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
    Amendment in the provisions of section 263 of the Act
    News Bills
    Amendment to sub-section (1A) of section 35
    News Bills
    Consequential Amendments
    News Bills
    Clarifying that application will be allowed only when its actually paid
    News Bills
    Voluntary Contributions for the renovation and repair of temples, mosques, gurudwaras, churches etc ...
    News Bills
    Taxation of certain income of the trusts or institutions under both the regimes at special rate
    News Bills
    Providing clarity on taxation in certain circumstances
    News Bills
    The provisions of section 115TD to apply to any trust or institution under the first regime.
    News Bills
    Bringing consistency in the provisions relating to payment to specified person
    News Bills
    Bringing consistency in the provisions of two exemption the regimes
    News Bills
    Reference to the Principal Commissioner or Commissioner (PCIT/CIT) for the cancellation of registrat...
    News Bills
    Penalty for passing on unreasonable benefits to trustee or specified persons
    News Bills
    Amendment in the provisions of section 179 of the Act
    News Bills
    Rationalization of the provisions of sections 271AAB, 271AAC and 271AAD of the Act
    News Bills
    Rationalization of provisions relating to assessment and reassessment
    News Bills
    Set off of loss in search cases - Amendment in the provisions of section 79A of the Act
    News Bills
    Amendment in Faceless Assessment under section 144B of the Act
    News Bills
    Faceless Schemes under the Act
    News Bills
    Similar amendment is proposed in Section 271C.
    News Bills
    Alignment of the provisions relating to Offences and Prosecutions under Chapter XXII of the Act
❮
❯
❯❯
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
Revision powers under section 263 expand to permit review of Transfer Pricing Officer orders with mandated implementation timelines.
Proposed amendments grant senior officers assigned transfer pricing jurisdiction power under section 263 to call for and examine TPO records and to revise TPO orders deemed erroneous and prejudicial to revenue. Section 153 is modified so subsections (3) and (5) apply to TPO orders, a new subsection (5A) obliges the Assessing Officer to modify assessments in conformity with a TPO order within two months of receipt, and related implementation provisions are extended to such orders.
News Bills
Show AI Summary
Deduction claimed by donor disallowed where donee fails to file statement of donations; amendment corrects drafting error.
The amendment corrects sub section (1A) of section 35 to provide that the deduction claimed by the donor for donations to specified research associations, educational institutions or companies shall be disallowed unless the donee files the required statement of donations, aligning the rule with section 80G and taking effect retrospectively from April 1, 2021.
News Bills
Show AI Summary
Approval authority for trusts changed to Principal Commissioner or Commissioner, replacing prescribed authority references and procedural filing locus.
Proposal to substitute references to the prescribed authority with Principal Commissioner or Commissioner in specified sub clauses and the nineteenth proviso of clause (23C) of section 10 to align textual references with the existing filing and approval regime for trust applications under the first regime; the amendment is corrective and consequential to prior 2020 changes.
News Bills
Show AI Summary
Application of income: amounts by trusts treated as applied only when actually paid, with an anti-duplication rule preventing later claims.
Explanatory provisions treat sums payable by trusts as application of income in the previous year in which such sums are actually paid, irrespective of when the liability arose under the trust's regular accounting method; a proviso bars treating a sum as applied in a later previous year if it has already been claimed as applied in an earlier year. The amendments apply prospectively to the assessment years following the implementation date.
News Bills
Show AI Summary
Voluntary renovation contributions may be treated as corpus if kept separate, used only for the specified purpose and properly invested.
Trusts or institutions may, at their option, treat voluntary contributions for renovation or repair of notified religious places as part of the corpus, subject to conditions: application only for the specified purpose, no onward donations, separate identification, and investment in forms and modes specified under subsection (5) of section 11; violation of any condition renders the sum deemed income of the year in which the breach occurs. Parallel explanatory provisions are proposed for clause (23C) of section 10. Amendments are proposed retrospective to 1 April 2021.
News Bills
Show AI Summary
Special-rate taxation of trust income under new provision: specified breach income taxed separately and no deductions allowed under the rule.
Proposed amendments subject defined categories of trust or institution income to a special rate by treating only the part of income improperly applied, invested, accumulated or attributed as taxable specified income; disallow deductions or set-offs against such specified income; deem unutilised accumulated sums to be taxable in the last year of accumulation; and define specified income to include excessive accumulations, deemed income under accumulation rules, income rendered non-exempt for impermissible investments or benefit transfers, and income attributable to beneficiaries.
News Bills
Show AI Summary
Deductible trust expenditure allowed when exemption denied, subject to prescribed conditions and exclusive tax treatment.
Proposed amendments allow deduction of revenue (non capital) expenditure for the objects of a trust or institution when exemption is denied for specified non compliances, subject to conditions: expenditure must not be from corpus as at the last day of the preceding financial year, not from any loan or borrowing, not involve depreciation for an asset whose acquisition was treated as application of income earlier, and not be a contribution or donation. Section 40 and 40A provisions apply mutatis mutandis to determine such expenditure, and no other deduction, allowance or set off shall be permitted for that expenditure.
News Bills
Show AI Summary
Exit tax on trusts extended to first regime entities, covering conversions, mergers and asset transfers under the amended provisions.
The Finance Bill proposes to extend Chapter XII-EB's exit tax provisions to trusts and institutions under the first regime by making Sections 115TD, 115TE and 115TF applicable to them, thereby subjecting conversions to non charitable status, mergers with non charitable or dissimilar charitable entities, and failures to transfer assets to a levy on accreted income; the amendment is effective from the commencement of the specified fiscal year and applies to subsequent assessment years.
News Bills
Show AI Summary
Payment to specified person: income applied for their benefit deemed their income, anti benefit rules extended to first regime trusts.
A proviso to clause (23C) of section 10 deems any income or property of a first regime trust applied for the benefit of a person in section 13(3) to be that person's income in the year of application; sections 13(2), (4) and (6) are made applicable to first regime trusts, aligning anti benefit and attribution rules across regimes.
News Bills
Show AI Summary
Accumulation provisions alignment: consistent tax treatment for accumulated charitable income with prescribed conditions and deemed income triggers.
The measure harmonises accumulation rules between the two exemption regimes by requiring a prescribed statement to the Assessing Officer, investment or deposit of accumulated funds in specified modes, and timely filing; it provides that accumulated income meeting these conditions is excluded from total income but will be deemed income of the last previous year of the accumulation period if misapplied, ceases to be invested as required, is not utilised within the stated period, or is credited or paid to another exempt trust or institution.
News Bills
Show AI Summary
Cancellation of charitable registration: Principal Commissioner empowered to inquire and cancel approvals within a prescribed decision period.
Amendments empower the Principal Commissioner or Commissioner to call for documents, inquire into and, after hearing, cancel or refuse to cancel registrations or approvals of trusts, institutions and similar entities on finding one or more specified violations (including misuse of income, non incidental business income without separate books, non genuine activities, preferential religious benefit, or final non compliance with other laws). Orders must be forwarded to the Assessing Officer and the entity, and a six month statutory deadline governs decision making from the quarter end in which the first notice is issued.
News Bills
Show AI Summary
Penalty for passing on unreasonable benefits: trusts face penalties equal to the benefit for first offences and greater penalties for repeat breaches.
The proposal inserts section 271AAE to penalise trusts or institutions that apply income for the benefit of trustees or specified persons: the Assessing Officer may impose a penalty equal to the aggregate amount so applied where the violation is first detected in a previous year, and a higher penalty where the violation is detected again in a subsequent previous year; this penalty is in addition to any other penalties under Chapter XXI and the amendments take effect for the relevant assessment year following enactment.
News Bills
Show AI Summary
Liability of directors of private company clarified as joint responsibility for tax, fees, interest and penalties if company recovery fails.
Amendment renames the section title to Liability of directors of private company to reflect that directors are jointly and severally liable where tax cannot be recovered from the company, clarifies that this liability is not conditional on liquidation, and expands the Explanation so that the expression "tax due" expressly includes fees alongside penalty, interest and other sums payable.
News Bills
Show AI Summary
Penalty authority expanded: Commissioner (Appeals) may now impose penalties for undisclosed income; per day penalty increased.
Amendments enable the Commissioner (Appeals) to levy penalties alongside the Assessing Officer for provisions targeting undisclosed income, unexplained credits or expenditures, and falsification or omission in books of account; and increase the per day penalty for failures to answer questions, sign statements, furnish information, returns or allow inspections to strengthen deterrence. These measures are to take effect from 1 April 2022.
News Bills
Show AI Summary
Assessment and reassessment procedures clarified, aligning search linked notices, limitation exclusions and officer level safeguards.
Proposed amendments streamline assessment and reassessment procedure by removing duplicate approval requirements for notices under section 148 where an order under section 148A(d) exists, correcting drafting errors in section 148 explanations, extending search/requisition consequences into assessments under sections 143(3), 144 and 147, prescribing officer level approval norms for post search orders, excluding a capped period from limitation where material is seized or requisitioned, and clarifying the meaning of information and threshold conditions for issuing section 148 notices.
News Bills
Show AI Summary
Undisclosed income set-off prohibited: losses and unabsorbed depreciation cannot be adjusted against income found by search or survey.
Section 79A prohibits set-off of any loss, whether brought forward or otherwise, and unabsorbed depreciation under sub section (2) of section 32 against undisclosed income discovered as a result of a search under section 132, requisition under section 132A, or survey under section 133A (excluding surveys under sub section (2A) of section 133A). "Undisclosed income" is defined to include money, valuables, books entries or transactions not recorded or not disclosed before the detection, and expense entries found to be false and revealed only because of the detection action.
News Bills
Show AI Summary
Faceless assessment process: centralised NaFAC-driven electronic workflow directing assessment, verification, technical review and dispute procedures.
The amendment centralises faceless assessment through a National Faceless Assessment Centre which assigns cases to Assessment Units and routes all notices, responses, verification requests and technical referrals electronically to Verification, Technical and Review Units; communications are authenticated by digital signature, electronic verification code or portal login and all internal exchanges occur via NaFAC with automated allocation and real time alerting.
News Bills
Show AI Summary
Faceless procedures expanded for transfer pricing, dispute resolution and tribunal appeals, after allowing stabilization and consultation.
Introduction of faceless procedures under specified direct tax sections (92CA, 144C, 253, 255) is deferred to allow IT system stabilization and Ministry of Law & Justice consultation; appellate procedures must align with tribunal procedure and non-assessment functions will follow phased faceless assessment workflows.
News Bills
Show AI Summary
Prosecution for failure to pay tax collected at source extended to mirror prosecution provisions for tax deducted at source.
The proposal brings offences for failure to pay tax collected at source into the same prosecution provisions that apply to failures to pay tax deducted at source by expressly including the statutory provision for non-payment of tax collected at source within those prosecution sections, on the basis of the similar nature of the offences; the amendment is to take effect from the stated commencement date.
News Bills
Show AI Summary
Sunset clause on historic prosecutions: prohibits initiation of fresh prosecutions under section 276AB from April 2022.
Amendments propose a sunset clause in section 276AB to bar initiation of fresh prosecutions after 1 April 2022 for offences connected with transfers of immovable property made in the period when Chapter XX-C had been rendered inapplicable, while permitting continuation of prosecutions already initiated; additionally, section 276B is to be amended to substitute its cross-reference with an explicit reference to the proviso to the withholding provision to remove ambiguity created by prior amendments.

TMI Notes

Back

All TMI Notes

Showing Results for :
Reset Filters
No Records Found

TMI Notes

Back

All TMI Notes

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