extinguished shares will generate a capital loss (consideration deemed nil less cost of acquisition) which may be carried forward and set off against future capital gains on remaining or subsequently sold shares, preserving the shareholder's original cost of acquisition for later capital gains computation.
    NewsBills
    Show AI Summary
    Securities Transaction Tax increase expands levy on options and futures, broadening the taxable derivative market from the Bill's commencement.
    The Finance (No.2) Act, 2004 is amended to increase Securities Transaction Tax rates: the levy on sale of an option in securities is increased to a higher rate of the option premium and the levy on sale of a futures in securities is increased to a higher rate of the traded futures price. Recognised stock exchanges, specified funds, insurers and lead merchant bankers remain responsible for collecting STT and remitting it to the Central Government within the prescribed monthly timeline. The amendment responds to the growth of derivative trading and is set to commence on the Bill's stated future effective date.
    NewsBills
    Show AI Summary
    Income from house property: rental receipts must be reported under that head, not as business income, tightening tax base.
    Amendment clarifies that income from letting out a residential house or part thereof shall be chargeable under Income from House Property and not under Profits and Gains of Business or Profession, to prevent misclassification of rental receipts and tighten the tax base.
    NewsBills
    Show AI Summary
    Gift transfers of capital assets now exempt only when made by individuals or Hindu undivided families, narrowing the prior exclusion.
    The amendment restricts the exclusion from capital gains chargeability for transfers by gift, will or irrevocable trust so that it applies only where the transferor is an individual or a Hindu undivided family, thereby preventing use of gift transfers by companies to avoid capital gains tax and aligning the non-recognition rule with fair market value anti-avoidance provisions; the substitution applies prospectively to the announced assessment year and subsequent years.
    NewsBills
    Show AI Summary
    TDS on partner payments introduced: firms must deduct on salary, remuneration, interest and commissions paid to partners.
    A new provision imposes TDS on partnership firms for payments to partners - salary, remuneration, commission, bonus and interest - including amounts credited to capital accounts, where aggregate payments to a partner in a financial year exceed a specified threshold; the applicable rate is ten percent and the provision takes effect from the commencement of the stated financial year.
    NewsBills
    Show AI Summary
    Tax collection at source on luxury goods expanded to cover notified high-value goods, enhancing tracking and widening the tax base.
    Amendment expands the Tax Collection at Source provision that applies to high-value motor vehicle sales to include other notified high-value luxury goods; sellers must collect TCS from buyers on notified goods exceeding the prescribed value threshold at the rate specified by law, to enhance tracking of luxury expenditure and to widen and deepen the tax base, effective from 1 January 2025.
    NewsBills
    Show AI Summary
    TDS on immovable property transfers: aggregate consideration across parties triggers deduction, curbing avoidance by splitting payments.
    Amendment clarifies that for deduction under section 194-IA the consideration, and thus the threshold exemption and deduction obligation, is the aggregate amount paid or payable where more than one transferor or transferee is involved, countering treatment of individual buyer payments in isolation and addressing related tax avoidance.
    NewsBills
    Show AI Summary
    Tax deduction at source on interest payments for floating rate savings bonds now applies, expanding the tax base and anti-avoidance.
    Amendment to Section 193 mandates deduction of tax at source at the time of payment of interest to residents where interest exceeds the prescribed threshold, specifically covering Floating Rate Savings (Taxable) Bonds (FRSB) 2020 and any Central or State Government security as may be specified by the Central Government; the amendment is effective from 1 October 2024.
    NewsBills
    Show AI Summary
    Non admissible business expenses: added back to life insurance profits, tightening deductions from assessment year 2025-26.
    Amendment to Rule 2 of the First Schedule mandates that any expenditure not admissible under section 37 shall be included (added back) to the profits and gains of life insurance business, supplementing the actuarial surplus based computation and preventing misuse of deductions. The change takes effect from 1 April 2025 and applies from assessment year 2025 26.
    NewsBills
    Show AI Summary
    Inclusion of foreign tax withheld amounts as deemed income to align income computation with foreign tax credit claims.
    Proposed amendment deems amounts deducted under Chapter XVII-B and income tax paid outside India by way of deduction, where credit is allowed against tax payable under the Act, to be income received for computing an assessee's total income, preventing under reporting and double benefit from foreign tax credits.
    NewsBills
    Show AI Summary
    Exclusion of professional fees from contractor TDS rules clarifies which payments require withholding under professional services provisions.
    The amendment expressly excludes sums covered by section 194J from the definition of "work" in the Explanation to section 194C, removing overlap where payments for professional or technical services could otherwise be taxed as contractor payments; the change is framed as an anti avoidance clarification and takes effect from 1st October 2024.
    NewsBills
    Show AI Summary
    Deductibility of settlement payments excluded, preventing business expense claims for amounts paid to settle contraventions under notified laws.
    The amendment clarifies that expenditure incurred to settle proceedings relating to a contravention under any law, as notified by the Central Government, falls within the definition of expenditure "for any purpose which is an offence or which is prohibited by law" and therefore shall not be allowable as a deduction for business or profession.

    TMI Notes

    Back

    All TMI Notes

    Showing Results for :
    Reset Filters
      No Records Found

      TMI Notes

      Back

      All TMI Notes

      whatsappJoin Channel
      Showing Results for : Reset Filters

      Grossing Up Mechanisms in Indian TDS Law : Clause 393(10) of the Income Tax Bill, 2025 Vs. Section 195A of the Income-tax Act, 1961

      25 June, 2025

      Contents
      Acts
      Rules & Regulations
      Summary
      Note

      Note

      -

      Bookmark

      Print

      Print

      Clause 393 Tax to be deducted at source.

      Income Tax Bill, 2025

      Introduction

      Clause 393(10) of the Income Tax Bill, 2025 introduces a critical provision governing the mechanism for deduction of tax at source (TDS) where the payer agrees to bear the tax liability on behalf of the payee. This provision is a direct successor to the existing Section 195A of the Income-tax Act, 1961, which similarly addresses the concept of "grossing up" income when payments are made on a net-of-tax basis. The principle underlying both provisions is that, for the purposes of TDS, the income on which tax is to be deducted must be increased to such a level that, after deducting the tax, the net amount matches the contractual obligation to the payee.

      This commentary provides a detailed examination of Clause 393(10), its objectives, interpretative nuances, practical implications, and a comparative analysis with Section 195A of the 1961 Act. The analysis also considers relevant legal principles, administrative practice, and the broader context of TDS compliance in India.

      Objective and Purpose

      The legislative intent behind Clause 393(10)-as with Section 195A-is to ensure that the tax base is not eroded in cases where the payer assumes the tax liability of the payee. The provision is rooted in the anti-avoidance principle: if a payer agrees to pay an amount "net of tax" to a payee, the actual income of the payee (for tax purposes) is not the net amount received, but the gross amount that would result in the net receipt after TDS. This prevents manipulation of the tax base and ensures that the correct amount of tax is deducted and remitted to the exchequer.

      Historically, the need for such a provision has arisen in cross-border transactions, contracts with non-residents, and certain high-value domestic arrangements, where payees demand a fixed net receipt and the payer undertakes the obligation to settle the tax. Without a grossing-up mechanism, the effective TDS would be on a lower base, leading to a shortfall in tax collection.

      Detailed Analysis of Clause 393(10) of the Income Tax Bill, 2025

      Text of Clause 393(10)

      "In a case other than that referred to in section 392(2)(a), where under an agreement or an arrangement, if the tax chargeable on any income of the recipient referred to in this Chapter is to be borne by the payer, then, for the purposes of deduction of tax, the income shall be increased to an amount which after deduction of tax as per provisions of this Chapter becomes equal to the net amount payable under such agreement or arrangement."

      Key Elements of Clause 393(10)

      1. Scope of Application: The clause applies broadly to any payment subject to TDS under Chapter 393, except for cases covered by section 392(2)(a) (which deals with specific salary-related scenarios).
      2. Agreement or Arrangement: The trigger is the existence of an agreement or arrangement where the payer undertakes to bear the tax liability of the recipient/payee.
      3. Grossing Up Mechanism: The income is to be "increased to an amount" such that, after TDS at the applicable rate, the net amount matches the contractual (net) payment to the payee.
      4. Purpose: The grossed-up amount is the base for TDS, ensuring the intended net payment is achieved after tax deduction.

      Interpretative Considerations

      • Wording Consistency: The language of Clause 393(10) closely mirrors Section 195A, with a minor refinement to refer to "income of the recipient referred to in this Chapter." This clarifies that the clause applies to all TDS-triggering payments under the new regime, not just those previously covered.
      • Exclusion of Salary Cases: By expressly carving out section 392(2)(a), the clause avoids overlap with the specialized TDS provisions for salary, which have their own grossing-up rules.
      • Computation Formula: The grossing-up calculation is implicit but well-established in administrative practice and jurisprudence. If Net Amount is payable and the TDS rate is r%, the grossed-up amount G is computed as:
        G = Net Amount / (1 - r%)
      • Applicability to Residents and Non-Residents: The clause, by reference to "income of the recipient referred to in this Chapter," applies to both residents and non-residents, covering all payments where TDS is applicable and the payer assumes the tax burden.
      • Interaction with Double Taxation Avoidance Agreements (DTAAs): Where a DTAA prescribes a lower rate, the grossing-up is to be done at the DTAA rate, as the "rate in force" for TDS is determined by the Act or the applicable treaty, whichever is more beneficial to the taxpayer.

      Illustrative Example

      Suppose an Indian company agrees to pay a foreign consultant a net fee of Rs. 1,00,000, with the company bearing the tax liability. If the applicable TDS rate is 10%, the grossed-up amount would be:

      Gross amount = Rs. 1,00,000 / (1 - 0.10) = Rs. 1,11,111
      TDS = Rs. 11,111
      Net amount to payee = Rs. 1,00,000

      Ambiguities and Potential Issues

      • Multiple Rates and Surcharges: The presence of surcharge and cess can complicate the computation. The "rate as per provisions of this Chapter" must be interpreted to include all applicable add-ons.
      • Composite Payments: In cases where a single payment includes multiple components (some taxable, some not), the grossing-up should only apply to the taxable portion.
      • Foreign Exchange Fluctuations: In cross-border transactions, currency fluctuations between the date of agreement and payment can create discrepancies in net receipts.
      • Dispute on Net-of-Tax Clauses: The existence and enforceability of a net-of-tax clause can sometimes be disputed, especially if the contract is ambiguous or silent on tax treatment.

      Practical Implications

      For Payers

      • Increased Cost: Where the payer agrees to bear the tax, the effective cost of the transaction increases, as the gross payment (including tax) is higher than the contractual net amount.
      • Compliance Burden: Accurate computation, documentation, and disclosure of grossed-up amounts are essential. Errors can lead to short deduction, interest, and penalties.
      • Contract Drafting: Parties must clearly specify whether amounts are net or gross of tax and who bears the tax liability.

      For Payees

      • Tax Credit: The payee is deemed to have received the grossed-up amount and can claim TDS credit accordingly, even if the net cash received is lower.
      • Income Reporting: The grossed-up amount must be reported as income in the tax return, aligning with the TDS certificate (Form 16A or equivalent).

      For Tax Authorities

      • Revenue Protection: The clause safeguards the tax base, ensuring that the government receives tax on the full amount intended to accrue to the payee.
      • Audit and Enforcement: Authorities scrutinize contracts and payments to detect under-grossing or misapplication of rates, especially in cross-border or related-party transactions.

      Comparative Analysis with Section 195A of the Income-tax Act, 1961

      Text of Section 195A

      "In a case other than that referred to in sub-section (1A) of section 192, where under an agreement or other arrangement, the tax chargeable on any income referred to in the foregoing provisions of this Chapter is to be borne by the person by whom the income is payable, then, for the purposes of deduction of tax under those provisions such income shall be increased to such amount as would, after deduction of tax thereon at the rates in force for the financial year in which such income is payable, be equal to the net amount payable under such agreement or arrangement."

      Similarities

      • Substance: Both provisions impose the obligation to gross up the income where the payer assumes the tax liability.
      • Exclusion of Salary Cases: Both carve out salary TDS scenarios, which have separate grossing-up provisions.
      • Trigger: Both are triggered by an agreement or arrangement to pay net of tax.
      • Computation: Both require the income to be increased such that, after TDS, the net amount matches the contractual payment.

      Differences and Evolution

      • Wording and Scope: Clause 393(10) refers to "income of the recipient referred to in this Chapter," aligning with the broader and more structured TDS regime under the Bill. Section 195A refers to "income referred to in the foregoing provisions of this Chapter," which, while functionally similar, is less precise.
      • Reference to Salary Provisions: Clause 393(10) refers to section 392(2)(a), while Section 195A refers to section 192(1A). This is merely a renumbering and updating consistent with the new Bill's structure.
      • Integration with TDS Tables: Clause 393(10) is embedded within a comprehensive, tabular TDS framework, whereas Section 195A operates in a more fragmented legislative environment.
      • Clarity of Application: The new clause, by referencing the entire Chapter and its tables, clarifies that grossing-up applies across all TDS scenarios, not just those previously litigated or administratively recognized.

      Judicial and Administrative Interpretation

      • Case Law: Courts have consistently held that Section 195A is a mandatory provision; where the payer agrees to bear the tax, grossing-up is not optional. The same principle will apply under Clause 393(10).
      • CBDT Circulars: The Central Board of Direct Taxes (CBDT) has issued clarifications on computation methodology, especially regarding inclusion of surcharge and cess in the grossing-up calculation.
      • Interaction with DTAAs: Courts have held that the grossing-up must be done at the beneficial DTAA rate, if applicable.

      Practical Examples under Both Regimes

      The computation process remains unchanged:

      • u/s 195A: If a net payment of Rs. 1,00,000 is to be made and the TDS rate is 10%, the grossed-up amount is Rs. 1,11,111.
      • Under Clause 393(10): The same computation applies, but the base for grossing-up is more clearly defined by the new tables and thresholds.

      Potential Issues and Ambiguities

      • Multiple TDS Provisions: The new Bill's tabular structure may lead to questions about which TDS entry applies, but once identified, Clause 393(10) applies uniformly.
      • Transition Issues: During the shift from the 1961 Act to the new Bill, contracts referencing the old law may require renegotiation or clarification.

      Comparative Table

      AspectSection 195A of the Income-tax Act, 1961Clause 393(10) of the Income Tax Bill, 2025
      TriggerAgreement/arrangement to pay net of taxSame
      ScopeAll TDS under Chapter XVII-B except salary (192(1A))All TDS under Chapter 393 except salary (392(2)(a))
      Grossing-up CalculationAt "rates in force" for the relevant FYAt "rates as per provisions of this Chapter" (including tables and notes)
      Inclusion of Surcharge/CessYes, as per administrative guidanceYes, by express reference to "rates as per provisions"
      Reference to DTAAsYes, if beneficialYes, as per "rates as per provisions"
      Clarity of ApplicationSome ambiguity due to scattered TDS provisionsHigher clarity due to integrated TDS tables

      Conclusion

      Clause 393(10) of the Income Tax Bill, 2025, faithfully carries forward the legislative intent and operational mechanics of Section 195A of the Income-tax Act, 1961, while providing greater clarity and integration with the new TDS framework. Its primary function is to ensure that the government's tax base is preserved whenever a payer agrees to make a net-of-tax payment, by mandating grossing-up of the income before TDS. The provision is crucial for both domestic and cross-border transactions, and its correct application is essential for compliance, revenue protection, and avoidance of disputes.

      While the substance remains unchanged, the new Bill's structure and language enhance clarity, reduce ambiguity, and align the TDS regime with contemporary legislative drafting standards. Stakeholders must continue to exercise diligence in contract drafting, computation, and documentation to ensure seamless compliance with the grossing-up requirement.


      Full Text:

      Clause 393 Tax to be deducted at source.

      Topics

      ActsIncome Tax