Loading...

⚠ ✕
❮ 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 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
    News Bills
    Rationalisation of the provisions of Equalisation Levy
    News Bills
    Depreciation on Goodwill
    News Bills
    Rationalisation of the provision relating to processing of returned income and issuance of notice un...
    News Bills
    Adjudicating authority under the PBPT Act
    News Bills
    Rationalisation of the provision of presumptive taxation for professionals under section 44ADA
    News Bills
    Clarification regarding the scope of Vivad se Vishwas Act, 2020
    News Bills
    Definition of the term “Liable to tax”
    News Bills
    Income Declaration Scheme (IDS) amendment
    News Bills
    Tax Deduction at Source (TDS) on purchase of goods
    News Bills
    TDS/TCS on non filer at higher rates
    News Bills
    Taxability of Interest on various funds where income is exempt
    News Bills
    CUSTOMS
    News Bills
    AMENDMENTS IN THE CUSTOMS ACT, 1962
    News Bills
    AMENDMENTS IN THE CUSTOMS TARIFF ACT, 1975
    News Bills
    AMENDMENTS IN THE FIRST SCHEDULE TO THE CUSTOMS TARIFF ACT, 1975
    News Bills
    CHANGES IN CUSTOMS RULES
    News Bills
    OTHER PROPOSALS INVOLVING CHANGES IN BASIC CUSTOMS DUTY RATES IN RESPECTIVE NOTIFICATIONS [with effe...
    News Bills
    Other miscellaneous changes
    News Bills
    Pruning and review of customs duty concessions/ exemptions
    News Bills
    Prescribing the condition of observance of the Customs (Import of Goods at Concessional Rate of Duty...
❮
❯
❯❯
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
News Bills
Show AI Summary
Equalisation levy broadened to cover sales and services regardless of operator ownership, with treaty-taxable royalties excluded.
Amendments clarify that consideration chargeable to equalisation levy excludes amounts taxable as royalty or fees for technical services under a notified tax treaty; define e-commerce supply or services to include online acceptance of offers, purchase orders, payment and supply/provision (wholly or partly); broaden consideration to cover sale of goods irrespective of operator ownership and provision of services irrespective of whether provided or facilitated by the operator. These changes operate retrospectively from 1 April 2020, and section 10(50) is adjusted to the same definition and to exclude treaty-taxable royalty or FTS, effective for assessment years from 2021-22.
News Bills
Show AI Summary
Depreciation on goodwill disallowed; purchase price treated as cost for capital gains with adjustment for prior depreciation.
The proposal removes goodwill of a business or profession from the class of assets eligible for depreciation by excluding it from the definition of block of assets and from assets covered by section 32, provides transitional rules for blocks and capital gains where depreciation was earlier obtained, and preserves purchase price as cost of acquisition for capital gains subject to reduction by any depreciation claimed prior to the operative year.
News Bills
Show AI Summary
Statutory time limits shortened for intimation and notices after return filing, and audit-report income adjustments formalised.
Amendments to section 143 revise processing of returned income to allow adjustments for income increases indicated in audit reports not previously accounted for, and provide consequential changes reflecting earlier amendments to relief provisions. The statutory time limit for issuing intimations under sub section (1) is shortened to nine months from the end of the relevant financial year, and the time limit for issuing notices under sub section (2) is shortened to three months; amendments take effect from 1 April 2021.
News Bills
Show AI Summary
Adjudicating authority under PBPT Act designated to SAFEMA Competent Authority; limitation period for orders extended to September.
The Finance Bill designates the Competent Authority under SAFEMA as the Adjudicating Authority under the PBPT Act to commence functions from 1st July, 2021, replacing the interim discharge by the PMLA Adjudicating Authority. It also extends the time limit under sub section (7) of section 26 of the PBPT Act so that any order deadline expiring between 1st July, 2021 and 29th September, 2021 will be extended to 30th September, 2021.
News Bills
Show AI Summary
Presumptive taxation for professionals clarified: LLPs excluded while individuals, HUFs and partnership firms remain eligible under existing conditions.
The amendment clarifies that the presumptive taxation provision under section 44ADA applies to residents engaged in specified professions who are individuals, Hindu undivided families or partnership firms, but excludes Limited Liability Partnerships; existing eligibility conditions including the gross receipts threshold and the deemed proportion of profits remain unchanged, and the amendment is effective from 1 April 2021 for the assessment year 2021 22 onward.
News Bills
Show AI Summary
Scope of Vivad se Vishwas Act clarified to exclude cases settled under IT settlement mechanism, with retrospective amendment.
The Finance Bill clarifies that the Vivad se Vishwas Act, 2020 does not cover taxes arising from settlements under Chapter XIX-A of the Income-tax Act; amendments to the definitions of "appellant," "disputed tax," and "tax arrear" in VsV are proposed to expressly exclude Chapter XIX-A cases and to operate retrospectively from 17 March 2020.
News Bills
Show AI Summary
Liable to tax defined to include existence of tax liability under any country's law, including where exemption later granted.
The proposal inserts clause (29A) into section 2 to define "liable to tax" as a liability to tax on a person under the law of any country, expressly including cases where an exemption is provided after imposition of that liability; the definition is to apply from the statutory effective date and to subsequent assessment years.
News Bills
Show AI Summary
Refund of excess tax under Income Declaration Scheme now payable without interest to specified persons, retrospectively effective.
The proviso to section 191 of the Finance Act, 2016 is amended to permit refund of excess tax, surcharge or penalty paid pursuant to declarations under the Income Declaration Scheme, 2016 to a specified class of persons without payment of any interest; this amendment is to take effect retrospectively from 1st June, 2016. Section 187's deeming provision that a declaration is invalid if the tax, surcharge and penalty are not paid by the specified date remains in place.
News Bills
Show AI Summary
TDS on purchase of goods: new low-rate withholding applies to buyers exceeding turnover threshold and high-value purchases.
Buyers whose turnover in the preceding financial year exceeds the turnover threshold must deduct tax at a very low prescribed rate on purchases from a seller where aggregate purchases from that seller exceed the specified high-value threshold in the previous year; Central Government may exempt persons by notification. Transactions subject to other withholding or collection are excluded except where concurrent collection would arise - then the purchase withholding applies. Board-issued guidelines, binding on authorities and deductors, and a higher rate where PAN is not provided, are provided for.
News Bills
Show AI Summary
Higher withholding for non-filers: TDS and TCS to be levied at enhanced prescribed rates on specified non filers.
A special withholding regime imposes enhanced TDS and TCS rates on a "specified person" who failed to file returns for the two relevant prior assessment years after the filing deadline and whose aggregate TDS/TCS in each year meets a threshold; the TDS rate is the highest of twice the statutory rate, twice the rate in force, or a fixed base rate, and the TCS rate is the higher of twice the statutory rate or the fixed base rate. PAN based higher rates interact so that the greater rate applies; non residents without a permanent establishment are excluded.
News Bills
Show AI Summary
Exemption cap on provident fund interest limits tax-free interest for high contributions, effective for future assessment years.
Clauses (11) and (12) of section 10 are amended by a proviso excluding from exemption the interest accrued in a previous year to the extent it relates to contributions exceeding the prescribed monetary threshold in that year, with computation rules to be prescribed and the amendment applying prospectively to specified assessment years.
News Bills
Show AI Summary
Customs duty definition clarified under Finance Bill, with amendments generally commencing on enactment unless otherwise stated.
Finance Bill, 2021 defines Basic Customs Duty as the customs duty levied under the Customs Act, 1962 and states that amendments made through the Bill will come into effect on the date of its enactment unless otherwise specified, with clause numbers shown in square brackets to indicate relevant provisions.
News Bills
Show AI Summary
Common portal enables electronic filing, service and automated amendments in customs procedures, with time limits and penalty enhancements.
A common portal is introduced to enable electronic registration, filing of bills of entry and shipping bills, submission of prescribed documents, payment of duty and electronic service of orders; the customs automated system may permit risk based amendments and importer/exporter actions on the portal. Conditional exemptions will cease on a prescribed future 31st March unless extended, a two year (plus one year extension) limit is prescribed for proceedings culminating in a section 28 notice, bill of entry filing timing is tightened, pre trial disposal of seized gold requires Commissioner (Appeals) certification, inventories certified by that Commissioner gain evidentiary weight, and new confiscation and penalty provisions target wrongful refund claims and fraudulent invoices.
News Bills
Show AI Summary
Countervailing duty changes: anti absorption and retrospective levy in anti circumvention cases, with time limited temporary revocations and review period limits.
Section 8B is amended for technical corrections. Section 9 adds anti absorption, retrospective levy from initiation in anti circumvention cases, aligns countervailing duty on goods cleared from EOU and SEZ into the domestic tariff area with safeguard measures, limits temporary revocation to a time bound period not exceeding one year at a time, and provides for imposition on review for fixed multi year periods. Section 9A applies parallel changes to anti dumping duty.
News Bills
Show AI Summary
Basic Customs Duty increases raise rates on chemical, plastics, electronics and auto parts; HSN harmonisation and new crude tariff lines.
Amendments raise rates in the First Schedule to the Customs Tariff Act, 1975 by increasing Basic Customs Duty on specified chemicals, plastics, gems and jewellery, electrical and electronics items, and automotive parts under the Finance Bill, 2021, with certain items moving to higher uniform duty levels and limited exclusions preserved. A separate set of tariff headings are adjusted upward without changing their stated effective rate headings. The Schedule also adds new tariff lines for petroleum crude and implements HSN 2022 harmonisation, with some changes effective immediately under provisional collection authority and others on later dates.
News Bills
Show AI Summary
Concessional import duty rules eased to permit job work and full outsourcing, with clearance on depreciated value subject to differential duty.
Amendments to the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 permit job work on imported materials (excluding gold, jewellery and other precious metals), allow full outsourcing of manufacture to job workers, and enable clearance of imported capital goods used for the specified purpose upon payment of differential duty with interest calculated on a depreciated value using depreciation norms aligned to Export Oriented Unit treatment under the Foreign Trade Policy.
News Bills
Show AI Summary
Basic customs duty revisions reshape import protection and input relief across agriculture, metals, electronics and renewable sectors.
Revisions to Basic Customs Duty rates effective 2 February 2021 adjust import protection and input duty treatment across sectors: raised duties on selected agricultural by products, leather and silk intermediates; re rating of chemicals, plastics and mineral inputs; reorganised duties and an added cess for precious metals and related items; targeted lower or nil rates for specified electronics, telecom and renewable energy inputs to incentivise domestic manufacture; and newly dutiable capital goods and transitional concessions for raw materials supporting local industry.
News Bills
Show AI Summary
Project Imports Scheme inclusion expands import concessions for high-speed rail projects; sponsoring authority designated to approve required imports.
High-Speed Rail projects are included in the Project Imports Scheme, making them eligible for project-specific import treatment under the Project Import Regulations. A designated Sponsoring Authority is empowered to approve the items to be imported under the scheme for High-Speed Rail Projects, centralising approval of project imports for that project class.
News Bills
Show AI Summary
Withdrawal of basic customs duty exemptions narrows concessional tariff coverage, removing listed goods from notification relief.
The Finance Bill, 2021 proposes pruning concessional Basic Customs Duty by omitting specified entries from notification No. 50/2017 Customs, thereby withdrawing BCD exemptions for listed goods - including a chemical intermediate for spandex yarn, printer consumables, and multiple apparel and accessory components - with certain omissions carrying stated commencement dates.
News Bills
Show AI Summary
IGCR Rules compliance required for concessional-duty import entries, with jurisdictional verification and rescission of select exemption notifications.
Amends notification No. 50/2017-Customs to prescribe observance of the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 for specified conditional entries, empowers the changed jurisdictional authority to issue end use certificates for past periods after verification, and rescinds or merges selected standalone duty exemption notifications to rationalise concessional import conditions.

TMI Notes

Back

All TMI Notes

Showing Results for :
Reset Filters
No Records Found

TMI Notes

Back

All TMI Notes

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

Aspect Section 195A of the Income-tax Act, 1961 Clause 393(10) of the Income Tax Bill, 2025
Trigger Agreement/arrangement to pay net of tax Same
Scope All TDS under Chapter XVII-B except salary (192(1A)) All TDS under Chapter 393 except salary (392(2)(a))
Grossing-up Calculation At "rates in force" for the relevant FY At "rates as per provisions of this Chapter" (including tables and notes)
Inclusion of Surcharge/Cess Yes, as per administrative guidance Yes, by express reference to "rates as per provisions"
Reference to DTAAs Yes, if beneficial Yes, as per "rates as per provisions"
Clarity of Application Some ambiguity due to scattered TDS provisions Higher 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

Acts Income Tax