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 ✕
🔎 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.
Relevance Default Date
    News Bill
    Rationalizing the period of block in case of other persons
    News Bill
    Referencing the time limit to complete block assessment to the initiation of search or requisition
    News Bill
    Rationalisation of Penalties into Fee
    News Bill
    Imposition of penalty for under-reporting or misreporting of income within Assessment Order
    News Bill
    ​​​​​​​Increase in maximum amount of penalty in section 46...
    News Bill
    Rationalisation of tax rate under section 195 and penalty under section 443 in respect of certain In...
    News Bill
    Expanding the scope of immunity from penalty or prosecution under section 440 of the Act
    News Bill
    ​​​​​​​Expanding the scope of immunity from imposition of ...
    News Bill
    Deductions in respect of dividends received and distributed by certain cooperative societies
    News Bill
    Widening scope of deduction under section 149 by including ancilliary activities of cattle feed and ...
    News Bill
    Inclusion of Cooperatives registered under Multi-State Cooperative Societies Act, 2002 in the defini...
    News Bill
    Amendment of section 169 of the Income-tax Act, 2025 relating to providing effect to advance pricing...
    News Bill
    Exemption to a foreign company on any income arising in India by way of procuring data centre servic...
    News Bill
    Allowing expenditure on prospecting of critical minerals as deduction
    News Bill
    Exemption to a foreign company on income arising on account of providing capital equipment etc. to a...
    News Bill
    Exclusion of specified business of Non-residents which are under presumptive taxation from the appli...
    News Bill
    ​​​​​​​Exemption to non-residents for rendering services u...
    News Bill
    Extension of period of deduction for units in IFSC and rationalization of tax rate
    News Bill
    Rationalisation of certain terms for treasury centres in IFSC
    News Bill
    Rationalization of Minimum Alternate Tax provisions
❯❯
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 Bill
Show AI Summary
Union Budget change limits block assessment period for third parties when undisclosed income pertains to a single tax year.
Section 295 currently requires that seized material relating to undisclosed income of a person other than the specified person be handed to that person's AO and that the other person undergo block assessment with the same block period; the Finance Bill proposes amending Section 295(2) to limit the period of block for such third parties, particularly where the undisclosed income pertains to a single tax year, with effect for searches or requisitions initiated on or after 1 April 2026.
News Bill
Show AI Summary
Union Budget 2026-27 proposes using initiation of search as the trigger for block assessment and extending the period to eighteen months.
The amendment replaces the last search authorization date with the initiation of search (or requisition) as the reference for computing the block-assessment limitation period and increases that period from twelve months to eighteen months, effective for searches or requisitions initiated on or after 1 April 2026.
News Bill
Show AI Summary
Penalties for certain compliance failures converted into graded fees with specified caps, effective April 1, 2026.
Select penalties for technical compliance failures are converted into prescribed graded fees: audit-reporting failures replaced by fees of Rs. 75,000 and Rs. 1,50,000 depending on delay; failure to furnish accountant reports for international or specified domestic transactions replaced by fees of Rs. 50,000 and Rs. 1,00,000; and failure to furnish statements of financial transactions or reportable accounts is converted into a fee with an introduced upper limit of Rs. 1,00,000 for the post-notice daily levy. The amendments take effect from the tax year beginning 1 April, 2026.
News Bill
Show AI Summary
Union Budget changes penalty process: under-reporting penalties imposed within assessment order; interest charged post-appeal, effective April 2027.
Penalties for under-reporting or misreporting are to be imposed within the assessment order to avoid multiple proceedings; consequential amendments align penalty, dispute resolution and recovery provisions. Interest under the tax recovery provision will be charged only after an appellate order by the first appellate authority or tribunal in appeals from dispute resolution forum orders.
News Bill
Show AI Summary
Increase in penalty for failing to comply with tax information requests from business premises to strengthen compliance.
Amendment to section 466 raises the maximum penalty for non-compliance with section 254 information directions from Rs. 1,000 to Rs. 25,000, to enhance deterrence and voluntary compliance. The enhanced sanction is to be imposed by specified tax officers and takes effect from 1 April 2026, applying to tax year 2026-27 and subsequent years.
News Bill
Show AI Summary
Tax on unexplained income cut to 30% and penalty treatment moved into the misreporting under reporting regime.
The proposal reduces the special tax charge on income determined as unexplained under sections 102-106 from 60% to 30% by amending section 195 and omits the standalone 10% penalty under section 443, subsuming penalty treatment into the under reporting/misreporting regime of section 439(11); the changes take effect from 1 April 2026 for tax year 2026-27 and thereafter.
News Bill
Show AI Summary
Union Budget expands taxpayer immunity to misreporting cases, allowing settlement by paying additional tax in lieu of penalty.
Section 440 is to be amended to allow immunity from penalty and prosecution where under reporting arises from misreporting, subject to existing eligibility and procedural conditions. Immunity requires payment of additional income tax equal to 100% of the tax on such income; for income determined as unexplained credits/investments/assets the additional tax payable for immunity is 120%. The amendment is effective 1 April 2026 for tax year 2026 27 onward.
News Bill
Show AI Summary
Amendment expands tax immunity to cover under reporting that results from misreporting, subject to existing procedural conditions.
Amendment extends the existing immunity from penalty and prosecution to cases where under reporting of income results from misreporting, subject to existing conditions: payment of tax and interest within the demand period, no appeal against the assessment, timely filing of an immunity application within one month, and assessing officer decision on the application within three months.
News Bill
Show AI Summary
Cooperative societies: deduction allowed on dividends from other cooperatives in new tax regime; limited federal cooperative relief.
Deduction is extended to dividends received by cooperative societies from other cooperative societies in the new tax regime, limited to amounts distributed to members. Notified federal cooperatives may claim a temporary deduction for dividends from companies for three years, restricted to investments made by the federal cooperative on or before 31.01.2026 and distributed to members. The amendment is effective from 1 April 2026 and applies to the tax year 2026-27 and subsequent years.
News Bill
Show AI Summary
Union Budget expands deduction to include cattle feed and cotton seeds under section 149(2)(b) for primary co operative societies.
Amendment expands section 149(2)(b) to permit full deduction of profits and gains of a primary co-operative society where members supply cattle feed and cotton seeds to a federal co-operative society, Government, local authority, Government company, or corporation engaged in the same business, applying from the tax year beginning 1 April 2026.
News Bill
Show AI Summary
Inclusion of multi-state co-operative societies in the co-operative society definition for tax purposes from April 2026.
Amendment expands the statutory definition of co-operative society to expressly include societies registered under the Multi-State Cooperative Societies Act, 2002, thereby bringing multi state registered cooperatives within the legal category subject to provisions applicable to co-operative societies under the Act.
News Bill
Show AI Summary
Advance pricing agreements now allow associated enterprises to file modified returns within three months for covered tax years.
Where income is modified as a result of an advance pricing agreement entered into with any person, that person or any associated enterprise may furnish a return or modified return limited to the agreement, within three months from the end of the month in which the agreement was entered into, in respect of tax years covered by such agreement entered on or after 1 April 2026 for tax years beginning 1 April 2026 and subsequent tax years.
News Bill
Show AI Summary
Exemption for foreign companies on income from procuring data centre services if routed through an Indian reseller.
A foreign company is exempt from Indian tax on income arising from procuring data centre services from a specified data centre, provided services to India users are routed through an Indian reseller; a specified data centre must be set up under an approved scheme notified by the Ministry of Electronics and Information Technology and be owned and operated by an Indian company; the exemption applies from the tax year beginning 1 April 2026 through the tax year ending 31 March 2047.
News Bill
Show AI Summary
Prospecting of critical minerals now qualifies for deferred tax deduction over ten years under expanded schedule provisions.
The schedule is amended to add critical minerals so that expenditure on prospecting and exploration of those minerals qualifies for the statutory deferred deduction available to resident taxpayers, with such expenses deductible over ten years from the year of commercial production and covering costs incurred in that year and up to four preceding years.
News Bill
Show AI Summary
Exemption for foreign companies' income from supplying capital equipment to contract manufacturers in custom bonded areas.
An exemption is introduced for income of a foreign company from providing capital goods, equipment or tooling to an Indian-resident contract manufacturer located in a custom bonded area that manufactures electronic goods for the foreign company for consideration; the time-limited exemption applies up to the tax year 2030-2031 and takes effect from 1 April 2026, applying to the tax year 2026-27 and subsequent years within the stated period.
News Bill
Show AI Summary
Non-resident cruise operations and electronics manufacturing services excluded from MAT when using presumptive taxation.
Amendment excludes certain specified non-resident businesses that opt for presumptive taxation from the scope of Minimum Alternate Tax, adding cruise ship operations and services or technology for establishing electronics manufacturing facilities for resident companies to the excluded categories, with prospective application to subsequent tax years.
News Bill
Show AI Summary
Non-resident service providers: five-year exemption for foreign income when rendering services under notified Indian schemes.
An individual who has been a non-resident for five consecutive tax years immediately preceding their first visit to India to render services under a Scheme notified by the Central Government may be exempt, for five consecutive tax years commencing with that first tax year, from tax on income that accrues or arises outside India and is not deemed to accrue or arise in India, subject to prescribed conditions.
News Bill
Show AI Summary
IFSC units and OBUs will get a longer 100% deduction period and post-expiry income taxed at 15%.
Proposed amendments extend the 100% deduction under section 147 for IFSC units from 10 consecutive years out of 15 to 20 consecutive years out of 25, and for OBUs from 10 consecutive years to 20 consecutive years; business income from IFSC after the deduction period will be taxed at 15%. The amendments apply from 1 April 2026 to the tax year 2026-27 and subsequent years.
News Bill
Show AI Summary
Treasury centre dividend exclusion limited to cross border group loans in notified jurisdictions with parent listed abroad.
Amendment restricts the dividend exclusion for inter group advances or loans involving a Finance company or Finance unit by requiring the other group entity to be located in a notified jurisdiction outside India and the group's parent or principal entity to be listed abroad; the Central Government will notify eligible jurisdictions. It also defines "group entity" by reference to the IFSCA (Payment Services) Regulations, 2024, and defines "parent/principal entity" by voting power and board control tests; the changes apply from 1 April 2026 for tax year 2026 27 onward.
News Bill
Show AI Summary
Minimum Alternate Tax: MAT rate cut to 14% and treated as final in the old regime with limited credit set off.
MAT in the old corporate tax regime will be treated as final tax and no new MAT credit will be allowed; the MAT rate is reduced to 14%. Existing MAT credit set off is limited: domestic companies may set off MAT credit only in the new regime up to 25% of annual tax liability, while foreign companies may set off to the extent normal tax exceeds MAT in the relevant year. These amendments apply from 1 April 2026 for tax year 2026 27 and subsequent years.

TMI Notes

Back

All TMI Notes

Showing Results for :
Reset Filters
No Records Found

TMI Notes

Back

All TMI Notes

Showing Results for : Reset Filters

Garnishee Proceedings and Tax Recovery : Clause 416 of the Income Tax Bill, 2025 Vs. Section 226 of the Income-tax Act, 1961

1 July, 2025

Contents
Acts
Rules & Regulations
Summary
Note

Note

-

Bookmark

Print

Print

Clause 416 Other modes of recovery.

Income Tax Bill, 2025

Introduction

Clause 416 of the Income Tax Bill, 2025, and Section 226 of the Income-tax Act, 1961, both address the critical subject of "Other modes of recovery" for tax arrears. These statutory provisions empower tax authorities with a suite of mechanisms to recover outstanding tax dues from assessees, supplementing the primary recovery process through certificates issued by the Tax Recovery Officer. As the Indian tax regime transitions to a more modern framework through the Income Tax Bill, 2025, an in-depth examination of Clause 416 vis-`a-vis its predecessor, Section 226, is imperative to understand the continuity, reforms, and potential implications for taxpayers and enforcement agencies.

This commentary systematically analyses Clause 416, elucidates its objectives, dissects its operative elements, and juxtaposes it with the existing Section 226 to highlight similarities, differences, and the practical ramifications of the proposed changes.

Objective and Purpose

The legislative intent behind both Clause 416 and Section 226 is to ensure the effective and expeditious recovery of tax arrears by providing the Assessing Officer and the Tax Recovery Officer with alternative or supplementary means of recovery. These provisions are designed to prevent evasion and circumvention of tax liabilities by enabling authorities to leverage third-party debts and assets, thus broadening the net of enforceability beyond the direct assets of the defaulter.

Historically, the rationale for such provisions is rooted in the need to address the limitations of traditional recovery mechanisms, which often rely on the attachment and sale of the assessee's property, a process that can be time-consuming and susceptible to frustration by strategic asset transfers or concealment. By allowing the authorities to reach out to third parties who owe money to the assessee or hold assets on their behalf, the law intends to plug loopholes and enhance the deterrent effect against default.

Detailed Analysis of Clause 416 of the Income Tax Bill, 2025

1. Preliminary Recovery Without Certificate (Sub-sections 1 & 2)

  • Clause 416(1) empowers the Assessing Officer to recover tax by any of the modes provided in the section where no certificate has been drawn up u/s 413. Clause 416(2) extends similar powers to the Tax Recovery Officer, even where a certificate has been drawn up, without prejudice to the primary modes u/s 413.
  • This bifurcation ensures that the authority to initiate recovery through alternative modes is not contingent upon the issuance of a recovery certificate, thus facilitating prompt action. The clause maintains the dual-track approach: the Assessing Officer can act pre-certificate, while the Tax Recovery Officer can act post-certificate, using these alternative modes in addition to the principal recovery process.

2. Recovery from Salary (Sub-sections 3 & 4)

  • Clause 416(3) specifically addresses recovery from salary income. The Assessing Officer or Tax Recovery Officer may require any person paying salary to the assessee to deduct arrears of tax from subsequent payments. The recipient of such a requisition is statutorily bound to comply and remit the deducted amount to the Central Government.
  • Clause 416(4) carves out an exception for portions of salary exempt from attachment u/s 60 of the Code of Civil Procedure, 1908. This ensures that the statutory protection afforded to a portion of a debtor's salary in civil proceedings is preserved in the context of tax recovery, upholding the principle of minimum subsistence.

3. Recovery from Third Parties (Sub-section 5)

Sub-section (5) is the most elaborate and significant part of Clause 416, providing a detailed framework for third-party recovery:

  • (a) Notice to Debtors/Asset Holders: The Assessing Officer or Tax Recovery Officer may issue a written notice to any person from whom money is due or may become due to the assessee, or who holds or may subsequently hold money for or on account of the assessee, requiring payment of the arrears either forthwith or within a specified time.
  • (b) Joint Holders: Notices may be issued to joint holders of assets, with a presumption of equal shares unless proven otherwise.
  • (c) Notification Requirements: Copies of the notice must be forwarded to the assessee and all joint holders at their last known addresses.
  • (d) Binding Effect and Overriding Provisions: Recipients of such notices are bound to comply, and in the case of banks, insurers, or post offices, payment can be made without the production of passbooks, deposit receipts, or policies, overriding contrary practices.
  • (e) Voidance of Subsequent Claims: Any claim respecting the property arising after notice is void against the tax demand.
  • (f) Objection Mechanism: Recipients can object by sworn statement if the sum is not due or not held for the assessee; if the objection is found false, personal liability attaches to the extent of the lesser of the recipient's liability to the assessee or the assessee's tax liability.
  • (g) Flexibility in Notice: The authority may amend, revoke, or extend the notice or payment timeline.
  • (h) Discharge and Indemnity: Payments made in compliance discharge the payer's liability to the assessee to that extent.
  • (i) Personal Liability for Non-compliance: If the recipient of the notice fails to pay, they are deemed an assessee in default, and recovery proceedings may be initiated against them as if the amount were their own tax arrear. The notice acts as an attachment of debt.

4. Recovery from Money in Court Custody (Sub-section 6)

  • Clause 416(6) allows the Assessing Officer or Tax Recovery Officer to apply to a court holding money belonging to the assessee for payment of the entire amount or, if the sum exceeds the tax due, an amount sufficient to discharge the liability. This provision ensures that judicial custody of funds does not impede tax recovery and that the tax authorities have a direct remedy to access such funds.

5. Distraint and Sale of Movable Property (Sub-section 7)

  • Sub-section (7) authorizes the Assessing Officer or Tax Recovery Officer, with the approval of an income-tax authority not below the rank of Commissioner, to recover arrears by distraint and sale of the assessee's movable property, as prescribed. This is a potent remedy, to be used where other modes may be inadequate or inappropriate, and is subject to supervisory oversight to prevent abuse.

Comparative Analysis with Section 226 of the Income-tax Act, 1961

1. Structural and Terminological Parity

A close reading reveals that Clause 416 is substantially modelled on Section 226, with only minor variations in language and cross-references (e.g., references to section 413 in Clause 416 versus section 222 in Section 226). The core structure-covering recovery from salary, third parties, court-held funds, and distraint-is preserved.

2. Key Provisions: Side-by-Side Comparison

Provision Section 226 of the Income-tax Act, 1961 Clause 416 of the Income Tax Bill, 2025 Analysis
Authority to recover without certificate AO may recover if no certificate under section 222 AO may recover if no certificate under section 413 Change in cross-reference reflecting new section numbering; no substantive change
Authority post-certificate TRO may recover in addition to section 222 methods TRO may recover in addition to section 413 methods Same in substance; reflects updated statutory framework
Recovery from salary AO/TRO may require deduction from salary; section 60 CPC protection Identical provision; section 60 CPC protection Continuity in protection and process
Third-party recovery (Notice) Detailed mechanism for notice, compliance, objections, joint holders, etc. Replicates the detailed mechanism Substantially identical, with minor drafting refinements
Money in court custody AO/TRO may apply to court for payment Same provision No change
Distraint and sale AO/TRO may, with higher authority approval, distrain and sell movable property Same, with "as prescribed" for manner Reference to prescription of manner may suggest future rules

3. Notable Refinements or Differences

  • Section References: The principal difference is the updating of internal cross-references to align with the new Bill's structure (e.g., section 222 becomes section 413).
  • Language and Clarity: Clause 416 incorporates minor drafting changes for clarity and modern statutory style, but the operative substance remains unchanged.
  • Rule-making Power: The phrase "in the manner as prescribed" in Clause 416(7) may indicate an intention to lay down detailed rules for distraint and sale, potentially improving procedural clarity and uniformity.
  • Administrative Hierarchy: Both provisions require authorization by a higher authority (not below the rank of Commissioner), ensuring checks on the use of coercive powers.
  • Procedural Safeguards: The mechanisms for objection by third parties, discharge of liability, and voidance of subsequent claims are preserved, maintaining a balance between effective recovery and protection of bona fide interests.

4. Policy Continuity and Reform

The near-identical replication of Section 226 in Clause 416 signals a policy choice for continuity rather than substantive reform in the domain of alternative recovery modes. This suggests satisfaction with the existing framework's efficacy, perhaps with an eye toward incremental procedural improvements through subordinate legislation rather than wholesale statutory overhaul.

Potential Ambiguities and Issues in Interpretation

  • Scope of "may become due": The phrase "money is due or may become due" is broad and may invite disputes about contingent or future claims.
  • Presumption of Equal Shares in Joint Accounts: While practical, this presumption may occasionally result in hardship where actual beneficial interests differ.
  • Personal Liability of Third Parties: The risk of being deemed an assessee in default for non-compliance may deter bona fide dealings with assessees, especially where the third party is unaware of pending tax liabilities.
  • Objection Mechanism: While the provision for sworn objections is a safeguard, the consequences of a false statement (personal liability) are severe and may lead to litigation over the bona fides of the objection.
  • Distraint and Sale Procedures: The effectiveness of this remedy will depend on the procedural rules to be prescribed, which must balance efficiency with due process.

Practical Implications for Stakeholders

  • Businesses and Employers: Must have robust systems to track and act on notices from tax authorities, as failure to comply can result in direct liability.
  • Banks and Financial Institutions: Need to monitor joint accounts and understand their obligations under garnishee notices, including the presumption of equal shares.
  • Taxpayers: Should be aware that attempts to shield assets by transferring funds to third parties or joint accounts may not prevent recovery.
  • Tax Professionals: Must advise clients on the risks and procedures involved, and assist in filing objections where appropriate.

Conclusion

Clause 416 of the Income Tax Bill, 2025, represents a careful and largely faithful modernization of Section 226 of the Income-tax Act, 1961. The core architecture, procedural safeguards, and substantive remedies remain unchanged, ensuring continuity and predictability for taxpayers and administrators alike. The updates in language, cross-references, and rule-making authority reflect an attempt to streamline and future-proof the provision, while maintaining the balance between effective tax recovery and protection of taxpayer rights.

Going forward, the effectiveness of Clause 416 will depend on the clarity and fairness of the subordinate rules to be prescribed, the vigilance of the revenue authorities in adhering to due process, and the willingness of the judiciary to interpret the provision in a manner that upholds both revenue interests and fundamental rights. Potential reforms could include greater digitalization of the recovery process, clearer guidance on joint account ownership, and enhanced protections for bona fide third parties.


Full Text:

Clause 416 Other modes of recovery.

Topics

Acts Income Tax